Picture a regulatory Wild West where tech gunslingers like Stripe, PayPal, Coinbase, Ripple, and Paxos saddle up with national trust charters, riding straight into banking's territory. These aren't just paperwork plays—they're strategic sieges, enabled by the GENIUS Act, that could redraw finance's map. As banks grapple with lost superpowers (no fractional reserve lending or backing of stablecoins), tech leverages DeFi to nibble at lending. But that nibbling will soon turn to feasting on the banks’ traditional businesses. This isn't evolution; it's a revolution.
The GENIUS Act delivers regulatory certainty by federalizing stablecoin oversight, mandating full reserves, audits, and no interest from issuers. Now that the rules of battle are known, and the regulatory loopholes are proven, tech firms are aggressively taking banking territory. National trust charters from the OCC replace the state-by-state laws with nationwide rules, making it easy for tech companies to disintermediate banks. National trust charters give the tech companies the “banking” credentials they need to run full speed ahead into payments and lending. Coinbase eyes expanded custody and payments for USDC's $65 billion market cap; Paxos (PYUSD issuer) seeks transparency post-fines; Ripple's RLUSD pushes blockchain payments; Stripe's Bridge (acquired for $1.1B) aims to tokenize trillions. With stablecoin volumes at $5.2 trillion per month and $314 trillion in coins issued, these charters unlock nationwide scale without the regulatory patchwork.
Trust charters let tech handle fiduciary duties like custody and settlements, infringing on banks' custody ($100T+ global market) and payments ($2T U.S. volume). No fractional reserves here—charters bar broad lending—but that's the point: Tech sidesteps FDIC burdens while offering 24/7, low-cost alternatives. Long-term? Banks lose 10-20% of deposits initially, per studies, as users flock to stablecoins yielding 4-5% via regulatory workarounds. This drains bank deposits, which erodes their lending capacity.
Tech isn't stopping at crypto-backed loans. They will encroach on all personal and business loans, leveraging DeFi protocols like Aave ($10-15B TVL), Compound ($2-5B), Morpho ($1-3B) for over-collateralized personal loans against crypto with yields of 4-10% (goodbye bank CDs at 3%) and TVL $130B total. Coinbase integrates Morpho for on-chain lending; PayPal partners with Spark. These tech upstarts lend against crypto collateral now, but the full suite of loans are next, eating into banks' markets at margins banks can't match (DeFi fees <1% vs. banks' 2-5%).
The GENIUS Act outlaws fractional reserve for backing stablecoins, handcuffing banks' money-creation superpower while tech fights uncuffed. Banks respond with pilots (JPMorgan's Onyx) but lag in agility. Long-term effects: Tech dominates with ecosystems (e.g., Stripe's Tempo at $5B valuation), forcing banks into partnerships or acquisitions. Margins plummet as DeFi scales, potentially shrinking banks' lending share.
Tech companies are particularly well-equipped to navigate the abundant risks in the stablecoin ecosystem, such as intense OCC scrutiny on compliance and reserves, vulnerability to hacks exploiting smart contracts or oracles, and potential runs from mass redemptions, thanks to their inherent agility, deep engineering talent, and history of regulatory arbitrage. National Trust Charters act like the battering rams on the gates of banking franchises. Once the gates give way, tech will flood the castle and steal the crown jewels. Short of new laws, there is nothing banks can do to stop this assault. However, several banks have been labelled “too big to fail”. The government and banks are attached at the hip. They also have a huge lobby and embedded support, so something will have to give.
Tech's margins and innovation will prevail, turning banks into commoditized utilities. Stablecoins could hit $3.7T by 2030. Add the traditional money multiplier of 3-5X and credit will dry up further crushing bank profits. Banks have high overhead: branches, people, services, etc. The tech companies will avoid these costs while taking profitable business from the banks. It’s not a fair fight.
Read more on charters: MSN on Coinbase custody, CoinDesk on Paxos, Decrypt on the race, Banking Dive on Coinbase, The Block on Tempo. For yield loopholes, see links above. Share and subscribe!
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