J.P. Koning notes that stablecoins have been improving their reporting on reserves. He argues that this is good for stablecoin users but that transparency is also driving changes that make an already difficult business model more complicated to execute.
“Even worse, a transparency-induced competition to safety means lower revenue for issuers. A big portion of stablecoin revenue accrue from the interest income thrown off by a stablecoin’s backing investments, which issuers keep for themselves rather than paying out to their customers. A five-year corporate bond currently yields around 1.2% per year. With increased transparency, juicier assets such as these will be increasingly out of bounds for issuers. But the alternative, safe assets like Treasury bills and bank deposits, don’t yield much. These days they offer a miniscule 0.05% or so.”
He offers some data from Circle’s recently recently published financial statements to illustrate the point
“… there was only $520 million USDC in circulation at year-end 2019. By year-end 2020, this number had hit $4 billion. That’s an impressive growth rate. But the collapse in interest rates nullified all of USDC’s expansion. USDC made more interest income in all of 2019 ($6.2 million) than it did in 2020 ($4.4 million), despite being just 1/10th the size.