3 BIG IDEAS FROM THE PODCAST
This week’s episode features none other than James Wester, co-head of Payments Research at Javelin Strategy & Research and official Fintech Takes Stablecoin Correspondent (we’re just going to go ahead and give him that title).
Last time James was on the pod, we had a very specific question that we were trying to unpack (the utility of stablecoins for domestic consumer payments use cases – which, by the way, was a great conversation worth going back to if you haven’t listened yet).
Today, we’re going broad, hopping around a bunch of different stablecoin topics. What topics, you ask?
And read on below for my three big ideas …
1. Stablecoins Won’t End Community Banks (But It Won’t Be Painless)
Are stablecoins a net negative for community banks? I’ve argued that they are, and in our conversation, James generally agreed. However, as he pointed out, that doesn’t make stablecoins unique from all the other fintech innovations (open banking, faster payments, digital wallets, etc.) that most community banks have also failed to master.
This is a really great point. Anything new in financial services will generally benefit startups (which are able to move fast) and big banks (which have the scale and resources to adapt effectively), while hurting small banks.
Additionally, as James observed, community banks just spent the last four years being told by their regulators to stay far away from crypto. This put them further behind the eight ball when the regulatory environment flipped (as it often does) and crypto (and stablecoins in particular) became attractive once again.
Obviously, this doesn’t mean that no community banks will figure out a viable stablecoin strategy (look at Lead Bank for an example of a small bank navigating the shift from classic BaaS to stablecoins). Nor does it mean that stablecoins will destroy community banks, as a category. However, it does seem likely that they (like many fintech innovations before them) will do more harm to community banks than good.
2. BaaS Walked So Stablecoins Could Run (For Builders at Least)
I have a theory that regulated payment stablecoins will functionally replace BaaS banks because they will be easier and more convenient to build on top of than community banks, especially with infrastructure providers like Stripe and Visa supporting them.
That’s because stablecoins are global, instant, and programmable by default. Banks, on the other hand, are… not (that especially goes for community banks).
If you’re a 22-year-old founder today, why pitch your idea to a community bank CEO when Stripe is offering stablecoin tools that are always on, made for developers, and built on top of regulated stablecoin issuers that are (arguably) as safe for end customers to keep their money with as FDIC-insured banks?
In this light, what emerges isn’t just another payment tool. It’s parallel banking infrastructure (built for builders). That should scare banks (see above), excite builders, and make Stripe (and its investors) smile.
3. Stablecoins are Utilities
Does Circle’s fantastically successful IPO make sense? Are stablecoins a good business?
Yes … but maybe not for the reasons crypto Twitter might hope.
Stablecoin issuance is boring by design. Think programmable money meets power grid (low-margin, high-volume). The real profits come from what’s built on top.
As James put it, issuing stablecoins won’t be the next hot fintech rocket ship; it’s more like providing electricity. Nobody gets hyped about who powers their outlets. You just want your outlets to work. And that’s where stablecoins are headed: quiet, foundational, infrastructure-grade.
In other words: utilities. And utilities can be predictably profitable, but not fantastically profitable.
The question is whether stablecoin issuers (and the broader crypto economy) will accept this or if they will push (or find workarounds) to make their businesses more attractive.
A good test case for this is yield.
The current draft of the GENIUS Act does not allow stablecoin issuers to offer yield.
However, Coinbase and PayPal are already offering “rewards” on USDC and PYUSD, respectively, which is, functionally, yield. So, are we really banning yield? Is it realistic to expect that stablecoin regulators will be able to ban issuers from offering yield? Especially if some of those issuers are big tech companies or large merchants looking to get away from interchange fees?
Candidly, we don’t know. However, the debate over how “boring” stablecoins are required to be is one worth monitoring.
| 🎬 DIRECTOR’S COMMENTARY My best guess is that Circle’s spectacularly successful IPO is more about the lack of new public companies over the last four years and a general enthusiasm for crypto, under the current administration, than it is about the fundamentals of their business, which don’t seem great to me. But who knows! As I am fond of saying on the podcast and in the newsletter, nothing in Fintech Takes is ever financial advice! |
WHAT I’M LISTENING TO
#1: The Mortgage Gap That is Dividing America (Odd Lots) 🎧
Do you have a ZIRP-era mortgage or not?
That’s the question this episode is organized around and the implications of how someone answers it are fascinating.
#2: Why I joined DOGE (Planet Money) 🎧
The inside view on DOGE is really interesting. Depressing, but interesting.
WHERE I’LL BE
💻 Cash Flow Data: The Cure to Credit Score Overreliance | June 24th | Zoom
Want to lend with confidence? You’ll need more than a FICO score. Join Jason Rosen (Founder & CEO, Prism Data) and Martin Kleinbard (Granular Fintech) for a deep dive into how cash flow underwriting adds the context static models miss. Register here.
✈️ Mr. Johnson Goes to Washington | July 14-16 | Washington, D.C.
I am planning to be in D.C. in July for a few days (looking forward to the heat and humidity!) The theme of my visit will be financial inclusion, but I’m game to geek out on whatever topics tickle your fancy if you’d like to grab coffee or a beer.
