GM~
A conversation with a colleague this week sparked the qn of 'What makes a stablecoin a stablecoin'. And that led me to this article by the Atlantic: How Crypto Could Trigger the Next Financial Crisis
(Caveat: the article writes from the perspective of the US market, and incoming GENIUS Act. It does not accommodate for view-points from other markets or jurisdictions).
Some key takeaways + qns sparked
🔹 Are stablecoins really that stable? Or is 'stable' just a marketing term? Stablecoins behave like deposit-taking institutions (similar to banks) - but without deposit insurance (meaning depositors are not protected), or the same guardrails that banks operate under (quarterly inspections, annual audits). Only the biggest issuers are subject to annual audits.
🔹 Backed by liquid assets - but incentivized to chase higher rates of return. Stablecoin firms are not in this business for low rewards. That means buying into assets like treasuries with longer maturity periods - but that are subject to interest rate risk.
🔹 Digital-speed Payments - but also Digital-speed bank runs.
The market is now ~$300B but expected to grow to $4T by 2030. Failure at that scale could force mass liquidation of U.S. Treasuries.
🔹 Stablecoins sell the payment story, but in reality payments is a very small use-case. Stablecoins enable loopholes for illicit global flows because KYC is applied only at issuance. Once circulated - tracking is near impossible. Only if legacy payment systems reduce fees and improve efficiency, will stablecoins then lose the only legitimate argument for stablecoins existing in the first place.
🔹 Web3 no longer contained in Web3 space.
Unlike past crypto crashes that stay within the ecosystem, stablecoins actually interact with traditional markets. If they wobble, so will treasury markets, interest rates, and global liquidity.
🔹 Who will pay when things go side-ways?
Author argues that if stablecoins grow to big to fail, it will be the tax payers - ordinary people who have no dealings whatsoever in the Web3 space.
Curious to hear your thoughts: Do stablecoins strengthen financial innovation, or do they introduce systemic risk we’re not fully acknowledging?
A conversation with a colleague this week sparked the qn of 'What makes a stablecoin a stablecoin'. And that led me to this article by the Atlantic: How Crypto Could Trigger the Next Financial Crisis
(Caveat: the article writes from the perspective of the US market, and incoming GENIUS Act. It does not accommodate for view-points from other markets or jurisdictions).
Some key takeaways + qns sparked
🔹 Are stablecoins really that stable? Or is 'stable' just a marketing term? Stablecoins behave like deposit-taking institutions (similar to banks) - but without deposit insurance (meaning depositors are not protected), or the same guardrails that banks operate under (quarterly inspections, annual audits). Only the biggest issuers are subject to annual audits.
🔹 Backed by liquid assets - but incentivized to chase higher rates of return. Stablecoin firms are not in this business for low rewards. That means buying into assets like treasuries with longer maturity periods - but that are subject to interest rate risk.
🔹 Digital-speed Payments - but also Digital-speed bank runs.
The market is now ~$300B but expected to grow to $4T by 2030. Failure at that scale could force mass liquidation of U.S. Treasuries.
🔹 Stablecoins sell the payment story, but in reality payments is a very small use-case. Stablecoins enable loopholes for illicit global flows because KYC is applied only at issuance. Once circulated - tracking is near impossible. Only if legacy payment systems reduce fees and improve efficiency, will stablecoins then lose the only legitimate argument for stablecoins existing in the first place.
🔹 Web3 no longer contained in Web3 space.
Unlike past crypto crashes that stay within the ecosystem, stablecoins actually interact with traditional markets. If they wobble, so will treasury markets, interest rates, and global liquidity.
🔹 Who will pay when things go side-ways?
Author argues that if stablecoins grow to big to fail, it will be the tax payers - ordinary people who have no dealings whatsoever in the Web3 space.
Curious to hear your thoughts: Do stablecoins strengthen financial innovation, or do they introduce systemic risk we’re not fully acknowledging?
The Atlantic
How Crypto Could Trigger the Next Financial Crisis
The danger of stablecoins lies in the ways they are meant to be safe.
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