If Stablecoins are comparable to banks, then let's ponder the essentials of a bank.
Stablecoins share characteristics with various traditional financial instruments, sparking debates about their most appropriate regulatory classification.
In a recent discussion on Unhedged, Financial Times' chief US correspondent, Robert Armstrong, grappled with identifying the non-crypto entity most similar to stablecoins. While they exhibit bank-like behaviors, such as issuing runnable liabilities and facilitating payments, classifying them as banks could prove inconvenient for numerous stakeholders.
Comparisons can be drawn between this debate and the age-old question, "Is a hot dog a sandwich?"
The definition of a bank—whether it stems from Lombard Street or the Capital Requirements Regulations—hinges on two aspects: deposit-taking and loan-granting. The classification, therefore, depends on the level of stringency applied to these criteria.
Upon closer examination, we present the "Bank Alignment Chart," which reveals that stablecoins fit the bill as banks, provided some leniency is made on both sides. This chart also sheds light on the boundary of what might constitute a bank, offering insights into the overlapping zones of bank deposits, money-market funds, and cash ETFs.
Stablecoins exhibit deposit-like features, akin to bank-issued stablecoins (tokenized deposits), which are comparable to traditional bank deposits due to their tokenized nature and potential use as a medium of exchange. Furthermore, stablecoins backed by short-term assets, such as commercial paper or government securities, resemble money-market funds by maintaining stability and offering liquidity, though they are more decentralized and programmable.
Cash ETFs and stablecoins both aim for stability and liquidity, but operate differently. While cash ETFs track the performance of cash or short-term fixed income securities, stablecoins utilize blockchain technology to maintain their value. However, both can serve as a store of value, with stablecoins excelling at facilitating swift, low-cost transactions across borders due to their digital nature.
In conclusion, stablecoins display elements of bank deposits (stability and programmability), money-market funds (risk profile and liquidity), and cash ETFs (stability and liquidity), but continuously distinguish themselves through their digital and decentralized nature.
In light of the "Bank Alignment Chart," stablecoins could potentially be classified as banks given their deposit-like characteristics and programmable nature, similar to bank-issued stablecoins. This classification, however, overlooks the unique technology aspect of stablecoins, setting them apart from traditional banking institutions and closer to innovative business models that combine finance and technology.
