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)

1. Issuer buys short-term US Treasuries or cash-equivalents.
2. Issuer mints tokens representing dollar‑par value (ideally 1 token = $1) and sells them to users.
3. 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:
  1. Allow licensed private stablecoins that must follow rules (backing, no yield to holders).
  2. 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)