Quick subscriber note: It’s been a busy couple of weeks, so we’re still getting through a backlog of stablecoin developments. More soon.
Industry news:
— Stripe-Backed Tempo raised $500 million to build a stablecoin payments network led by Joshua Kushner (brother of Jared)’s Thrive Capital (via Fortune).
Summary: Tempo is building a payments-layer blockchain optimized for U.S.-dollar stablecoins and global settlement, with partners including OpenAI, Shopify, and Visa. The capital raise values the firm at about $5 billion, representing one of the highest valued blockchain venture rounds over the past few years. It also marks a strong move toward mainstream digital-asset payments, positioning Tempo to become a core network for stablecoin and cross-border transactions in the evolving fintech landscape.
— Zelle, the payments product owned by America’s largest banks, plans to allow users to start making international payments with stablecoins.
Online commentary: Some online commentators argued the move functions as a proxy for a central bank digital currency, offering programmability and traceability without direct government issuance, thus avoiding political resistance.
— ODDO BHF launched its first euro-backed stablecoin.
Key graf: “ODDO BHF, independent European financial Group, has officially launched its first euro-backed stablecoin, EUROD. With this initiative, ODDO BHF becomes one of the first banking institutions in Europe to offer a secure and stable digital currency solution, combining the solidity of the traditional banking system with the advantages of blockchain technology.”
Deep thoughts:
— Privately-issued stablecoins may mirror CBDCs, warns VC (via CoinTelegraph).
Summary: According to Jeremy Kranz, founder of Sentinel Global, privately-issued stablecoins function like “central business digital currencies,” carrying risks similar to central bank digital currencies (CBDCs) — such as surveillance, freezing of assets, and heavy controls. He also cautioned about stablecoins’ inherent risks: over-collateralized tokens are vulnerable to bank-run-style redemption pressures, while algorithmic/synthetic ones face counterparty and de-peg risks. With the stablecoin market now exceeding $300 billion, the emphasis shifts to investor diligence and regulatory scrutiny as innovation expands rapidly.
— Will stablecoins make usury a thing of the past? (I had some public thoughts)
Summary: Bitcoiner Preston Pysh highlighted that Jerome Powell is worried that if the Fed loses the ability to pay interest on reserves, it also loses its transmission mechanism. Yet, as Pysh also highlights, the Genius Act codes into law a situation where bank reserves can be used to back stablecoins, but forbid those stablecoins from paying interest. “That means reserves could migrate off the Fed’s balance sheet into stablecoin structures that can’t transmit the policy rate to the broader market participants.” His conclusion is that the setup eats the Fed because if the stablecoin system scales, “the Fed can’t set the marginal price of money — stablecoin demand and use potential will.”
Cash Equivalence take: While all that is true, I’m not convinced stablecoins will necessarily shift the system towards a true Shariah banking model. Not least because Shariah banking has found many ways to synthesize interest rates over the decades. (To be fair, I don’t think that’s what Pysh was getting at. He was merely pointing out that the market could become the key determinant of rates in a stablecoin-based finance system, not the Fed.)
My bigger point is that by prohibiting interest distribution and moving toward a narrower banking model, stablecoins may help to constrain destabilizing credit creation (the sort that fueled the 2008 crisis). This contrasts with central banks’ current practices of extending liquidity against increasingly questionable collateral while also running negative equity positions — all without full public awareness. That doesn’t mean credit is dead. But I do wonder if unfunded credit creation will require direct approval from stablecoin communities in the future. This relates specifically to the proportion of token supply that stablecoins can originate “out of thin air” to finance yield-enhancing loans, which is then backed by the very same loans it is financing.
The impetus for such credit extension is usually countercyclical, making most sense when interest rates are low and when negative margins are biting. At such times, the system can tolerate greater risk-taking and money creation, and provided users are aware of what’s going on and can vote with their feet if they feel the risks are getting overextended, I don’t see this as objectionable.
Indeed, governance tokens within stablecoin ecosystems would be the obvious way to approve such risk-taking democratically on both a conscious and transparent level.
Obviously, none of this would currently be allowed under the Genius Act framework. Banks would rightly argue this constitutes licensed banking activity.
Yet, if banking licenses are ultimately checks on who should and should not be allowed to benefit from seigniorage, and how they should be supervised or limited if they are, then why shouldn’t such checks in a liberalized financial system be transferred to the token-issuing community directly?
Perhaps in the future, licensing for unfunded lending will give way to permissions and associated waivers dispensed directly by stablecoin communities by way of governance tokens?
Free marketeers would argue this would go a long way to reconstituting moral hazard in the Western financial system and bringing it back from the Gosbanking brink.
The move would be all the more powerful if it were linked to bespoke but well-understood self-resolution mechanisms if and when things do go wrong.
A precedent exists in terms of what Bitfinex/Tether did when they both found themselves up against it. After Bitfinex was hacked in August 2016, the crypto exchange famously decided to socialize the losses across its userbase. To maintain credibility, however, it also issued tradable BFX tokens to affected users.
One BFX token represented $1 of the hacking loss and could later be redeemed for USD (once Bitfinex made up the sums) or converted into equity in iFinex Inc. (Bitfinex’s parent company). Those who didn’t believe the exchange would be able to make back the losses were free to sell the tokens at the going market rate.
Most users who decided to hold the tokens were able to walk away whole by April 2017. Some even found themselves in profit if they converted to equity. [Worth noting, Howard Lutnick offered Cantor Fitzgerald employees a similar deal after the group’s finances were eviscerated post 9/11. In that case, temporarily deferred salaries were turned into equity, a deal that proved highly lucrative for them in the long run.]
The analog at Tether was when the stablecoin saw fit to populate its reserves with the very commercial paper it was issuing. This was dubbed risky and highly questionable. But the alternative, we dare say, would have been charging users a management fee to overcome negative operating margins, or absorbing the costs of the system at the corporate level (either by leveraging own capital, or issuing equity, or longer-term debt).
While the decision to extend unfunded credit wasn’t in the end explicitly determined by a governance token system, it was nonetheless community-endorsed on a very conscious level. This is because the scale of coverage about the composition of Tether’s reserves made the risks well known, and at all times, customers had other options.
Thus, if and when there was a liquidity or solvency crisis at the stablecoin, none of it would come as a surprise to holders. They were aware of the risks they were taking by opting to hold Tether stablecoins over more robustly reserved stablecoins like Circle.
Not that there aren’t trade-offs with a shift to an information-sensitive money system of this type.
As American economist Gary Gorton has laid out at length, financial stability depends on the creation of information-insensitive money. These are liabilities that people accept at face value without needing to assess risk. In contrast, information-sensitive money requires investors to evaluate the issuer’s assets, making its value uncertain.
Gorton argues that when a financial system shifts from information-insensitive to information-sensitive money, it becomes unstable. A crucial effect of this shift is the loss of fungibility: money ceases to be perfectly interchangeable because each unit’s value now depends on who issued it or what backs it. Once information matters, not all “dollars” are equal, and the system’s liquidity and trust break down.
In terms of stablecoins, this suggests that fungibility between tokens will break down if certain issuers take more risk than others, as more robustly reserved systems will not want to be on the hook to bail out more risky systems. This, in turn, leads to the breakdown of the “singleness of money” and explains why the European Central Bank (which ironically has the lowest quality collateral standards of all the top-tier central banks) is so extremely panicked about multi-issuer tokens.
These are fair points.
Yet, on the flip side, a financial system (as we have since 2008) that is forced to bind itself to the risk tolerance capacity of the most risk-averse component of society because it presumes all losses will always be fully socialized is not optimal either.
That’s a system that inevitably leads to stagnation over the long term, because money supply cannot be extended unless full public liability is baked into the pricing. The outcome is a system that is forced to impose ever greater taxes/fees on the system to compensate for the capital decay that results from insufficient risk-taking.
This is all the more the case in democracies that simultaneously handcuff themselves to fiscal rules that prevent governments from “dashing for growth” with unfunded spending.
Somebody, somewhere, must always be willing to extend credit — consciously, on a risk-based and accountable basis — for the system to grow. If private banks are no longer permitted to do so, that responsibility inevitably falls to the government or the central bank.
That’s acceptable if the government is democratically empowered to take such risks, and if those directing the flow of newly created money are held accountable when investments fail. (Liz Truss, notably, wasn’t even given the chance to prove whether her risks would have paid off.)
It’s equally acceptable if banks or stablecoin issuers take those risks — provided they are transparent with their depositors, and depositors understand that not all money in the system is created equal. In that case, those who accept greater risk should earn higher returns when things go well, but must also accept proportional losses when they don’t.
What’s least acceptable is when central banks assume that role — extending credit and allocating losses according to opaque, politically insulated, and publicly unaccountable agendas. In such cases, neither market participants nor citizens have meaningful oversight, whether through democratic institutions or governance mechanisms within financial systems. Yet, they’re still on the hook when those decisions fail to deliver growth.
In that light, stablecoins may not end usury in the traditional sense — interest, risk, and return will always exist wherever money meets time. But they do hold the potential to end unaccountable usury: the quiet, unvoted-on redistribution of wealth through monetary policy, bailouts, and balance-sheet engineering. If built and governed transparently, stablecoins could return credit creation to those willing to take and bear its risks — replacing hidden expropriation with open consent.
And perhaps that, not the abolition of interest itself, is what a just and sustainable financial system should aim for.
— The Pope denounced usury because it corrupts the human heart and enslaves the poor.
Key graf: “How far from God,” the Pope exclaimed, “is the attitude of those who crush people until they become slaves! Usury is not merely an accounting issue—it is a grave sin that can destroy families, consume the mind and heart, and even lead people to despair or suicide.”
Cash Equivalence take: This should make the Vatican a fan of stablecoins, right? Vatican coin incoming?
— Andrew Nigrinis, a Stanford-trained economist who was the first Enforcement Economist at the Consumer Financial Protection Bureau, argued that if the current backdoor that allows stablecoins under the Genius Act to offer yield-bearing isn’t closed, it could siphon trillions of dollars from deposits.
Summary: The author warns that wallets and exchanges are already offering “yield” or “rewards” on stablecoin balances, functionally turning them into deposit substitutes. If consumers shift funds en masse from bank deposits into yield-bearing stablecoins, banks would lose the raw deposits that underpin loans to households, small businesses and farms. That loss could dramatically shrink lending capacity — with smaller, community banks and their borrowers being hardest hit. The article calls for regulators to treat any yield on stablecoins as de facto interest and close the intermediary loophole, so digital money supports rather than undermines credit and growth.
Yield wars:
— Journalist Louis Tellier broke down how European stablecoins are bypassing zero-interest regulatory restrictions.
Key graf: “In recent weeks, users of Bitpanda and Deblock have gained access to yield on euro and dollar stablecoins. How? Through non-custodial wallets that route funds to DeFi protocols such as Morpho. According to our information, these setups have been reviewed and approved by regulators, as they fall under the so-called “DeFi exemption,” which remains outside MiCA’s regulatory scope. Today, the two euro stablecoins involved are SG-Forge’s EURCV and Circle’s EURC.”
Crackdowns:
— Zerohedge had some thoughts on the EU’s crackdown on Russia’s A7A5 stablecoins.
Key graf: “Recent activity has evidenced Russia’s increasing use of crypto in circumventing sanctions. In this context, the stablecoin A7A5 – created with Russian state support – has emerged as a prominent tool for financing activities supporting the war of aggression. Therefore, today’s package introduces sanctions on the developer of A7A5, the Kyrgyz issuer of that coin, and the operator of a platform where significant volumes of A7A5 is traded. Transactions involving this stablecoin have also been prohibited across the EU.”
— Collateral nerd Manmohan Singh waded into the connection between repo and stablecoins in a podcast with economist David Beckworth.
Summary: Singh argues stablecoins bring a new layer to the collateral and repo landscape because they rely on high-quality liquid assets (HQLA) — typically short-term Treasuries or repos — as backing. In this sense, stablecoins effectively transform collateral into money-like instruments that circulate outside the traditional banking system.
He notes that this creates a parallel money ecosystem: while banks’ reserves at the central bank form the foundation of official money, stablecoins are backed by market collateral that still interacts with repo markets. This means Treasuries used to back stablecoins are locked away from collateral circulation, reducing the pool of assets available for repo and other secured funding. As a result, the velocity of collateral — its ability to be reused across transactions — can slow, tightening conditions in wholesale funding markets.
Singh also warns that because stablecoin issuers are now large holders of short-term government paper, they have become significant players in the collateral chain, similar in impact to money-market funds. This alters the repo market’s structure: central banks may increasingly need to consider how private issuance of money-like liabilities backed by collateral affects both collateral supply and repo dynamics. In short, he says, stablecoins extend the idea of money into the collateral domain, but by doing so they change who controls and recycles collateral, reshaping the broader liquidity architecture of the financial system.
Regulation news:
— The ECB must have an active role in payments’ evolution to protect public trust in money (via Reuters)
Key quote: “Some digital innovations risk, paradoxically, taking us backwards: the proliferation of private digital pseudo-currencies, outside the remit of supervision, can generate financial instability, shift seigniorage to a few actors and facilitate illicit activities,” Bank of Italy Governor Fabio Panetta said in Florence ahead of today’s monetary policy meeting.
Statecraft:
— CrossBorder Capital’s Michael Howell argued Chinese exporters will turn to stablecoins to bypass capital controls.
Summary: Speaking at the Digital Assets Summit, Howell argues that Chinese exporters, wary of frozen Russian assets in Western banks and domestic risks like Jack Ma’s regulatory fallout, turn to stablecoins for anonymous capital flight. This comes as the stablecoin boom enables easier dollar access amid yuan depreciation, fueling concerns over $1 trillion in potential emerging market deposit outflows.
— The White House’s new ballroom is largely being funded by stablecoin capital.
Summary: The Lutnicks, Tether America, the Cascarillas (of Paxos), and Coinbase are all among the main donors contributing to the building of the new White House Ballroom.
— Nigeria’s cbank head, Olayemi Cardoso said the country has established a working group to explore the possible adoption of stablecoins (via Business Day Nigeria).
Key graf: “Cardoso disclosed this during a joint press briefing at the conclusion of the annual meetings of the World Bank and the International Monetary Fund (IMF) in Washington DC. He said the Central Bank, the Ministry of Finance, and other relevant institutions have set up specific working groups to take a deeper dive into understanding the broader ramifications and implications of adopting a viable framework for stablecoins in Nigeria.”
Cash Equivalence take: Nigeria was one of the first countries to go all in on issuing a CBDC, viewing the tech as an opportunity to compete with Kenya’s M-Pesa system without the associated loss of sovereign control. Thus far, however, the resulting eNair has been a massive flop. The digital currency represents only about 0.36 percent of currency in circulation, despite significant government efforts to drive adoption. Overall, about 98.5 percent of wallets issued have never been used for transactions.
The failed CBDC context makes the rise of stablecoins an even bigger threat to the country’s monetary sovereignty, since the idea that the state can compete is now dead in the water.
— Kyrgyzstan partnered with a Binance-backed adviser to launch a stablecoin and to pursue a CBDC.
Summary: Kyrgyzstan said it will launch a national stablecoin that will be pegged 1:1 to its som currency at the same time as it will begin to pilot its own CBDC digital som. The stablecoin will be issued on Binance’s BNB chain.
Key graf: “KGST will be used in international settlements without the need for double conversion and will eventually be integrated into the digital som, enhancing its usability abroad,” Iminov added in a statement. “The combination of the digital som and stablecoin will expand opportunities for cross-border payments and remittances.”
Central bankers:
— Fed’s Christopher Waller floated the idea of “skinny” payment accounts to embed fintech and crypto into core rails (and via Reuters here).
According to Waller, Fed staff are studying a prototype for a “payment account” (also dubbed “skinny master account”) which would grant fintech and crypto firms access to the Fed’s payment infrastructure, which is normally reserved for banks. Restrictions would include no interest, no access to daylight overdraft, and position caps.
Cash Equivalence take: What Waller is proposing sounds a lot like a cross between the BoE’s faster payments system, which gives fintechs access on a netted basis to its RTGS, and the PBOC’s NetsUnion system, which forces banks that bank fintechs to back their liabilities on a 100 percent basis with central bank reserves. If the system were to work akin to the Chinese system, it would look like this:
