TradFi Yield Is Dead, but Would You Scan Your Eyeballs for Crypto?

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In today’s Money Morning…Fed official shows that central bankers aren’t all reading from the same script…Coinbase offers ‘conservative’ 4%…Altman’s Worldcoin wants your iris details…and more…

[Editor’s note: In today’s Money Morning Podcast, I take a quick look at one of the more exciting ETFs out there, ETFS ROBO Global Robotics and Automation ETF [ASX:ROBO]. I then break down how it fits into the market, various metrics associated with it, and some of the companies in its holdings.]

There’s no shortage of weird and whacky schemes in the crypto world, and today I’ll discuss a sensible one and one that’s a bit ‘out there’.

First up are some major moves in the world of stablecoins and central bank-backed digital currencies (CBDCs).

Believe it or not, a Fed official recently came out in support of stablecoins as opposed to CBDCs.

Fed official shows that central bankers aren’t all reading from the same script

Here’s what Randal Quarles, vice chairman for supervision at the Federal Reserve, said yesterday:

We do not need to fear stablecoins…stablecoins are an important development that raises difficult questions. For example, how would widespread adoption of stablecoins affect monetary policy or financial stability? How might stablecoins affect the commercial banking system? Do stablecoins represent a fundamental threat to the government’s role in money creation?

He answered his own question:

The Federal Reserve has traditionally supported responsible private-sector innovation…our existing system involves — indeed depends on — private firms creating money every day.

Which to me means that the powers that be in the world of fiat are not some ideological monolith — where the only opinion available is support of CBDCs.

That’s a good thing.

In part because stablecoins could be the last great hope for yield-hungry investors in a world where TradFi players essentially killed yield.

Recently-listed Coinbase, for example, just launched a 4% yield option for US Dollar Coin depositors.

Here are the details on that…

Coinbase offers ‘conservative’ 4%

As per CoinDesk:

Coinbase is rolling out a crypto savings account that lets you earn 4% annual percentage yield (APY) by lending out your USDC.

The account isn’t FDIC- or SIPC-insured and functions much like other products at crypto lenders and other exchanges that regularly offer yields around 8%. The reason why Coinbase is offering a comparatively lower yield is because it doesn’t lend to “unidentified third parties.”’

4% could be a bit conservative — but that’s the price you’re paying for a bit more security on that yield.

The lack of FDIC or SIPC insured status is again the price you are paying for a bigger number.

You may balk at that, but here’s why I’m not too concerned…

With ‘Life at zero’ upon us, a whole new class of capital in portfolios is emerging.

Call it, ‘speculative savings’.

It’s not necessarily an oxymoron, it’s more a hybrid of two different concepts.

Consider it part of your growth asset allocation, money that you are willing to lose but also money that you don’t want to actively manage.

In a world where a big bank’s yield has no chance of beating inflation, this kind of capital could be the new norm.

Which brings me to another point about CBDCs and the prospect of yield.

The TradFi model with its millions of middlemen, in my eyes, probably wouldn’t be compatible with a CBDC system.

The old way of doing things, is the central bank lends out a rate and big banks then take a clip for on-selling that money or distributing it.

Their clip is justified based on the administration of the money — is this person suitable for this loan? Etc, etc.

I believe CBDCs would erode or even completely eliminate the need for big bank middlemen in the long run.

Stablecoins will almost certainly do that too if they proliferate, but it’s the preferred option.

In a nutshell, the Fed and other central banks have never really liked the big banks, and even less so after the GFC.

Uneasy bedfellows to say the least.

Now for that super-whacky crypto scheme I flagged at the start of this piece…

Altman’s Worldcoin wants your iris details…

As per Bloomberg:

Sam Altman has a new startup that intends to give a special type of cryptocurrency to every person on earth. But first, it wants to scan everybody’s eyeballs.

Altman, the former head of the Silicon Valley business incubator Y Combinator, is one of three founders of the company Worldcoin. Among the many parts of its plan, Worldcoin has designed an orb-shaped device that would scan a person’s iris to construct a unique personal identifier.

Worldcoin will make the process as transparent as possible so users can see how the data is used… the iris scan will produce a unique numerical code for each person and that the image is then deleted and never stored.

Despite assurances, some might not feel comfortable handing over their iris details, so it’ll be interesting to see how this plays out.

This is the main principle behind Worldcoin though — to circumnavigate government distribution of money.

Chatting to Tyler Cowen in 2019 (who was quoted in yesterday’s Money Morning), Altman talked of a system that where you could ‘distribute money to everyone [and] circumvent the need for government redistribution.’

At tax time that’s an interesting thought — why do I need to hand over my taxes and then get a bit back or pay a clip after someone has a look at my return?

If governments can’t even write the rules on money, will they shrink or disappear?

Will new forms of government arise?

As long as a corporation isn’t making the money, that future doesn’t sound too bad.


Lachlann Tierney Signature

Lachlann Tierney,
For Money Morning

PS: Lachlann is also the Editorial Analyst at Exponential Stock Investor, a stock tipping newsletter that hunts for promising small-cap stocks. For information on how to subscribe and see what Lachy’s telling subscribers right now, please click here.

About Lachlann Tierney

Lachlann Tierney is an Analyst for Money Morning and has been investing for nearly a decade. With a Masters of Science from the London School of Economics, he brings a sound understanding of global markets to his writing. Lachlann is interested in emerging technologies, energy solutions and helping people invest…