[endijs]

I understand why stablecoin's are useful to the end user. I also understand how Bitfinex is cashing in on Tether. However how is Coinbase making money with USDC? They clearly will have considerable expenses (keeping reserve, legal team, development etc. etc.). But if I give them 1USD and get back 1USDC, which later can be exchanged back to 1 USD, where are they making money?

[benjaminjackman]

>But if I give them 1USD and get back 1USDC, which later can be exchanged back to 1 USD, where are they making money?

Historically that's basically how banks have made money. Issuing bank notes while earning interest on the capital they hold. Typically they juice the rate via fractional reserve lending, ie they lend out more money than they have. However if they aren't able to do that, they still get to keep the interest from the deposits (say by buying Treasuries).

My guess is that the stable coins will continue to be more and more common, but then cryptocurrencies will rediscover fractional reserve lending, and new ideas like pegging a coin to the S & P. The pegger will charge a small service fee, the holders will be able to rapidly move money they spend, almost instantly between S&P (or other basket) pegged coins and stable coins.

There will be enough competition over being the holder of stable coins and enough competition in that system they I would expect them to offer rebates on transactions, and not have to charge merchant fees. And since they will be centrally cleared and not have to deal with mining and so on, the transactions ought to clear instantaneously.

[JumpCrisscross]

> like pegging a coin to the S & P

So we invented a less efficient ETF which has the added bonus of keeping regulators and securities lawyers employed until the post-quantum world.

[larrysalibra]

Presumably they'll charge you a fee to buy, sell and trade it just like any other asset. If coinbase is involved in keeping the reserve, they can invest it various assets and keep the earnings - think money market fund, but you don't earn any interest - coinbase/circle keep the interest.

[seanalltogether]

> If coinbase is involved in keeping the reserve, they can invest it various assets and keep the earnings

If that's the case I wish they were up front about that fact. I think its completely reasonable that they would keep any earned interest as compensation for managing the coin, so just be honest about it.

[kaffeemitsahne]

I don't see any reason to assume they will pay interest on the USD in custody, nor do they claim to do so, which makes them 100% honest in my book.

[BeefySwain]

Presumably the same way that banks make money? They invest the money that you deposit.

[Xixi]

Basically interests: they are certainly targeting billions of dollars (or at least several hundred millions) of assets in custody. Assuming the US Federal Funds Effective Rate (currently at 2.19%) it can add up quickly.

[ada1981]

I imagine this could also boost the price of Ethereum and increase usage in general.

Coinbase needs to pivot from the pyramid scheme economics of the early coins and instead focus on transaction volume.

[Yizahi]

> which later can be exchanged back to 1 USD

Probably this part will change on the fly, same as with Tether scam.

[pezdeath]

Short term securities more than likely. Same way paypal/venmo makes money with your balance.

[Avamander]

Depositing and withdrawing money from their system?

[hiimnate]

Don't they charge purchase fees?

[radicaldreamer]

No, USDC is fee-free. They charge purchase fees on other cryptocurrencies though...