BUSDUSDT
Binance USD / Tether USD
crypto

Had a few quality conversations in the last day. A repeating theme and the topic of a debate on stage was what our industry is going to do about treasury yield.
Let's say that yields over the next 30 or so years average 3%. Of course the US would like it lower, but then there's number of factors driving it higher such as lower credit rating of US bonds, a looming national debt of $30T or so, etc. If secretary Bennett and the federal reserve are correct in their forecast, we'll be at something like $3T in stablecoins by 2030. If Tether/Circle get to keep that money that means they have about $90B in revenue annually from the interest stablecoin holders forfeit on their own money. This is how you get valuations for the Tether company at $500B even though the company does basically very little and only has about 150 exployees. This is, to put it mildly, more revenue than all of Defi put together. People are raging about Hyperliquid generating a billion in revenue. The Curve dex generates like $25M a year. At $90B, what happens to this revenue is the biggest question of the next cycle and it will make or break Defi.
The state of play at the moment is that the Genius act has language in it that prevents stablecoin yield from going to stablecoin holders. This wasn't even argued into the bill by Tether, though they are the largest beneficiary. It was actually the primary condition of the bank lobbyists. But, if the goal of regulations are to protect people it's difficult to make any case in which forcing people out of the interest on their own money is protecting them. Either way their money is being subjected to risks by whatever revenue source backs the stablecoin. I haven't a compelling answer to what is the incremental risk of paying a portion of that interest forward to retail. The argument put forth by the banks is the flight of capital from banks would threaten the lending facilities in the US which is not a consumer protectionist argument.
The loophole at the moment, used by Coinbase and others, is that the dividends aren't being paid to retail but rather the revenue goes to the issuer (Circle), which then pays the distributor (Coinbase) a fee, which in turn puts that money into a marketing budget and pays out to a rewards program (Coinbase Earn). Through this channel, end users still receive the interest on their payments. Naturally, the banks are trying to close this loophole with the pending market structure bill.
On the debate, there was consensus amongst the four presenters that paying devs this money and investing it into the ecosystem was both legal and healthy but as long as that remains the argument it seems like it's a hard loophole to close.
Let's assume for the moment that this loophole is protected by Circle lobbyists, how can Defi turn around and strip this revenue from the Circle company and give it to Defi users?
Step 1 of this is to do what Hyperliquid already did. You have a stablecoin issuer like Native form an agreement to create a whitelisted stablecoin like USDH. The pattern for that already worked and this already shifts the revenue from going 100% to the issuer to something like 95-99% to the distributor. Each ecosystem (each L2?, each App?) creates a stablecoin in this way or maybe a major player like Frax fills this role.
For step 2, the distributor forwards the revenue to either the app or to underlying pools of the app. This gives those pools using the ecosystem stablecoin a several percent higher yield.
For step 3, you need a mechanism to vampire attack the existing pools to convert TVL to the ecosystem stablecoin. You don't have to convert every single app at the same time, but as a market maker or lender you can't afford to be in a tiny pool. Basically arbitrage eats the first mover alive so somehow we need to incentivize this risk. There are two things I think we should try here (concurrently).
First, a player like Frax or other large holder of LDRs could just direct an outsized portion of their bribe power to one ecosystem at a time and jack that APR up to the hundreds of percent for pools using the ecosystem stablecoin.
Second, you can execute the Sushiswap playbook. You get LPs of the old pool to deposit to a vampire contract that the LP deposit tokens sit in until a critical threshold of TVL is met after which it all migrates at the same time. This removes the risk of the first mover entirely but there's a fledgling phase here where you're probably paying people in the vampire pool extra yield even though only USDC/USDT is being used there. You really don't want that to last long but it's a viable trick to break the Moloch trap. The missing pieces here are who is going to fund this pool before the vampire attack executes and how do you convert say $1B of ETH/USDC to ETH/FRAX or something atomically.
At the end of this you have a variety of stablecoins. There's probably one for each major exchange (think BUSD reborn) and then one for each coordinating ecosystem (arbUSD, crvUSD, frxUSD, solUSD, USDH, etc). If executed correctly, the value of Tether goes from $500B to like $50B, the market cap of Defi absorbs a good portion of that, and end users of Defi actually get a fairer interest rate. $90B a year, we need to get organizing.

Had a few quality conversations in the last day. A repeating theme and the topic of a debate on stage was what our industry is going to do about treasury yield.
Let's say that yields over the next 30 or so years average 3%. Of course the US would like it lower, but then there's number of factors driving it higher such as lower credit rating of US bonds, a looming national debt of $30T or so, etc. If secretary Bennett and the federal reserve are correct in their forecast, we'll be at something like $3T in stablecoins by 2030. If Tether/Circle get to keep that money that means they have about $90B in revenue annually from the interest stablecoin holders forfeit on their own money. This is how you get valuations for the Tether company at $500B even though the company does basically very little and only has about 150 exployees. This is, to put it mildly, more revenue than all of Defi put together. People are raging about Hyperliquid generating a billion in revenue. The Curve dex generates like $25M a year. At $90B, what happens to this revenue is the biggest question of the next cycle and it will make or break Defi.
The state of play at the moment is that the Genius act has language in it that prevents stablecoin yield from going to stablecoin holders. This wasn't even argued into the bill by Tether, though they are the largest beneficiary. It was actually the primary condition of the bank lobbyists. But, if the goal of regulations are to protect people it's difficult to make any case in which forcing people out of the interest on their own money is protecting them. Either way their money is being subjected to risks by whatever revenue source backs the stablecoin. I haven't a compelling answer to what is the incremental risk of paying a portion of that interest forward to retail. The argument put forth by the banks is the flight of capital from banks would threaten the lending facilities in the US which is not a consumer protectionist argument.
The loophole at the moment, used by Coinbase and others, is that the dividends aren't being paid to retail but rather the revenue goes to the issuer (Circle), which then pays the distributor (Coinbase) a fee, which in turn puts that money into a marketing budget and pays out to a rewards program (Coinbase Earn). Through this channel, end users still receive the interest on their payments. Naturally, the banks are trying to close this loophole with the pending market structure bill.
On the debate, there was consensus amongst the four presenters that paying devs this money and investing it into the ecosystem was both legal and healthy but as long as that remains the argument it seems like it's a hard loophole to close.
Let's assume for the moment that this loophole is protected by Circle lobbyists, how can Defi turn around and strip this revenue from the Circle company and give it to Defi users?
Step 1 of this is to do what Hyperliquid already did. You have a stablecoin issuer like Native form an agreement to create a whitelisted stablecoin like USDH. The pattern for that already worked and this already shifts the revenue from going 100% to the issuer to something like 95-99% to the distributor. Each ecosystem (each L2?, each App?) creates a stablecoin in this way or maybe a major player like Frax fills this role.
For step 2, the distributor forwards the revenue to either the app or to underlying pools of the app. This gives those pools using the ecosystem stablecoin a several percent higher yield.
For step 3, you need a mechanism to vampire attack the existing pools to convert TVL to the ecosystem stablecoin. You don't have to convert every single app at the same time, but as a market maker or lender you can't afford to be in a tiny pool. Basically arbitrage eats the first mover alive so somehow we need to incentivize this risk. There are two things I think we should try here (concurrently).
First, a player like Frax or other large holder of LDRs could just direct an outsized portion of their bribe power to one ecosystem at a time and jack that APR up to the hundreds of percent for pools using the ecosystem stablecoin.
Second, you can execute the Sushiswap playbook. You get LPs of the old pool to deposit to a vampire contract that the LP deposit tokens sit in until a critical threshold of TVL is met after which it all migrates at the same time. This removes the risk of the first mover entirely but there's a fledgling phase here where you're probably paying people in the vampire pool extra yield even though only USDC/USDT is being used there. You really don't want that to last long but it's a viable trick to break the Moloch trap. The missing pieces here are who is going to fund this pool before the vampire attack executes and how do you convert say $1B of ETH/USDC to ETH/FRAX or something atomically.
At the end of this you have a variety of stablecoins. There's probably one for each major exchange (think BUSD reborn) and then one for each coordinating ecosystem (arbUSD, crvUSD, frxUSD, solUSD, USDH, etc). If executed correctly, the value of Tether goes from $500B to like $50B, the market cap of Defi absorbs a good portion of that, and end users of Defi actually get a fairer interest rate. $90B a year, we need to get organizing.