Summary of "The Most Important Monetary Development Since The End Of The Gold Standard? | Brent Johnson"
High-level thesis
- Stablecoins — digital tokens that represent dollars or other assets — are entering a “conflict phase.” They are no longer a niche experiment and could become one of the most important monetary and financial innovations in decades.
- Stablecoins offer a faster, cheaper, and more transparent payments rail that can operate in parallel to (and ultimately displace or reshape) parts of legacy banking and Eurodollar plumbing.
- Whoever controls stablecoin infrastructure — private issuers, big banks, big tech, or the state (via licensing or CBDCs) — will capture large profit pools and geopolitical leverage. Stablecoins also strengthen demand for US Treasuries and accelerate “digital dollarization” outside the U.S.
Assets, instruments, and entities mentioned
- Stablecoins (general)
- Issuers:
- Tether (largest, non‑US domiciled)
- Circle (US)
- JP Morgan coin (institutional use)
- Potential bank-issued stablecoins (e.g., Bank of America, Wells Fargo)
- Big tech projects (Apple, Google, Microsoft, Facebook)
- Underlying assets:
- US Treasuries / T‑bills (short-term)
- Tokenized treasuries
- Tokenized gold (gold stablecoins)
- Tokenized securities
- Blockchains / infrastructure:
- Ethereum (many tokens use it as a base layer)
- Crypto references:
- Bitcoin (contrast)
- Ether / Ethereum
- Other sectors / companies:
- Western Union (remittances)
- Banks (regional & national)
- Money market funds
- Gold and gold mining companies
- Policy / regulation names and regulators:
- “Genius Act”, Clarity Act (as referenced)
- US Treasury, Federal Reserve, SEC, FDIC, NFA (various agencies vying for jurisdiction)
- Sources / hosts:
- Brent Johnson (Santiago Capital)
- Adam Tagert (Thoughtful Money)
Key numbers, timelines and estimates
- Current tokenized dollar stock (public stablecoins): about $200 billion.
- Potential long-run scale: “tens of trillions, if not hundreds of trillions.”
- Banking concentration example: number of US community/regional banks cited as declining from ~14,000 to ~4,000 over ~20 years (approximate).
- Trade impact estimate: Brent Johnson suggested he wouldn’t be surprised if ~25% (or more, possibly 50%) of global trade not currently denominated in dollars could be transacted in US stablecoins within ~10 years.
- Example yield referenced: U.S. bills yielding ~3.5% (used to illustrate issuer profit capture); current regulatory design often prevents issuers from passing yield to holders.
- Foreign holdings of US assets: described as “at record highs” and accelerating (chart referenced).
How stablecoins are created and operate
Basic definition
A stablecoin is a digital representation of an underlying asset (most commonly a tokenized US Treasury or dollar-equivalent asset).
Typical tokenization flow (theoretical model)
- Issuer buys short-term US Treasuries or cash-equivalents.
- Issuer mints tokens representing dollar‑par value (ideally 1 token = $1) and sells them to users.
- Tokens circulate on blockchain rails; redemptions destroy tokens and return underlying assets to the redeeming party.
Regulatory guardrails (current US framework as discussed)
- Draft/legislative designs often require stablecoins to be backed by dollar assets and not pay direct yield to holders.
- This preserves banks’ funding and prevents stablecoins from becoming direct deposit/yield competitors.
Possible lending dynamics
- Today stablecoins primarily act as payments/settlement rails.
- They could be used as collateral for loans or as a base for new lending by banks or nonbank lenders.
- Issuer lending could create credit if tokens or their collateral are rehypothecated.
Interaction with AI commerce
- Stablecoin rails enable very high-frequency, low-value machine-to-machine transactions (microtransactions) that legacy banking rails cannot handle efficiently.
Macro and market impacts
- Funding and bank model risk:
- Large migration of deposits to stablecoins threatens traditional bank funding and could accelerate consolidation (big banks grow larger; community banks shrink).
- Loss of community banks could reduce small-business lending and hurt local economic dynamism.
- Currency / dollarization effects:
- Stablecoins lower barriers to dollar access globally and can increase dollarization in emerging markets, potentially driving capital flight from weak currencies.
- Issuers buying Treasuries to back tokens increase global demand for US Treasuries and can divert demand from other sovereign debt.
- Geopolitical leverage:
- Onshore vs offshore stablecoins could create dual-dollar regimes (analogous to CNH/CNY), enhancing US leverage over cross-border finance.
- Surveillance / control risk (CBDC dimension):
- CBDC-style digital money gives authorities unprecedented visibility and control (tax enforcement, freezing accounts, conditional transfers).
- Private stablecoin adoption could build similar architectures even if privately issued.
Risks, frictions, and cautions
- Reserve and counterparty risk:
- Concerns about whether some issuers (Tether cited) are fully backed or whether reserves are misreported; fraud or run risk exists.
- Regulatory uncertainty:
- Multiple agencies could claim jurisdiction (SEC vs CFTC vs banking regulators vs Treasury); outcomes will determine who controls rails and who captures yield.
- Financial stability:
- Rapid outflows to stablecoins could trigger bank runs, constrain credit, and favor large incumbents.
- National policy responses:
- Countries can attempt bans, app restrictions, capital controls, or enforcement — but enforcement is uneven and can drive economic isolation or political backlash.
- Civil liberties / authoritarian concern:
- CBDC-like functionality could enable transactional controls and surveillance.
Investment and portfolio implications
Broad themes and exposures
- Blockchain base layers:
- Ethereum called out as a logical base-layer exposure because many tokens run on Ethereum.
- Firms that capture rails and provisioning:
- Big banks that issue coins, big tech platforms, custody and infrastructure providers.
- Treasury market demand:
- Persistent foreign demand for Treasuries could be reinforced by stablecoin backing.
- Payments and remittances:
- Remittance incumbents (e.g., Western Union) face disruption; new rails and custody providers may gain.
- Tokenized commodities:
- Tokenized gold exists and may serve as an alternative store of value to fiat stablecoins.
Tactical and cautionary notes
- Specific tactical idea mentioned: Ethereum exposure as a way to get on the “base floor” of tokenized rails (presented as a starting point, not investment advice).
- Brent’s cautions:
- He’s not offering personalized financial advice; the field is evolving and complex.
- Consider advisers who understand digital assets and the geopolitical/macro ramifications.
Regulatory and policy dynamics
- Parties vying for control:
- Private issuers (Tether, Circle), banks, big tech, US Treasury, Federal Reserve, SEC, FDIC, and foreign governments.
- Two big regulatory outcomes:
- Allow licensed private stablecoins that must follow rules (backing, no yield to holders).
- Government issues or heavily licenses CBDC-style instruments (full or partial control).
- Political trade-offs:
- Heavy regulation can block innovation and economic benefits.
- Light regulation risks loss of monetary sovereignty and capital flight.
Explicit recommendations / actions for listeners
- If concerned about portfolio exposure and monetary regime changes, consult a financial advisor conversant with stablecoins and digital assets.
- Read the referenced reports by Brent Johnson:
- “Empire by Code” (earlier)
- “Stablecoin Wars” (latest)
- Both available via Santiago Capital research (research.santiago.com — promotions tab, per discussion).
Disclosures and cautions from the conversation
“I don’t have this all figured out.” — Brent Johnson
- Brent: candidly admits uncertainty and does not provide personalized financial advice.
- Host: recommends consulting financial advisors; notes promos and conference offers mentioned during the discussion.
Where to read / follow
- Santiago Capital research page: research.santiago.com (promotions tab).
- Brent Johnson:
- Santiago Capital
- Newsletter/show: “Milkshakes, Markets, and Madness”
- Twitter handle referenced in the transcript (SantiagoAUFFund).
- Thoughtful Money and Adam Tagert (host); ThoughtfulMoney conference referenced.
Presenters / sources
- Brent Johnson (Santiago Capital; author of the reports discussed)
- Adam Tagert (Thoughtful Money — host/interviewer)
Category
Finance
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