A regulatory settlement forced crypto firms to pay "rewards" instead of "interest" on stablecoins. Coinbase is exploiting this semantic difference to offer a 4% yield, creating a product that functions like a high-yield checking account but without the traditional banking regulatory burdens. This is a backdoor disruption of consumer banking.
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The U.S. is approving stablecoins for a strategic reason: they require reserves, which must be U.S. treasuries. This policy creates a massive, new, non-traditional buyer for government debt, helping to finance enormous and growing fiscal deficits with a structural source of demand.
A proposed mental model frames MicroStrategy's issuance of preferred stock as analogous to Tether issuing stablecoins. Instead of using treasuries, MSTR uses heavily over-collateralized Bitcoin (e.g., 5-to-1 ratio) to create a yield-bearing, dollar-denominated instrument, effectively securitizing its Bitcoin holdings to generate returns for equity holders.
By creating a regulatory framework that requires private stablecoins to be backed 1-to-1 by U.S. Treasuries, the government can prop up demand for its ever-increasing debt. This strategy is less about embracing financial innovation and more about extending the U.S. dollar's lifespan as the global reserve currency.
Widespread adoption of blockchain, particularly stablecoins, has been hindered by a "semi-illegal" regulatory environment in the U.S. (e.g., Operation Chokepoint). Now that this barrier is removed, major financial players are racing to integrate the technology, likely making it common within a year.
For hundreds of millions in developing nations, stablecoins are not an investment vehicle but a capital preservation tool. Their core value is providing a simple hedge against high-inflation local currencies by pegging to the USD, a use case that far outweighs the desire for interest yield in those markets.
Coinbase is funding a UBI experiment giving New Yorkers crypto. This is a strategic play, not just charity. It aims to prove crypto's efficiency as a distribution mechanism for government welfare, positioning it to become the foundational infrastructure for future social programs and driving mass adoption.
In a novel attempt to delay a debt crisis, policymakers are pushing for regulations that would force stablecoin issuers to back their digital dollars one-to-one with U.S. Treasuries. This cleverly creates a new, captive international market for government debt, helping to prop up the system.
For stablecoin companies like Tether seeking legitimacy in the US market, the simplest path is to back their assets with US treasuries. This aligns their interests with the US government, turning a potential adversary into a welcome buyer of national debt, even if it means lower returns compared to riskier assets.
Remitly thrives by offering a service that is cheaper and more efficient than traditional players like Western Union, yet remains integrated within the established banking system. This unique position allows it to serve users' needs without triggering the regulatory skepticism faced by decentralized solutions like stablecoins.
The high profits enjoyed by stablecoin issuers like Tether and Circle are temporary. Major financial institutions (Visa, JPMorgan) will eventually launch their own stablecoins, not as primary profit centers, but as low-cost tools to acquire and retain customers. This will drive margins down for the entire industry.