Highlights
I proposed how to create a synthetically backed fiat stablecoin that does not owe its existence to the TradFi banking system. ⤴️
Ethereum network offered a native yield. ⤴️
I believe that Ethena can eclipse Tether as the largest stablecoin. It will take many years for this prophecy to manifest itself. ⤴️
I have been in crypto since 2013, and more often than not, the crypto exchange’s bank where you deposit fiat is not a US-domiciled bank, which means it relies on a US bank with a master account to process fiat deposits and withdrawals. ⤴️
Tether’s ability to transfer and hold USD is completely at the whim of fickle correspondent banks. ⤴️
Tether, when viewed through a TradFi lens, is a fully reserved bank, also called a narrow bank. A fully reserved bank takes deposits without loaning them out. The only service it offers is that of wiring money to and fro. ⤴️
Tether is essentially a fully reserved USD bank that provides USD transaction services powered by public blockchains. That’s it. No loans, no funny stuff. ⤴️
The Fed monitors the size of banking reserves against the aggregate outstanding loans. After 2008, the Fed ensured banks would never be short of reserves. The Fed did this by conducting QE. ⤴️
Lending is risky. Borrowers default. Banks would rather earn risk-free interest income from the Fed than lend to the private sector and suffer possible losses. ⤴️
But Tether can stuff cash in money market funds, which can access the Reverse Repo Program (RRP). The RRP is similar to the IORB in that the Fed must pay an interest rate between the lower and upper bound of Fed Funds in order to dictate precisely where short-end rates trade. ⤴️
Tether has nearly $81 billion invested in money market funds and T-bills. Tether is arbing the Fed. And the Fed no likey. ⤴️
The growth of Tether and similar stablecoins that service the crypto market creates risk for the US Treasury market. ⤴️
Tether’s profitability is another example of how crypto will affect the largest transfer of wealth in human civilised history. ⤴️
If I were the CEO of a US bank enabling Tether’s existence, I would immediately debank them and offer a competing product. The first US bank to offer a stablecoin would quickly capture the market. As a user, holding JPMorgan coin is less risky than Tether. ⤴️
While UST maintained its 1:1 peg with the USD, the market believed if it held more UST it held more USD as well. ⤴️
Ether is now a deflationary currency. The USD is an inflationary currency. ⤴️
The circulating supply of USDe can only grow as large as the total open interest of ETH futures and perp swap contracts on exchanges. ⤴️