--- title: 'Recent Thoughts' category: investing tags: - investment published: true date: 2025-08-11 13:37:26 description: 'Stablecoin revenue rides on reserve interest, so it gets chopped once rates fall. SLR easing likely feeds buybacks, and I see an Aug-Oct correction then a year-end rally.' --- ## **1) Stablecoin Issuers**(feat. CRCL)**, the Limits of the Structural Revenue Model** With the overall market correction, Circle's (CRCL) stock price is falling right along with it. There has been a lot of good news related to stablecoins lately, so there is probably a lot of interest in CRCL, but in the short term I think there is a window worth watching for a bit (~year-end). I'm interested too, but the reason I can't readily bring myself to hit buy is that, at this point, the stablecoin business is, in a word, a platform business with a capped ceiling. Let me give an example. The current USDC circulation is about $63 billion. Most of the reserves matched against it are invested in U.S. short-term Treasuries maturing within 90 days, and more than 90% of Circle's annual revenue is interest income (Reserve Yield). Up to here, it's not bad. Since short-term Treasury yields are converging toward 4.5%, a stablecoin operator that can capture all of it is left with a clean margin. But the problem is that this model is structurally tied to interest rates. What if, as Trump argues, the benchmark rate comes down to the 1-2% range? The reserve interest income shrinks straight down to the 1-2% range. Basically, it gets chopped down. Beyond that, there is currently no other meaningful revenue model. On top of that, the GENIUS Act has now passed in earnest, and we also need to keep an eye on the cutthroat competition among issuers that is set to intensify going forward. Of course, from a long-term view, the current stablecoin market is around $260 billion, but as it functions as global payment infrastructure, it could expand into the trillions of dollars (x10). We can expect various use cases such as custody, on-chain payments, and CBDC integration, and in that process the winner that secures the network effect will be able to layer on additional revenue models. Still, I think that once rate cuts really get going, a sharp drop in yields will come first, so instead I'll probably start scooping up shares in earnest around the time rates hit their lower bound, while watching the market's size. The question is whether it can hold out until then. But then again, what's there to worry about with CRCL? Might be good to approach it with a bit of a bank-stock feel? Anyway, as for CRCL, I'll probably take a conservative approach to buying this dip. ------------------------------------------------------------------------ ## **On SLR Regulatory Easing: Will It Really Lead to Treasury Purchases?** The recent debate is over a plan by U.S. financial authorities to lower the "SLR (Supplementary Leverage Ratio)" regulation from 5% to 3.5%. The government **expects banks to use this headroom to buy more Treasuries**. But reality seems to be different. From the banks' point of view, are short-term Treasuries yielding 4-5%, which is about to fall, really attractive? Now, once the benchmark rate comes down, this yield shrinks even further. When the benchmark rate falls, short-term Treasury yields drop even faster, and because banks weigh the risk-return ratio rather than actual profitability, their eyes turn elsewhere. Going to long-term Treasuries brings the burden of inflation risk and duration risk, so in the end banks naturally come to prefer putting their funds toward share buybacks or dividend expansion, where they can expect a higher return on equity (ROE). Rather than going out of their way to buy Treasuries with this capital, banks conclude that it is far more advantageous to buy back their own shares in the market and enhance shareholder value. Trump wants to steer bank liquidity into the Treasury market, but banks appear to be turning the same funds toward the more direct and clear reward of "shareholder returns." It looks hard for SLR easing to have as big an effect as intended. ------------------------------------------------------------------------ ## **What Everyone's Probably Most Curious About Right Now? The Direction of Market Liquidity** Right now the market stands in the middle of a three-way collision: Trump's tariff pressure, Powell's resistance to rate cuts, and the Treasury's refilling of the TGA (General Account). Trump is, well... forcefully pressuring Powell for rate cuts. It was pushed back from August 1 to the 7th, but the tariffs are also flagged to take effect. As for the July 31 FOMC, perhaps factoring in that Powell would cut rates and the tariffs would take effect the very next day, wouldn't the market have had room to read it as an "easing + price-stimulus" signal? That is by no means the picture Powell wants = a rate freeze. On top of this, the Treasury intends to issue roughly $500B more in short-term Treasuries between July and September in order to soon raise the Q3 TGA account to about $850B. Issuance hasn't started yet, but the market will likely have to watch the timing of the funding and the strength of the absorption. For now, the conventional wisdom is that market liquidity will contract and dollar strength is likely to emerge. But there's also a chance the Treasury quietly walks back its promise and lowers the TGA target. The QRA (Treasury issuance schedule) to be announced in September will likely be the key. Also, Trump wants to increase fiscal revenue through tariffs and have foreign companies bear the burden. Powell, on the other hand, worries that the tariff burden will be passed on to consumers, because it could stoke inflation expectations. Especially now, with liquidity decreasing, if real inflation erupts, the Fed will just take the blame with no justification. Crucially, the market already expects the Fed to end quantitative tightening, but the Fed itself shows no sign of wanting to take on Treasuries. ## **To Sum Up:** From August to October, I see high correction pressure from tariff, interest-rate, and TGA liquidity issues → and after that correction, I see room for a year-end rally driven by credit expansion.