Stablecoin Fundamentals - Stablecoins offer the allure of digital currency with free movement and no transaction costs [1] - The fundamental use case of stablecoins is for transactions, not for holding as an investment [2] - Buying stablecoins means foregoing opportunity cost or interest, approximately 4% yield, that could be earned from CDs or treasury bills [3] - Stablecoin companies invest the proceeds from stablecoin sales in very short-term treasury bills as collateral [3] Impact on Banking System - The US banking system relies on deposits, and a shift to stablecoins could reduce deposits available for lending [5][6] - Reduced bank deposits could lead to a decline in credit availability for car loans, student loans, and mortgages [6][7] - Banks could potentially offer stablecoins as a service to clients, similar to existing digital payment rails like Zelle [11][12] Market and Economic Risks - Stablecoin investments are limited to short-term Treasury bills, potentially distorting the short-term Treasury curve [7][8] - Concerns exist that people are buying stablecoins as part of a portfolio, despite them not being an asset that appreciates in value [14] - The buildup in the overall supply of stablecoins suggests they are not solely being used for transactional purposes [16] - Increased demand for short-term bills due to stablecoins may dislocate the short-term bill market from the Treasury curve [19]