Stablecoins need more than yield; they need ubiquity

Let's say you are a company in the money business. People give you money, and you give them tools that help them do things with that money. To entice people into keeping their money with you rather than some competitor, you also offer them a small monetary reward at a predetermined rate paid out on a predetermined schedule. You call this payment interest, or yield.

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If your business is called a bank and observes a set of very specific rules, this arrangement is standard. If your business is not called a bank, this arrangement is not at all standard. This arrangement in fact can be rather illegal. Unless, that is, you don't call it interest, or yield. 

The Office of the Comptroller of the Currency on Wednesday finalized its version of the new rules for stablecoins, as our Ebrima Santos Sanneh reported, that left the door slightly ajar for stablecoin issuers to offer what are essentially interest payments on customer accounts. 

The OCC's final rule does ban direct interest payments from issuers to customers. But the OCC also said it would look at rewards arrangements on an individual basis. As our story notes, the OCC acknowledged that some "arrangements" would fall afoul of the yield ban, but others might not. In other words, it might be possible for a stablecoin issuer to rig up their business in such a way that they are in effect paying customers some amount of money to entice the customer to keep their money with the issuer.

What that ends up meaning, in practice, is that all these stablecoins issuers are almost certainly going to start figuring out how they can rig a yield-paying mechanism into their businesses that isn't a straight-up interest payment. It will effectively be interest; they just won't call that. Knowing cryptopians, they'll invent some nonsense word for it that nobody understands. 

The banking industry has been adamantly against giving this option to stablecoin companies, the fearing being that those companies will become competitors. It's a possibility.

But the problem that the stablecoin companies have not so far gotten around is that the only people interested in their product are people in the crypto financial system, for the simple reason that that is the only place where stablecoins are used or accepted. 

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And the crypto market is a weird, mostly stagnant place. A handful of cryptos dominate it and it's never really made any inroads into the mainstream. Not only are the dominant cryptos — bitcoin, ether, tether, circle — not accepted universally outside of crypto markets, they are not accepted even marginally. I could walk the length of Broadway and probably would not find five stores that accepted any of them. Maybe not three. 

I have stated this before, but it bears repeating: what makes a currency useful is ubiquity. It has to be accepted everywhere by everyone. The easiest way to achieve this, of course, is via the law. The U.S. dollar is universally accepted by law. Crypto companies have a hard time competing with that. Which is why the fight over yield, in terms of who is on offense and who is on defense, is actually backwards. The crypto companies need to be able to offer yield-like products far more desperately than the banks need to block those products.