Why a U.S. Ban on Yield-Bearing Stablecoins Would Help 'Too Big to Fail' Banks - Ep. 840
94
Companies
69
Key Quotes
3
Topics
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Insights
🎯 Summary
Podcast Summary: Why a U.S. Ban on Yield-Bearing Stablecoins Would Help ‘Too Big to Fail’ Banks - Ep. 840
This episode of Unchained features host Laura Shin in conversation with Austin Campbell, Professor and Founder/Managing Partner of Zero and Knowledge Consulting, focusing on the contentious provisions within the proposed U.S. stablecoin bill, specifically the ban on interest-bearing stablecoins.
1. Focus Area
The discussion centers on cryptocurrency regulation, specifically the implications of the U.S. Senate’s stablecoin legislation (the Clarity Act). The core theme is how banning yield on stablecoins functions as regulatory capture favoring incumbent, “Too Big to Fail” (TBTF) banks over decentralized finance (DeFi) and consumer choice.
2. Key Technical Insights
- Stablecoin Function vs. Banking: Stablecoins are fundamentally different from banks; they are designed to be boring—holding reserves (like T-bills) and not losing value—whereas banks engage in fractional reserve lending against credit-risky borrowers.
- Narrow Banking Analogy: Stablecoin issuers function as an “honest version” of narrow banks, taking deposits and only making risk-free loans to the government, contrasting sharply with traditional commercial banking models.
- Securities Classification Nuance: Interest-bearing stablecoins are not necessarily securities under existing law. Bank-issued money market funds and savings accounts are exempt from securities laws, suggesting that stablecoins operating under stringent banking supervision could also avoid this classification.
3. Market/Investment Angle
- Consumer Disadvantage: Banning yield forces U.S. consumers to accept near-zero returns on dollar holdings, while offshore or institutional products (like tokenized money market funds for accredited investors) continue to earn interest on the same underlying Treasury assets.
- Anti-Competitive Barrier: The ban disproportionately harms smaller stablecoin issuers, as large incumbents (like Goldman Sachs) can circumvent the restriction by instantly wrapping stablecoin holdings into their existing money market fund platforms, effectively creating a yield-bearing product for themselves.
- Tether’s Profit Motive: The push for the ban is heavily influenced by existing stablecoin issuers (like Tether, which made $13B in 2024 profits) whose business models rely on capturing the interest earned on reserves rather than passing it to users.
4. Notable Companies/People
- Austin Campbell: Guest expert providing the critical analysis of the legislation’s structure and impact.
- Tether: Mentioned as the primary beneficiary of the ban, as it allows them to retain the interest income from reserves.
- Goldman Sachs/Large Asset Managers: Highlighted as entities capable of bypassing the ban via existing money market fund infrastructure, thus consolidating market power.
- Community Banks: Positioned as the primary lobbying force behind the ban, arguing for protection against competition, despite their own potentially risky lending practices.
5. Regulatory/Policy Discussion
- Lobbying Influence: The ban originated primarily from lobbying by banking associations fearing deposit flight, despite evidence suggesting most stablecoin demand is currently non-U.S. or crypto-native.
- Geopolitical Risk (Eurodollar Parallel): Banning yield explicitly favors non-U.S. stablecoin issuers, pushing dollar activity offshore. This risks recreating the opaque Eurodollar market dynamics that caused systemic issues in 2008, reducing U.S. oversight of dollar flows.
- Age Divergence in Congress: The discussion noted that Democrats voting to advance the bill were significantly younger on average than those who voted against it, suggesting older lawmakers are more protective of the pre-internet, localized banking model.
6. Future Implications
The conversation suggests that if the ban passes, the U.S. risks enshrining an outdated, parochial banking model that dampens American competitiveness in digital finance. It will lead to a bifurcated market where U.S. users receive inferior returns compared to international counterparts and accredited investors, while simultaneously strengthening the market dominance of the largest financial institutions.
7. Target Audience
This episode is highly valuable for crypto industry professionals, financial regulators, fintech investors, and policy analysts concerned with the intersection of digital assets, banking regulation, and antitrust issues.
🏢 Companies Mentioned
Libra
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institution
Maine's Attorney General
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institution
Robinhood
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Exchange/Brokerage (Traditional, but context is market structure)
Mastercard
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Institution (Traditional Payments)
Visa
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Institution (Traditional Payments)
Chase
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Institution (Traditional Banking)
BlackRock
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Investment (Traditional, but context is crypto-adjacent comparison)
Apple podcast
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Platform (Not strictly crypto, but a key channel)
YouTube
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Platform (Not strictly crypto, but a key channel)
X
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Platform (Not strictly crypto, but a key channel)
SoFi
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Institution (Traditional Finance with Crypto Overlap)
Fidelity
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Institution (Traditional Finance with Crypto Overlap)
The US Department
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unknown
Circle General Manager Emmett Hallier
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unknown
Centre Consortium
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unknown
💬 Key Insights
"Preliminary findings indicate the attacker exploited broken reserve calculations and added near-zero liquidity to drain major pools."
"According to on-chain analysts, the attacker used spoof tokens and manipulated liquidity pool price curves to withdraw real assets without proper deposits."
"DOJ launches probe into Coinbase cyberattack."
"This person being able to use stablecoins instead that are purely backed by T-bills and a bankruptcy-remote vehicle, massive improvement. He should use that 10 times out of 10 if you can do it in a secure way over using an uninsured bank account because he's essentially making a free loan to a bank in a credit-risky fashion and not getting paid for it."
"what stablecoins have done is actually what I would call the honest version of that [narrow banking], which is to say, I'm going to take deposits. And I'm not just going to park the bit the Fed... But what I am going to do is only make risk-free loans to the federal government with that money. So again, it is basically taking a money market fund and putting it inside a payments wrapper."
"I think the reason that people jump to the securities framework for the thing is because the analogy that they have in their head is a money market fund. And I will remind people that yes, asset manager-issued 1940 government money market funds and prime funds are securities. But some interesting trivia nuggets, there are ways to issue bank-issued money market funds, which are not securities. Your savings account is not a security."
📊 Topics
#artificialintelligence
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#investment
5
#startup
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🧠 Key Takeaways
take that money from Florida to people in Ohio