Stablecoins vs Treasuries vs CBDCs
2024-08-02 08:25:00 +07:00 by Mark Smith
There has been much talk recently of stablecoins, with Tether making record profits and US presidential candidates making them key in their new promises to those in the crypto industries. I’ve been listening to quite a few related podcasts, most recently Luke Gromen and Preston Pysh on the What Bitcoin Did podcast.
I think I'm starting to vaguely understand things, but I still have many questions. This post is a roundup of where I’m at with it. I likely still don’t properly understand things, so don’t take any of this as gospel, do your own research and fact checking.
Aren’t stablecoins just crap treasuries? You give up dollars and get a crypto token, you can later exchange that token back to dollars. It’s as safe as the dollar because the price is guarantied to be 1:1 with the dollar. The stablecoin issuer takes your dollars and buys short duration government Treasury bonds, and they get the interest on the bonds. The crap thing is you get no interest, but the UI is great, you have an app and you can trade the stablecoins with other people.
Aren’t treasuries just incredible stablecoins, but with a terrible UI? You give up dollars and get a token called a treasury, you can later get back your dollars by giving back the token, plus you get interest. The treasury issuer spends your money to grow the economy, so the value of the dollar increases, it’s like interest, that’s how they can pay you back the money with extra interest. If the economy doesn’t grow the issuer is on the hook for paying the interest out of their own pocket somehow. The UI is crap though, there is no way to trade them with other people, so you can’t easily use them for anything except getting the interest. They are the safest since they are issued by a government, who in most cases is the least likely to default.
All this got me thinking yesterday evening that theoretically you could create a treasury based on bitcoin alone. You give up dollars, the issuer buys bitcoin, gives you a crypto token. You can later exchange that token back for dollars with interest. It would be up to the issuer to ensure that they bought and sold bitcoin in such a way as to make money. Depending on where in the cycle we were they would issue different duration bitcoin treasuries, potentially with different interest. They would typically pay the interest to you from the earnings they get from the bitcoin price increasing. If they fucked it up and sold bitcoin after a crash, they would be on the hook for paying you the interest using their savings. I wonder if there isn’t potentially lots of money to be made, very much like a stablecoin.
It seems there are some moves to create exotic financial instruments that mix in crypto. I listened to Marty Bent today describe on the latest Rabbit Hole Recap podcast speaking about people that are looking to create dual collateralised treasuries, collateralised with dollars and bitcoin, possibly with a variable split, and payout in dollars.
Also something else, I wrote about yesterday:
I totally might be not understanding this correctly but aren’t CBDCs basically stablecoins run by the government instead of a foreign company? If that’s the case then another way of saying that is that stablecoins are CBDCs run by a foreign company. That doesn’t sound like a good idea.
I just wanted to add to that, if CBDCs are essentially stablecoins issues by a government, aren’t they therefore essentially treasuries?
Anyway, like I said, I probably have most of this incorrect, but that’s where I’m at.