Why Stablecoins are the Hottest Thing in Crypto

Wyoming is even getting in on the action

Ric Edelman: It's Monday, September 16th. I've had a few questions over the past couple of weeks, about the price of Bitcoin, and what's going on in the world of crypto. After soaring in the first couple of months of the year, it has been flat, and a little bit bubbly up and down with bubbles rising and bursting. Everybody's been wondering--I'll say everybody--everybody who's interested or curious about Bitcoin that is, has been wondering: “has this been stagnant? Is there nothing going on?”  

Well, let me tell you what has been going on in the world of crypto. Franklin Templeton is one of the largest asset managers in the world, with $1.5 trillion dollars in assets.  Franklin Templeton launched the world's first on-chain money market fund and has now begun trading that fund on the Ethereum layer 2 network.  It’s called Arbitrum and it's already trading on Stellar and Polygon blockchains. And now, this money market fund, FOBBX, is now trading on a third public blockchain. This money market fund is unique because it is the first on-chain, meaning this offers shares of a money market fund trading on a blockchain.  

What's the big deal about that? Well, blockchains are more efficient. They are faster and the result for you as an investor... cheaper. And that translates into a higher yield. And here's what's really interesting. You don't buy this fund from a broker or on a brokerage account. I mean you can, but the simpler, easier way is that you just download the app from your app store on your phone. The Benji token is how you buy it. So you transfer money from your bank to the app and you purchase this right on your phone. In other words, you don't need a brokerage account in order to have this money market fund. 

Arbitrum is the largest Ethereum layer 2 network. It's got $2.5 billion dollars in deposits and this is something that is growing quite rapidly. Already, Franklin Templeton has more than $400 million in assets in this fund because investors are recognizing:  “Hey, I want a money market fund and this one's paying a higher yield than others and offers lower costs.” 

So what's not to love. In fact, that attitude “what's not to love” is so enticing that BlackRock got in on the game. BlackRock launched its own chain money market fund called "biddle".  BUIDL is the symbol. That's a takeoff on a joke in the crypto world about HODL, meaning hold on for dear life and meaning never sell your Bitcoin. It was kind of a joke because where this came from was, somebody wrote an email to somebody else and they misspelled hold. They meant to say, “hold for dear life”. They had a typo and hold became instead of H O L D became H O D L and HODL has become a meme in the crypto world.  “Hold on for dear life.” And so BlackRock picked up on the joke. And instead of saying build, they said BUIDL, the fund being from BlackRock, the world's largest money manager with about $9 trillion in assets globally. This fund has skyrocketed and has overtaken Franklin's in size. 

BlackRock's BUIDL money market fund has $500 million in assets. Between these two, they're pushing a billion dollars in assets and they're incredibly new.  Franklin Templeton is 75 years old. Everybody knows it so well from its municipal bond funds and U. S. government securities funds. They're a well-kept secret in the world of crypto. They've been running crypto node validators and doing crypto investment strategies since 2018. They offer, along with BlackRock and many others, two ETFs in the cryto space. Franklin Templeton offers the Bitcoin ETF. The symbol is EZBC. Kind of clever. And the new Ethereum spot Bitcoin ETF, EZET. So, people who think that they know Franklin are often very surprised to discover that Franklin is one of the leaders in the crypto space and, moving very rapidly. 

And that moves us to a bit of a different conversation because while these two funds from Franklin and BlackRock are money market funds, let's face it, money market funds are incredibly popular and deservedly so.  Investors are looking for places to store their cash. When you are in between investments, for example, if you sell your stocks, you want to move that money to cash and you don't want literally sitting in cash.  You want to earn interest and therefore you move the money not to a cash account at your brokerage firm, but to the firm's money market account, where you'll earn 4% or 5% interest. And it's a very common approach.  

Well, the crypto community has an alternative that is comparable to the money market funds offered by the investment community. And in the crypto world, these are called stablecoins. A stablecoin solves the problem that exists with Bitcoin.  If you ask people, what's the number one reason you hesitate buying Bitcoin, people are going to say volatility. We know how volatile the price of Bitcoin is. And, people are hesitant to put their money into Bitcoin out of a fear that it might go down in value in the next couple of minutes, let alone the next couple of months. And this is why people want stability from their cash. And that's what stablecoins offer.  

Picture a digital asset like Bitcoin that doesn't have any volatility. Instead, you just have the dollar-for-dollar value. In other words, if you buy a $1 stablecoin, it's always $1, simple and easy. And in the crypto world, they have created these stablecoins for the same reason that the securities industry created money market funds. Like I said, a moment ago, if you sell your stocks and you haven't decided what new stocks to buy, or you haven't decided if you need the cash, you want to park the cash somewhere.  So you sell your stocks and you move the money into a money market fund.  

Well, what about the same in crypto? What if you sell your Bitcoin? But you're not sure you really need the cash, or you're not sure when you want to rebuy Bitcoin or what other crypto coin you might want to go by. What do you do with the money in the meantime? 

Well, you sell your Bitcoin and you transfer it to a stablecoin. This way, you know your money is set. It's in a fixed amount. You don't have to worry about volatility. There are $170 billion in stablecoins worldwide right now, as the crypto community recognizes, this is a wonderful way to park cash. 

Tether and Circle are the two largest stablecoins in the industry. And these all work pretty much the same way. When you buy a stablecoin, you buy a $1 stablecoin and the price of the stablecoin is $1. So a dollar-for-dollar, just the same thing in a money market fund where your one dollar invested is worth one share in the money market fund.  It's the same thing with stablecoins. 

What do they do with your money when you give it to them? They put the money into U. S. Treasuries. End of story. So, $1 in stable coins is worth $1 in a US Treasury bill, and this is why investors like them as a place to park money because it's super safe being in a treasury. 

Where are the economics of all this? Well, here's the deal. In a money market fund, you get the interest when they invest the money in treasuries. But in a stablecoin, you don't get the interest. Aha! So, although the stablecoins are free for you to use, the reason they're free is that Tether and Circle are keeping the interest that they're earning on your money when they put your money into treasuries. 

Wow, that's a lot of interest. Think about it. $170 billion in stablecoins. None of those investors are earning any interest. All the interest is being earned by the people who created these two stablecoins.  

300 million people around the world use Tether. The company only has a hundred employees. I mean, the whole thing is digital.  It's simple and easy to operate. It doesn't take a lot of people. They've only got a hundred employees. How many people work at a local bank? Right? Tens of thousands of people work at Chase or Citigroup or Wells Fargo. Tether has a hundred employees, but its profit this year is $10 billion. All the interest that they're earning on all those treasuries. The profit at Tether is larger than BlackRock's profit. It's incredible.  

And here's one other issue. Stablecoins, because they are created within the crypto community, operate beyond the reach of U. S. law enforcement. They are not securities. They are not governed by securities laws. They're also not banks. They're not covered by banking laws. So how do you regulate these? And if these are created offshore, and, by the way, they are, U. S. law enforcement can't do anything about it. And this is why, quite frankly, drug cartels, fraud rings, terrorist groups like Hamas all can use these things. 

But it's also a lifeline, these stablecoins, for people who live in countries with unstable economies or crooked governments. Places like Venezuela, where inflation is 2% million percent. How can you possibly earn any money in Venezuela and then take your paycheck and put it into a Venezuelan bank? Not only might the government seize it, the value of the money you put into the bank drops dramatically every single day because the value of the currency keeps dropping like a rock. So, these folks would much rather have their money in a stablecoin where they know the value will be tied to the U S treasury. Where their money won't lose value, they'll still be able to buy food and pay for electricity, which they wouldn't be able to do with the Venezuelan currency.  

And check this out, if you want to move money from one country to another, let's say that you're an immigrant and you come to the U. S. for economic opportunity, but your family is back home in Venezuela or some other South American or Central American country, and you want to send money back home to mama.  Well, if you want to wire mama money or use Western Union, it takes five days for mom to get the money, and you've got to pay a commission of 6% or 7% to move the money to mom. You've got to pay a 20% percent commission if you're going to move the money to sub-Saharan Africa.  

But with stablecoins, you can move the money to mom instantly, for free. This is why stable coins are so popular all around the world. But they aren't subject to U. S. law. And this is why the very first federal legislation you're going to see in the crypto space is going to be governing stablecoins. This is the low hanging fruit of crypto. Everybody loves stablecoins in the government, both federal and state, as well as around the world, because they are so technologically superior to our current banking system. 

But there aren't many rules and regs in place yet. And that is opening people up to fraud and abuse. We are very hopeful that we're going to see those rules in place. And I won't be at all surprised that if within the next few years, you have some of your cash reserves in stablecoins.  

In fact, guess who's launching a stable coin early next year. Wyoming. Yeah, they've announced that they're going to launch their own stablecoin. It's going to be called the Wyoming Stable Token It's going to be designed to be faster and cheaper as a way to transact business transparency fully backed by short-term treasuries. Wyoming has passed more than 30 crypto laws over the last eight years and they have no concerns with privacy about this coin. 

People are saying, oh my goodness, if Wyoming creates its own stablecoin, that means Wyoming will know what I'm doing with my cash. No, Wyoming says it's not going to be an issue because they're going to post this stablecoin using several public blockchains, such as Ethereum and Solana. They're not going to use private networks. 

Bottom line is stablecoins are just going to be another payment method for everyday things. And Wyoming says they're going to take the money that they earn on the interest, and they're going to use that interest to help fund its public schools. Pretty cool.  

But what about going to the next level? What about a federal government, a national government, creating its own stablecoin? Well, these things have a different name. They're called a CBDC, a central bank digital currency. More than 30 countries are currently piloting one of these things. In fact, 19 of the G20. The only one that's not is us, the U.S. The other 19 are all in advanced stages of developing a central bank digital currency. In other words, a digital dollar.  

Why is it we still have to use paper money to conduct our transactions? And when's the last time you did use paper money? I mean, other than giving a tip to the valet or to a bellhop. You're using credit cards and debit cards, that's digital money. You're using PayPal and Venmo...that's digital money. Well, a stablecoin is digital money too. A CBDC, a digital dollar, is digital money too. You know the concessions at Yankee Stadium no longer take cash? If you want to buy something with cash, you have to pay an extra $1 to $6.  Because vendors are recognizing, businesses are recognizing cash is a hassle. I might run out of it. I might not have enough to make change for my customer. It's easy for my employees who are minimum wage to be motivated to steal the cash out of the register.  

But with digital transactions, none of us have to worry about any of that. There's no tax evasion. There's no money laundering. I don't have to get my hands dirty from dealing with dirty money. that is, I mean, literally, physically dirty. Where's that dollar been? Anyway, up somebody's nose, maybe?  

This is just illustrative of how the industry is moving very rapidly. So, it might not appear there's much going on in the world of crypto simply because you haven't seen the price of Bitcoin doing very much in the last six months. I don't really think that has a whole lot to do with it.  

Hey, I've got a webinar coming up for you. I don't want you to miss it. In fact, it is on this very topic. Crypto it's Friday, September 20th at 1 PM. Eastern the Q4 [00:15:00] crypto outlook what's going on over the next few months through the end of the year, what you need to know right now, this has indeed been a pivotal year for the crypto markets. 

We had the launch of the Bitcoin ETF and the Ethereum ETF. we've got the crypto packs that have amassed 200 million that they're spending on the elections this year. What's going to happen next in the crypto community in this webinar, Matt Hogan from Bitwise is going to be joining me and he's got 20 charts that he's going to show you that'll take you underneath the headlines and give you a preview of what you can expect in Q4 and into 2025. 

It's going to be a fabulous conversation. You're not going to want to miss it. It's Friday, September 20th, 1 PM. It's free. If you're a financial advisor, you get one CE credit register right now. the link to do so is in the show notes. Look forward to seeing you there.  

I'm glad you're with me here on The Truth About Your Future.  

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Ric Edelman: I'll see you tomorrow.  

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Links from today’s show:  

Arbitrum Ethereum Layer 2 Network: https://ethereum.org/en/layer-2/ 

Franklin Templeton FOBBX Fund: https://www.franklintempleton.com/investments/options/money-market-funds/products/29386/SINGLCLASS/franklin-on-chain-u-s-government-money-fund/FOBXX 

BlackRock BUIDL Fund: 
https://securitize.io/invest

9/20 Webinar - Q4 Crypto Outlook: What You Need to Know Now: https://dacfp.com/events/q4-crypto-outlook-what-you-need-to-know-now 

9/25 Webinar - Unlocking Alpha in Crypto-Equities and Beyond: https://dacfp.com/events/unlocking-alpha-in-crypto-equities-and-beyond 

9/10 Webinar Replay – Bitcod-fund-quickly-rakes-in-245m-right-behind-franklin-templetons-older-offering/ 

Stellar blockchain: https://stellar.org/ 

Polygon blockchain: https://polygon.technology/ 

Benji App and Token: https://www.franklintempleton.com/about-us/our-teams/specialist-investment-managers/digital-assets/digital-assets-technology 

HODL: https://www.investopedia.com/terms/h/hodl.asp 

Franklin Templeton Bitcoin Fund EZBC:   https://www.franklintempleton.com/investments/options/exchange-traded-funds/products/39639/SINGLCLASS/franklin-bitcoin-etf/EZBC 

Franklin Templeton Bitcoin Fund EZET:   

https://www.franklintempleton.com/investments/options/exchange-traded-funds/products/39639/SINGLCLASS/franklin-bitcoin-etf/EZBC?query=ezet 

Stablecoin:   https://www.coindesk.com/learn/what-is-a-stablecoin/ 

Tether: https://tether.to/en/ 

Circle: https://www.circle.com/en/ 

Wyoming Stablecoin: https://stabletoken.notion.in, Ethereum, or Both? How to Make an Informed Crypto Allocation Decision: https://dacfp.com/events/bitcoin-ethereum-or-both-how-to-make-an-informed-crypto-allocation-decision/ 

9/11 Webinar Replay – Rates are Poised to Drop, Now What?: https://www.thetayf.com/pages/rates-poised-to-drop-now-what 

Wealth Management Convergence 2024: https://www.thetayf.com/pages/convergence 

Become Certified in Blockchain and Digital Assets: https://dacfp.com/certification/  

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