So far, dollar backed stablecoins like Tether’s USDT or Circle’s USDC don’t pay any interest to holders of their coin. We think that is about to change in 2019. As of today, the users of stablecoins are effectively giving their providers free loans in return for a service (digitally transferring bank dollar certificates) that is not very distinguished from one provider to the next.
Stablecoin providers make money by putting their customers’ money in the bank and collecting interest from these deposits. At the time of writing, the five largest stablecoins collectively hold $2.67B of customer deposits. At a rate of 2.5% per year, these deposits generate an annual $67.5M in revenue for them. In addition, Circle, already announced that “in the future, [they] may also invest these fiat funds in highly-liquid, AAA-rated fixed income securities.”
When there’s no interest, on the other hand, there’s no business model. So as a result of the zero interest rate policy of the BoJ and ECB, there is no competition for a EUR or JPY stablecoin.
To evaluate the stablecoin market of tomorrow, let us look at the US banking market of today. While the national average interest rate for many brick and mortar banks is still 0.1% or less, online banks are starting…
