Bitcoins/Litecoins/Virtual Currencies

Yeah banks basically won that battle. And it was a big battle. Doesn't matter, tradfi's days are numbered. Their intransigence will only hasten their demise.

Banks are still going to get kneecapped if Strategy's STRC is able to stay stable and keep paying out. Stablecoins yield is not really a big deal for "us" just for the coin companies. If you want yield and want to take a risk on something unproven, but 100x safer than any yield in "crypto", buy STRC. Given how its structured I can't understand why you'd be willing to take risks in coin markets with cash equivalents, assuming you have access to US markets.

It’s not shitcoins though. You could hold USDC or USDT which, in theory, are pegged to dollar. yes it is a coin so we’ll leave that debate aside, but they offered WAY better interest than banks and can now even be spent like regular dollars via connected debit cards. Basically it was a 6-9% checking account. That is why banks panicked and yes, they did win sadly

Haus said:

This needs to be a decision made by the market.

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How has that worked out for ya in America so far?

Haus said:

When allowed to work without government interference being orchestrated by business (i.e. "Crony Capitalism")?

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How has that worked in America for ya so far?

Haus said:

What is your argument against allowing simple stable coin yields? Outside a vague attempt to reframe as "since we've seen businesses do something bad in the past that justifies any regulation"

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It's not about "businesses did bad things, so regulate everything." It's about the fact that the moment you add yield to something people treat like cash, you've recreated banking, just without calling it that. That yield has to come from somewhere: lending, duration risk, rehypothecation or opaque counterparties. That's exactly how blow-ups happen.

Stablecoins are being positioned as settlement rails (especially with Treasury backing). Adding yield turns them into credit products, which introduces runs, liquidity mismatches, etc. If it acts like a deposit and pays like a deposit, it is a bank. Whether you label it that way or not.

Haus said:

The yield in stablecoins comes from the fact that to "peg" a stable coin to the dollar you have to effectively hold "dollar reserves" which the stablecoin providers do via holding treasuries for the most part. Those treasuries and other "reserve dollar" devices tend to generate yield, and they're paying that. No exchange is going to take a loss in order to pay yields.

By your logic, having a savings account pay me interest on my USD in the account is therefore a "credit product" while USD is obviously also a settlement mechanism.

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In modern banking a savings account IS a credit product. Thats what "fractional reserve banking" means. You cede ownership of the asset (USD) in return you receive credits (probably) redeemable for that USD in the future, access to banking rails, and 0.04% interest because you're a good little boy using the system. Its dumb, but thats how it works.

EDIT: To expand on this, it won't be allowed for the same reason Custodia Bank's fed license was denied. This would essentially be a 100% reserve bank, which would be able to pay ~4-5% interest on deposits. That would completely destroy the current banking system in which there are actually no fractions, nor any reserves. You -cant- have modern banking AND a fully custodial bank existing in the same system. They'll never let this happen because it collapses everything currently in place. We may see this pivot (IMO its 100% required eventually) but banks have to go first if you don't wanna see the whole system collapse.

Haus said:

The yield in stablecoins comes from the fact that to "peg" a stable coin to the dollar you have to effectively hold "dollar reserves" which the stablecoin providers do via holding treasuries for the most part. Those treasuries and other "reserve dollar" devices tend to generate yield, and they're paying that. No exchange is going to take a loss in order to pay yields.

By your logic, having a savings account pay me interest on my USD in the account is therefore a "credit product" while USD is obviously also a settlement mechanism.

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You're actually proving the point, not disproving it. A savings account is a credit product, just like Flobee mentioned. Your deposits are lent out, duration is transformed, and you're paid interest for taking that risk. The difference is it happens inside a heavily regulated system with capital requirements, liquidity rules, deposit insurance, and a lender of last resort.

Stablecoins don't have that full safety net. Holding Treasuries and passing through yield sounds clean, but stress is where it breaks: duration mismatches matter, forced selling matters, and redemption waves matter. We've already seen this with things like USDC wobbling and multiple "safe yield" products in crypto blowing up. The issue isn't that yield exists, it's that you're recreating banking without the "safeguards" that make banking stable. Calling it "just treasury yield" doesn't remove the risk, it just changes where it shows up.

Kirun said:

You're actually proving the point, not disproving it. A savings account is a credit product, just like Flobee mentioned. Your deposits are lent out, duration is transformed, and you're paid interest for taking that risk. The difference is it happens inside a heavily regulated system with capital requirements, liquidity rules, deposit insurance, and a lender of last resort.

Stablecoins don't have that full safety net. Holding Treasuries and passing through yield sounds clean, but stress is where it breaks: duration mismatches matter, forced selling matters, and redemption waves matter. We've already seen this with things like USDC wobbling and multiple "safe yield" products in crypto blowing up. The issue isn't that yield exists, it's that you're recreating banking without the "safeguards" that make banking stable. Calling it "just treasury yield" doesn't remove the risk, it just changes where it shows up.

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As is often the case we ALMOST agree. For these "crypto" companies I would expect they'd function much like Tether currently does, but Tether just keeps the yield obviously. They -only- hold short term bills, Gold, and Bitcoin. I imagine a yield bearing USD deposit would choose to do something very similar, probably only holding short term paper and paying ~50-100 basis points below whatever the overnight rate is and calling it good. Largely won't have to deal with duration risk because the assets and liabilities are 1-for-1.

Traditional banks however have massive duration risk problems because they don't actually hold the assets to match their liabilities. They're fundamentally different approaches. "Safe" crypto yield products have almost exclusively been scams at worse, or massive incompetence at best.