Blain’s Morning Porridge 12th June 2025 – StableCoins? Please Explain…
“If I have 2 beans and add one more bean, how many beans do I have?”… “More Beans?”
StableCoins? I am told they are revolutionising finance. Really? Stablecoins and other tokens will replace money, stock, shares and everything else… apparently. But can someone explain, simply, in plain English, how, what, and why they are better than what already exists?
Yesterday’s UK Spending Review didn’t crash the Gilts market. Predictably the Tories are fulminating that’s it’s “spend now, tax tomorrow”. Yawn. I’m doing more work on the Housing Policy announcement – and will write something on that tomorrow. The other big issue for markets is the question: has Trump done a trade deal with China or not? Nope – they have agreed to keep talking. Essentially the USA has lost its momentum in the ongoing trade cold-war: it remains vulnerable to China’s control of Rare Earths.
Meanwhile, in a Galaxy far, far, away…..
By way of some light comic relief, this morning I’m going to write about Stablecoins, which will inevitably stray into Crypto Currencies. This follows a rather bruising discussion with a pro-crypto fund manager yesterday where I found myself utterly and hopelessly out my depth and confused as he gushed on and on about their brilliance. (Same guy was a big NFT and SPAC proponent.)
If any Porridge reader can explain the why, how and what of StableCoins to me, I might invite them to write a guest-post on the topic.
Now I get a stablecoin is a token that represents a dollar – and that tokens will make transacting and payments simpler. If people believe a stablecoin is a dollar, therefore it can do what a dollar does. But it isn’t actually a dollar. I understand they are (notionally) backed by Treasuries and other debt, but experience teaches me the value of a dollar and a Treasury do not necessarily move together, and that NAVs between the real world and secured assets are not fixed.
Promoters tell me the value of a dollar stablecoin will move in line with a dollar – but that’s not necessarily true, as they will be definitionally less liquid, subject to trading frictions and imbalances, uncertainty about the collateral (and doubts it exists), and we’ve already seen the NAV of Tether move below par at times. A dollar is a dollar. Tether is not.
I also understand a stablecoin allows you to transact across crypto, and inside crypto based ecosystems – should you ever feel the need to do so. To earn interest on a dollar – pop it in a bank (guaranteed by a bank and backed by government), or use dollars to buy a stablecoin representing dollars to invest in some “platform” owned by dodgies that pays you interest that is not bank or government supported… and then exchange your stablecoin back into real dollars when you need something real in the real world. (Every transaction earning a little bit in fees from each cog in the machine.)
There are a rising number of posts, articles, and commentaries all stating StableCoins are big, and getting bigger as tokens replace everything – dollar linked stablecoins are now over $200 bln in market cap – good money backed by investments into Treasuries. It’s become a regulatory issue, and even the ECB is concerned there isn’t a matching Euro stablecoin ecosystem. (There are serious concerns about how Stablecoins may impact money, money creation, inflation and rates.)
Fair enough. I read the total capitalisation of BitCoin is now over $2.3 trillion – bigger than many big tech firms. Fine. That value is 100% based on the belief its worth $2.3 trillion because….. ? Well because, someone keeps buying it. Nothing else. All the talk about $1 mm bitcoin price is just talk – speculation. Might happen. Might not.
However, most of the articles on Stablecoins I read strike me as seeking to justify a product there isn’t actually a pressing requirement for. It’s the old blockchain/crypto issue of a solution in search of a problem. They talk in terms of “simplifying”, “facilitating”, “enabling” financial services and transactions – all of which already happen. Smart contracts are smart, but nothing radical or new has actually be invented. Why can’t I just use real dollars instead, and transact as normal? Why the palaver to use StableCoins?
As happens so often in modern finance I find myself asking the obvious question: what do StableCoins make better by inserting themselves into transactions – except extracting value for the StableCoin promoters? Well, that’s where it gets intriguing…
I’ve been watching Michael Saylor’s All-In Bitcoin gamble – Strategy. He’s a gallus man -persuading investors to fund him through par-priced Zero-Coupon Perpetuals. It’s fascinating – he’s selling a pure Bitcoin play at 1.8 times the NAV of the fund. Why not just buy the underlying Bitcoin? Great article on BBerg yesterday, an interview with Jim Chanos, who called Saylor’s valuations are “financial gibberish”. He went on to explain: “It is akin to saying my house that rose in value from $450,000 to $500,000 last year is not worth $500,000. It’s worth $1.5 million because it’s worth $500,000 plus a 20x multiple on the $50,000 increase.” That’s the most brilliant observation on the Strategy scam I’ve read in years.
Separately, I note Donald Trump’s crypto-venture, Liberty Financial, has launched a stablecoin – USD1. It claims its aim is to enhance US leadership in crypto – a Trump campaign promise to the crypto-community. It looks like competition. Trump has stopped the Fed every launching an official digital dollar, which looks like conflict of interest. Like all of Trump’s financial adventures in crypto land, my spidey-senses are tingling wondering exactly what the grift is.
Meanwhile, I’m reading a fascinating (relatively) new book – The Mysterious Mr Nakamoto, a 15 year quest to unmask the secret genius behind Crypto. There are an awful lot of weirdo techno-types profiled in it: 1990s Cypherpunks, extropians and full-on paranoid tin-foil hat wearers. I wanted to understand the backstory and the intellectual roots behind crypto mythology, but while the book as educated and entertained me, it leaves me no wiser about BitCoin’s and crypto use-cases in the real world.
What I do understand is the shared belief of all the early apostles of BitCoin in Libertarian philosophies including privacy and “freedom/liberty” money unconnected to absolute ball-breaking tyranny of government run and manipulated Fiat money … (which, incidentally, has been making the world rich, successful and “facilitating” market growth for centuries… (just saying…)
These libertarian notions now appear to be in the background of crypto. Bitcoin is now about greed, FOMO and the imperative to get insanely rich or stay-poor by not participating. What would the original prophets of Libertarian BitCoin think of StableCoins as a link between their liberation-freedom money concept and fiat money? Surely that’s anathema to the founders of Cryptomoney? Maybe not….
Today, libertarian philosophy may still guide the deep currents of Crypto, and the goal remains the same – displace fiat money. Let’s not forget that BitCoin’s first demonstrable use case was to facilitate the trading of illegal goods and services on the dark-web.
I read something fascinating earlier this week. Ross Ulbright, the founder of the Silk Roads dark web site, who kickstarted the rise of Bitcoin as the medium of exchange in illegal goods, was jailed for life with no possibility of parole 12 years ago. In January he was pardoned by Trump. Last week he received a “donation” of 300 bitcoin (worth $31mm) . He is saying nothing, but there is much speculation they are linked to laundered cash from Silk Road. There are also rumours Ulbright will use his pardon to seek the return of nearly 145,000 Bitcoin confiscated by the US Government in 2013 – worth $15 billion.
That’s the real issues around Crypto and Stablecoins – what kind of hype, grift, naked speculation and barefaced greed drives it. And why its allowed?
Spoiler-Alert – going back to the book, The Mysterious Mr Nakamoto – we still don’t know who he is or was. If he is still alive he is a billionaire, but hasn’t spent any of his 1.1mm stash of coins in wallets associated with him – including the original genesis block. Maybe he’s lost the codes to access them. Maybe he’s dead. Maybe he never existed.
Gosh… what if Bitcoin, crypto, and the libertarian perspective on fiat money and the evil of government, is all part of some alliance of billionaires and little green men seeking to take over the planet by destabilising money? Yep…. That’s as good an answer as we’ll get today…
Back to serious stuff tomorrow…
Bill Blain
Author of the Morning Porridge
Founder and CEO of Windshift Capital
Partner Shard Capital
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This from a client active in EM:
“I have one valid use for Tether with some physical commodity traders. When they import from more difficult hard currency countries (Ivory Coast, Ethiopia etc), where sending USD into the country can take 3-5 working days to clear, they pay in USDT and both sides are happy. The buyer more so when USDT is trading at a discount, as this increases their profit line. One particular buyer has 1 employee specifically watching for those times as he trades significantly on USDT and has the liquidity, & ironically the bank credit lines, to buy and store for future use. His answer to your theory about 1 USDT always equals 1 USD, it does in the eyes of his suppliers, which is all he is worried about. “
Would I be right in saying that “par-priced Zero-Coupon Perpetuals” have zero value using standard valuation criteria (no interest paid, no repayment date/requirement so NPV is zero?).
Saylor’s trick is to persaude the buyers that he’s going to pay a dividend, and redeem at par, but in fact there is no obligation to do so. As strategy has no income – ie he says he will never sell a bitcoin, and it pays zero interest, the only way he can pay anything on his $30 bln odd of debt is to keep borrowing more from new lenders to pay old ones – the very definition of a Ponzi.
Previously he funded with convertibles – which the hedge funds all played: shorting the stock vs their convert positions. Now he’s milking less sophisticated retail.