Brends Loya, Tellor | From Money Markets to Stablecoins: The Hidden Politics of Cash

Hello everybody. My name is Brenda. I'm CEO and one of the co-founders of Teller. Teller is a decentralized oracle and it's one of the very few oracles that can actually pass a walk-away test. You don't have to go through the team to get your query whitelisted or be whitelisted to become a data reporter or validator.

That's my shameless plug. But here today, I'm not here to talk about Teller so much, but to actually talk about the hidden hidden politics of cash and what's going on in DC. Uh the implications of it and give you some historical context of where this fight started. So, um in this talk I'm going to going to discuss a little bit of how it's how it all started in 1930, um how MMFs or money market funds actually challenge regulation Q, what that is, how the MMFs exploded in the 1980 in 1981 and how high saving high yield accounts emerged in the 1990s, how MMFs risk were observed in 2008, and whether or not I get that the real question here is whether or not the risk justify eliminating or reforming. So, with that let's get started um with what's going on in DC currently.

So, in 2025 the Genius Act was passed and that basically um set a certain way that stable coins back to stable coins should operate. So, it basically said that stable coins can only on the reserves they can only hold either cash or treasuries. They cannot be rehypothecated and so it really limited what they could do. Now, we still were to see Coinbase offering us 5% yields on our USDC. So, even though Circle couldn't offer that to us, Coinbase could.

And so, then the Clarity Act became the next um version of this bill where bankers could actually come and lobby to close that gap that was left open. So, so, the Clarity Act has not been passed. It's still going on in Washington, D.C. or talks about it are still going on in Washington, D.

C. But, the White House did have a cup or several conversations, closed-door meetings with Coinbase and the American Bankers Society Association ABA. And basically, this came the this happened because at um Brian Armstrong basically re- trieve or all um they basically Coinbase in itself, they basically said, "We're not going to support a stable coin be a clarity bill that supports a complete ban on stable coin yield." And so, these talks happened behind closed doors. And while these talks were happening in March 17th, so just like 2 weeks ago, uh the SEC and the CFTC actually issued guidance on what the Clarity Act was supposed to actually be accomplishing, which is providing us clarification on the classification of assets.

And then in March 20th, just last week, there was a deal reached between the White House, Coinbase, and the American Bankers Association where basically um passive yield was banned. And now you can only earn yield as a holder through activity-based ac- things. What that means is still to be seen, but basically the The point of this is that um, this fight was supposed to bring or bring clarification on classification of assets, but in in turn it turned into a fight that has been happening since the 1930s. So, um, in 1971 so, you you cannot you cannot outlaw competition and ultimately what ends up happening is when something very restrictive happens in the economy or the government decides to do something very restrictive uh, people find innovative ways to extract some value. And in 1971 um, Fidelity launched the first MMF.

And that happened because in 1930s, which it was very justified, um, the US was going through the Great Depression at the time and they implemented the 1933 Banking Act that implemented restrictions on on interest rates allowed on savings accounts, so they implemented a cap and for checking accounts, they completely banned them. So, from 1933 to the 1970s, you were basically earning no returns on your money in the bank. And that was so that banks wouldn't experience bank runs in the middle of a of a depression, right? So, that way the only incentive for you to move your bank from a bank was that it wasn't your local bank. So, it took many decades for us to actually start seeing innovation come into place.

And at the time Treasury's uh, yield was only 5%, which was not that of a big of a deal, right? But, in the 1980s, that grew to almost 16 and 17%. And what that meant was that in 1977, MMFs were about 4 billion and by the 19 by 1982, they were 230 billion worth. And even though banks, you know, um they completely opposed them publicly, in the back end, they were building infrastructure to be able to take advantage of this. So, banks, the way that they operate, they have these bank holding company that can own a bank that has the charter of the bank from the OCC, but they can also own other entities under that umbrella.

So, what they ended up doing was they had their bank charter, and then they created some MMFs. And by by the 2000s, they actually were able to capture 50% of the market. Let that sink in because this is going to be important of what's happening with stable coins fight right now. All right. So, they captured these 50%, but then in 2008, we had the Great Recession in the United States.

And what that ended up creating was a lot of things went um didn't didn't work as they were expected. So, the market was really bad, and Lehman Brothers actually filed for bankruptcy. And that's when it came to light that Reserve Primary Fund, one of the biggest money market funds, was uh holding a bunch of these commercial paper in their reserves. And so, they broke the buck. That's what they called it when it was depegged.

We call depegging in USDC or in the crypto world, but then they would they just called it, "Oh my god, they worked they they broke the buck." Anyway, um they didn't eliminate the product, they just managed the risk eventually. So, now MMFs are not allowed to hold commercial paper because of what happened in 2008. Today, there's about the the amount of um assets under management in MMFs about $6 trillion, and that's actually where the fight comes into place for the stable coins. Um and there's a lot of parallels between money markets the money market fights that happened in the 1970s and what's happening currently.

Also, um these were the arguments against MMFs. They were going to be cost deposit risk and will disincentivize lending. They were acting as shadow banks. They were doing all these unfair regulatory arbitrage. They had higher higher systemic risk for banks and consumers would not be able to understand that these products were not FDIC insured.

Um so, they didn't have a lot they never really have a lot of uh um trust in the consumer understanding what they're getting into. But, if you look at these arguments, they're very familiar up to what's happening today. Then high-yield savings accounts came about in the 1990s because we got so comfortable with the internet and we could we started trusting this uh this you know, this new way of transacting. And so, now these um now these entities didn't have the the higher overhead that banks brick-and-mortar banks had and they were able to pass on higher yields. Um but, where it really gets interesting is on sweep accounts.

So, sweep accounts were actually created alongside the money market funds in the 1970s. And they were originally, you know, they would take your idle cash, put it in an MMF, allow you to earn that return, and then you would get them almost market rate for that, and then the broker would get a small fee. Nowadays, especially since the in the 2021 time period, um this model completely changed. So, go back and check your brokerage sweep accounts because now your idle cash is actually put into affiliated bank deposits. And then you as a customer, we're only passed on about 0.

45% of that if we're lucky. And then the broker actually pockets the 4% that was intended for the consumer. So, there's an approximately approximately about $1 trillion in retail cash is sitting in that arrangement that happens every night as we sleep. And the SEC has really turned a blind eye to it for a very long time because it was somewhere in the fine print it was disclosed that they were no longer moving your money into money market funds, but instead they were moving it into their affiliated banks or partner banks. And they're keeping all of that or capturing all of that interest rate.

So, that's the gap that actually stable coins are actually competing with. It's not just bank deposits and and and savings, but these uh this is mostly like um it's like a shadow way of banks taking over um interest rates and yields that were had at some point being passed on to customers. They were able to acquire that without even us notice noticing it. And that's actually what they're fighting against right now. So, banks didn't actually defeat money market funds.

They joined them and by the 2000s they owned more than 50% of the industry. And what they're trying to prevent right now with stable coins is that same competitive threat. It's not a new one. And basically what they don't want to happen is that is that Coinbase does the same thing that they were doing back in the 2000s when they took over money markets. Because that's basically how Coinbase and Circle are circumventing these uh regulatory constraints.

And it's that's not to say that banks are not that banks are wrong or they're they're just driven by greed. There is a real risk of state with stable coins because well, we're we have a lot more global reach and as we saw in 2008, anybody that was holding any of those securities that failed the housing with the housing market, they experienced some of that downturn as well. With stable coins that pegged to the US dollar or any other any other currency, we will we can experience or we can absorb shocks even though they're not happening straight in there. So, they become more of a systemic risk because as they become reserves on other assets or in other or collateral part of the collateral of other things, all of these things become um become can become affected. So, the systemic risk is risk is very real.

In March 20 In March 28, who won and who lost? In my view, everybody lost a little everybody gained a little, but ultimately what the main question is whether or not passive and an activity-based yield that if that distinction is going to make a difference in the long term. And also, we have to keep in mind that the only reason we are getting yield from the majority of these entities when they're coming into the the industry, it's because they're trying to motivate us to move our money. There's it's not an altruistic thing that they're doing. They just want our money.

They want to make sure that we go into our bank accounts and move it. And so, these periods where we experience these returns can be very very short-lived. And my my real concern with what's happening right now is that ultimately Coinbase and everybody else is out there for profit. So, once they become the institution, will they continue to do the right thing? And for us as builders, as we see how regulation shapes, how do we build products that are actually um that take this into consideration?

Do we diversify? Do we uh freeze? What do we have to do to make sure that we don't experience similar systemic risk like what happened in 2023 with USDC depegging because the Silicon Valley Bank was closed down or shut down. And even though it didn't happen on chain, it had a direct effect on what happened on USDC and anybody that held USDC in their collateral. And with that, um I'm out of time, but if you guys have any questions or would like to chat more about this, I would love to talk about it and find out what your take is and whether or not you actually knew that your super accounts have changed so much over the last several years.

All right. Thank you.