Stablecoins versus the banks (stablecoins are winning)
An interesting piece of news over the last week may have missed the financial headlines, but it did not escape our attention.
The red line below shows the growth in stablecoin market cap – up from $5 billion to around $190 billion in four years. The black line is bitcoin’s price. There’s clearly a correlation between stablecoin market cap and the BTC price, but the growth in stablecoins is steady and only likely to accelerate.
Stablecoin market cap v bitcoin
Source: Glassnode
Financial services firm Cantor Fitzgerald acquired 5% of Tether for $600 million.
That certainly puts to bed any concerns about the extent of Tether’s collateral. Remember, when you buy 1 USDT (Tether), that should be backed 100% by $1.
Rumours and conspiracies swirled around Tether’s collateral, which eventually found itself in trouble with US lawmakers. Those legal issues were then settled, but still the rumours would not go away.
Now they will. Cantor boss Howard Lutnick: “There has always been a lot of talk. Do they have it (100% reserves) or not? So I’m here with you guys saying we’ve seen it, and they have it.”
That comes from the mouth of someone prepared to pay $600 million for 5% of a company. He surely knows what he is talking about. Cantor has been custodian of Tether’s treasury assets since 2021, and plans to launch a multi-billion programme allowing clients to borrow using BTC as collateral. Tether, the largest stablecoin with a market cap of $135 billion, fits in snugly into these plans.
It will not have gone unnoticed that Tether, with a staff count slightly more than 100, made a profit of $6.2 billion, making it more profitable than the world’s largest asset manager, Blackrock, with 20,000 staff.
There’s a bigger story here, and it has to do with the future of finance.
With all the brouhaha about Tether’s collateral, let’s put this in context. Tether has 100% collateral. Banks have about 10-15%. If you deposit money with a bank, you rely on central banks and deposit insurance to underwrite you against loss. Banks use your deposits to gamble on more risky markets, such as private equity, mergers, and commercial lending.
Sending money across borders and you have to get Reserve Bank permission, and it will take days. You can send USDT across borders in minutes. To be sure, the regulation around this is still unclear, but across Africa people are discovering stablecoins as one of the greatest inventions of the last several decades. It insulates them against their reckless politicians who are inflating their domestic currencies into oblivion. Long live stablecoins!
