Thoughts On Stablecoins, Borrowing & Lending Platforms, Earning Yield, Leverage, Risks, & Regulation
In this Crypto Weekly, instead of discussing our usual views on the market, we’re going to talk about something a little different – our thought on stablecoins, borrowing & lending platforms, earing yield, leverage, risks, and regulation.
We think it’s worth discussing these areas to expand on our notes from last Friday and Monday on leverage in the crypto lending space and given the House Financial Services Committee holds a hearing on Crypto today.
Source: C-SPAN
Why do stablecoins matter in crypto?
Stablecoins are becoming a big part of the crypto economy with the total value of stablecoins outstanding now at ~$108B. These digital assets offer a lot of innovation and are enabling new use cases on top of them.
Source: The Block
Are stablecoins digital dollars or digital debt?
Most think about stablecoins as digital dollars. The reason is because these assets (pegged stablecoins only; crypto backed and algorithmic are different) are usually backed by dollars as collateral held by the issuer at a regulated bank.
But we think these assets look a lot more like digital debt than digital dollars in a few ways. In the finance world, these instruments somewhat resemble debt with the following illustrative terms:
Liability: USDTFace Value: $...Reports you may have missed
LOWER VOLUMES PERSIST Earlier this week, we witnessed approximately $2B in open interest being unwound within a matter of hours—a significant forced deleveraging event for an otherwise uneventful Tuesday, lacking a clear catalyst. In our view, the selloff was largely technical and indicative of the negative seasonality we've been discussing recently. To backtrack, Monday and Tuesday followed a dovish Fed pivot at Jackson Hole, sparking a sharp rally in soft-landing...
GOVERNMENT SELLING SEEMS TO BE COMPLETE Last week, we highlighted the negative seasonality from mid-August through September but emphasized that macro trends and identifiable crypto-specific factors should take precedence in assessing risk. _Source: TradingView, Fundstrat_ Since last week’s CPI print, conditions have been favorable for crypto – yields and the DXY have fallen in a non-recessionary manner (more Goldilocks than risk-off), and rate-sensitive assets like IWM and RSP have rallied....
MACRO DATA POINTS TO A SOFT LANDING The global deleveraging event last week was driven by weakening economic expectations and rising fears of a potential policy error by the Federal Reserve. At the height of this uncertainty, the market priced in a 50 bps cut for September, as recession risks took center stage. However, in just a few days, the narrative has shifted. The market is now leaning back towards...
WHAT HAPPENED We won't spend time diving deeply into the events of the past few days as most are likely already familiar. In short, concerns about a potential domestic recession were ignited last Friday following a weak jobs report. This caused the dollar, particularly the USDJPY, to decline, triggering an unwinding of the yen carry trade and leading to widespread deleveraging across global markets. During such a global margin call,...