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Health, Wealth, and Happiness

March 29, 2023

“We don’t have to be smarter than the rest. We have to be more disciplined than the rest.”

— Warren Buffett

In today's issue: No one likes having assets sitting idle, whether that means stablecoin tokens in a crypto wallet or dollars in a bank account.

To avoid missing out on valuable interest payments, investors can park their spare stablecoins or cash in various yield-bearing accounts.

In an era of rising interest rates, the struggle is figuring out where to park those assets to enjoy the best yields.

Today we've got you covered with a guide to the best interest rates for stablecoins compared to those of fiat currencies.

To learn which platforms and banks are best for yields, read on.

Must Read

Today's most important story for crypto investors.

How to Fight for Crypto (Bankless)

It's becoming increasingly clear the US government and regulators are going after crypto. Yesterday, we covered the Economic Report of the President in our Premium newsletter (sign up here) along with what it means for investors.

Bankless has also put together a guide suggesting ways we can fight for crypto. It includes the following five suggestions:

Sounding the alarm
Flexing with your wallet
Contributing to collective efforts
Contacting your congresspersons
Showing up to vote

Contacting your congressperson is easy, and Bankless walks readers through the steps to do so (it takes less than an hour).

There's also the Crypto435 campaign started by Coinbase, and adding your support there takes under a minute:

Image via Twitter

Investor takeaway: The recent developments from government and regulators indicates pressure on the crypto industry is increasing. If we don't want to see the industry (and our investments) get set back by years, we need to speak up and ask our elected leaders to fight for strong pro-crypto support.

Premium Power-Ups

Level up your crypto investing game.

New Investor Risk Scorecard: Solana (SOL)

Launched in March 2020, Solana is a highly-functional, open-source project that banks on blockchain technology’s permissionless nature to provide decentralized finance (DeFi) solutions.

While the project shows promise, Solana has seen a series of outages, technical issues, and processing problems since its debut

Is SOL worth your investment?

Using our industry-leading Blockchain Risk Scorecard, our analysts put Solana through the wringer, squeezing out our final risk rating (remember that with risk, lower = better).

Premium members: Download the Scorecard here and see how we rate SOL as an investment. Is there good potential, or is SOL just hype?

Not yet a Premium member? Sign up now for just $10 a month and get instant access to our complete on-demand library of investor scorecards.

Best Interest Rates: Stablecoins Vs. Fiat Currencies

by Anatol Antonovichi

Executive Summary

Stablecoins (digital currencies pegged to traditional assets) have driven crypto adoption by mitigating volatility and facilitating access to digital assets. Representing 11% of the crypto market, leading stablecoins USDT, USDC, and BUSD have remained stable over the long term despite the downfall of some algorithmic stablecoins.

Acting as vital links between traditional finance and crypto, stablecoins have fueled the expansion of the decentralized finance (DeFi) sector. Although stablecoins and fiat currencies have distinct roles, their combined use fosters a more versatile and interconnected global financial landscape.

In this analysis, we explore the impacts and significance of stablecoins in the evolving financial landscape, comparing them to traditional fiat currencies. We also discuss their potential roles as global reserve currencies and examine how they contribute to a more diverse and tech-oriented global financial ecosystem.

A Brief History of Stablecoins

Stablecoins are blockchain-based digital currencies or tokens designed to have their values linked to traditional fiat currencies, commodities, or collections of assets.

In most instances, a stablecoin mirrors the value of a particular fiat currency, with the US dollar being the most prevalent. Generally, stablecoins maintain 1:1 backing ratios with their corresponding fiats. The main goal of these tokens was initially to mitigate the high volatility of cryptocurrencies, though they’ve taken on a number of other important roles.

Stablecoins have significantly contributed to the adoption of crypto assets among institutional and retail investors due to their near-elimination of volatility while offering effortless access to various digital currencies. They've served as connecting points or gateways between traditional finance and the crypto ecosystem, facilitating seamless on-ramp and off-ramp systems for investors.

Also, they've been the driving force behind the exponential growth of decentralized finance (DeFi), one of the most important trends in blockchain.

As of this writing, the top three stablecoins by market cap are USDT, USDC, and BUSD. These three stablecoins rank among the top 15 largest cryptocurrencies (collectively representing about 11% of the entire crypto market), with a total market cap exceeding $120 billion.

The stablecoin boom came in 2020-2021 (along with the DeFi craze) when the combined market cap increased from less than $7 billion in March 2020 to over $60 billion a year later. It exceeded the $180 billion mark in March 2022, surging 2,500% in 2 years.

Top stablecoins, via CoinGecko.

The success of stablecoins lies in their abilities to combine the stability and liquidity of traditional currencies with the distinctive characteristics of blockchain technology like decentralization, security, speed, and transparency. These tokens can be integrated into conventional finance use cases like payments, international transactions, and remittances.

While the dramatic collapse of several algorithmic stablecoins -- like Terra USD (UST) -- has cast a negative light on the crypto market, fiat-collateralized and crypto-collateralized stablecoins have demonstrated their resilience despite the recent crisis of USDC.

Stablecoin Pros and Cons

Fiat Currencies

Fiat currencies are government-issued legal tender not backed by physical commodities like gold or silver. Instead, their value is derived from the trust and confidence people have in the stability of the issuing government and its economy. The US dollar (USD), euro (EUR), Japanese yen (JPY), and British pound (GBP) are examples of fiat currencies. They're predominantly used as mediums of exchange for goods and services, stores of value, and units of account.

Fiat currencies play crucial roles in the global economy as they facilitate trade and commerce both domestically and internationally. They're used in everyday transactions like buying groceries, paying bills, or settling debts, as well as in more complex financial transactions like investing, lending, and borrowing.

Central banks are responsible for issuing and regulating fiat currencies. They rely on monetary policy tools like interest rates and open market operations to control the money supply and maintain price stability within their economies.

In recent years, digital payment methods have become omnipresent, leading to a decline in the use of physical cash. For a better perspective, the M0 supply, which includes banknotes, coins, and bank reserves, was$5.3 trillion as of January 2023 versus M2’s$21 trillion, which also includes marketable securities and other bank deposits.

The shift towards digitization has prompted central banks to explore the development of so-called central bank digital currencies (CBDCs) inspired by stablecoins. CBDCs are digital forms of fiat issued on permissioned blockchains, i.e., private networks controlled by central bank members.

CBDCs aim to provide secure, efficient, and cost-effective alternatives to existing payment systems while maintaining the stability and trust associated with fiat. However, many economists are worried about privacy issues and the fact that CBDCs make banks unnecessary, leading to the centralization of the economy.

As of today, over100 countries are exploring the benefits and features of CBDCs (including the US).

CBDC tracker, via Atlantic Council.

CBDCs have the potential to transform the financial landscape by offering several benefits like faster and cheaper cross-border transactions, increased financial inclusion, and improved monetary policy implementation.

Fiat Currency Pros and Cons

Stablecoins Vs. Fiat Currencies: Investor Use Cases

Investors can use stablecoins in several ways to take advantage of the unique opportunities offered by the crypto space.

Stablecoins are gateways to blockchain and act as bridges between the traditional financial system and crypto.

They enable investors to increase or reduce exposure to crypto coins like bitcoin without fiat interaction. This allows investors to speculate on the price of cryptocurrencies while leveraging the risk management benefits of stablecoins.

Stablecoins have become an integral part of the growing DeFi ecosystem, where investors can access various financial services (i.e., lending and borrowing) without intermediaries like banks.

Blockchain lending platforms enable users to lend their stablecoins to earn interest or borrow against their existing crypto holdings. The interest is usually higher than the yield offered by traditional savings accounts.

U.S. Dollar: The Global Reserve Currency

The US dollar has enjoyed its status as a global reserve currency since the Bretton Woods agreement in 1944, when 44 countries agreed to form a new foreign exchange system centered around USD, which was then linked to gold. Even after the USD lost its gold peg in 1971 and became a floating currency, the greenback has maintained its global reserve status thanks to US foreign policy initiatives like convincing Saudi Arabia and other oil-producing countries to sell their oil exclusively for USD.

Perdata from the Bank for International Settlements (BIS), USD has been involved in about 88% of all foreign exchange transactions in the last decade.

The USD's dominance in FX, courtesy BIS.

Could a Stablecoin Become Global Reserve Currencies?

Today’s tectonic geopolitical changes increase the possibility of the US dollar gradually losing its reserve status, especially as Russia and China areplanning to dethrone it.

Could a stablecoin replace USD as the next global reserve currency? Unlikely. Such claimswere popular at the peak of UST, but its collapse has silenced such ambitions.

The more likely scenario is that another fiat, a CBDC, or a basket of fiat currencies or CBDCs will become the next standard of global reserves.

Investor Takeaway

Stablecoins and fiat currencies are complementary financial instruments, each serving a distinct purpose in the world of finance. Stablecoins, with their near-elimination of volatility, act as gateways to crypto, enabling seamless on-ramp and off-ramp systems for investors. They've greatly driven the growth of decentralized finance (DeFi), crypto payment systems, and other use cases.

However, fiat currencies are universally accepted and regulated by governments, providing trust and security in everyday transactions. The emergence of central bank digital currencies (CBDCs) highlights the ongoing convergence between traditional finance and the digital realm, offering potential improvements to cross-border transactions and monetary policy implementation.

Stablecoins and fiat currencies serve different purposes, but together, they contribute to a more diverse and interconnected global financial ecosystem, and they're still paving the way more than interest-bearing fiat accounts.

ICYMI