ohkay,
Narrow banks are great, right; you take the sweet, safe US gov yield, shave off some costs, and return the surplus to depositors. Everyone happy.
Tether is even cooler; you take depositors' money and place in bonds, take the sweet, safe US gov yield and shave off everything for yourself. Nice game if you can get it
All your money is in short-term Treasury bills with essentially no credit or interest-rate risk. All the stuff that banks do that could cause them to fail — lending, trading, interest-rate bets — you don’t do.
Can you do this? Well. You’re kind of not supposed to, not exactly, not literally. For one thing, US bank leverage requirements are a problem: You need to have some capital against your holdings of Treasury bills, so you can’t really pass all of the interest back to customers; a lot of it has to go to shareholders. More broadly, US bank regulators take a dim view of this sort of thing.
Get out the tinfoil hats, bitches!
But in a panic, people will take their money out of their local bank and put it into a narrow bank, because it’s safer. Narrow banking arguably undermines the stability of the broader banking system; it makes the regular banks less safe.
So we can't have safe banks because in a pinch that'd make every other bank unsafe. Great logic, Feds. And what about money market funds??
...and stablecoins?!
apparently there's a way that Coinbase and other exchanges reward their customers for stablecoin interest...? I didn't know!
Also there's a story about BitMine Immersion Tech, which used to do bitcoin immersion mining... then became an Ethereum treasury company (ugh!) and now invested in Mr. Beast Industries to, uh, _get the YouTube kids jacked on eth?!
I dunno, man.
You’ve got a $14 billion pot of money and a free hand to invest it; investing it all in Ethereum used to be cool, but now it is less cool. Maybe do some venture capital too.
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I think this is how the stablecoin rewards thing works (or some variation of):
sourece
So, an exchange says we will give you customers 3.5% if you park your stablecoins with us, and also the exchange says to the stablecoin issuer: we want to list your stablecoin, but you konw it sure would be nice if you paid us a certain percentage of that yield you're getting so we can offer customers some rewards when they buy your stablecoin...
You got me all titillated with the Tether title and then I find that it's just stablecoins in general. I feel jilted.
(also, I think that Tether has at least in the past has offered loans to people...cough Celsius cough)
I'm a bit confused. So Stablecoin issuers are allowed to earn interest on their treasuries, but they are not allowed to pay interest to stablecoin holders directly. Instead, exchanges attract people to deposit stablecoins in their exchanges, but instead of paying interest on the stablecoins, they pay them "rewards"?
I think that under current rules, exchanges are not precluded from offering interest/rewards to people who deposit stable coins with them.
The recent CLARITY Act debate has been about a provision that would stop exchanges from doing this. I believe this was a major reason Coinbase backed out.
Ah, that makes sense. And another example of how big industry players will always have their thumbs on the scale of any legislation
No interest for plebs! They might stop using our banks if they're allowed to earn meaningful interest somewhere else.
great read, thanks for sharing. I often characterized Stablecoins as shadow banks, not currencies