Beyond Supply: Stablecoin Velocity and AI's Financial Future

The Velocity Revolution

V

Stablecoins vs. Traditional Finance

Economic formula P×T=M×V reveals growth dynamics. Traditional finance's M2 velocity (V) is low, averaging 1.2 to 1.4 times/year. Stablecoins like USDT and USDC boast velocities of 30 to 50, meaning the same capital is used dozens of times daily.

This massive speed difference is stablecoins' true disruption, not just their supply size.

Placeholder: Velocity Comparison Chart (M2 vs. Stablecoin)

Factual Intro

Arthur: Valerio, you mentioned that the real difference between stablecoins and traditional finance isn't supply, but velocity. Can you break down this concept for us using the economic formula P×T=M×V?

Quick Take

Mia: So, the core idea is that even with the same amount of money, if it moves faster, it can power a much larger economy, much like how quickly washing plates allows you to serve more guests.

The "Aha!" Moment: Lazy Cat to Hyper Puppy

Arthur: You highlighted that M2 velocity is around 1.2 to 1.4, while stablecoin velocity can reach 30 to 50. What does this massive difference in speed—from a "lazy cat" to a "hyper puppy"—mean for the fundamental structure of finance?

Mia: It means stablecoins aren't just a different type of money; they represent a fundamental shift in how quickly value can be exchanged and utilized, potentially making traditional banking models that rely on slow-moving deposits obsolete.

Conclusion & Transition

Arthur: So, the speed of stablecoins is their real game-changer, turning money from a "sleepy cat" into a "hyper puppy." This speed has significant implications. What happens to traditional banks when their entire business model relies on money that moves so much slower?

The Collapsing Cloakroom

Stablecoins and the Disruption of Traditional Banking

Traditional banking relies on "static" customer deposits for lending and profit, like a restaurant allowing coats to sit for months.

Stablecoins' high velocity means funds can be withdrawn instantly, hindering banks' ability to lend and profit. This high-frequency liquidity demand risks collapsing banking models dependent on slow capital turnover.

Factual Intro

Arthur: Valerio, you've explained how stablecoins move incredibly fast. Now, how does this high velocity impact traditional banks, whose business models often rely on deposits sitting idle?

Quick Take

Mia: Essentially, banks are like a cloakroom that relies on coats being left for a long time. If everyone suddenly wants their coat back every five minutes because of stablecoin speed, the whole system can't function.

Conclusion & Transition: Shifting Anchors

Arthur: That's a powerful analogy – a "collapsing cloakroom." This speed also makes me wonder about market benchmarks. Traditionally, we look at things like the 10-year Treasury yield as a risk-free rate. Could the "anchor" for risk-free rates shift to on-chain assets due to stablecoin velocity?

The Shifting Anchor

On-Chain Risk-Free Rates and a Dual-Loop Financial System

Stablecoins' high on-chain velocity could make them a primary "risk-free rate" (RFR) reference, potentially superseding traditional benchmarks like the 10-year Treasury yield or SOFR. This marks a shift in financial market "anchors."

A "dual-loop" financial system emerges: an off-chain loop (sovereign currencies for salaries/taxes) and an on-chain loop (cross-border, instant settlement, DeFi, AI payments). These loops connect, balancing capital flow.

Placeholder: Dual-Loop Financial System Diagram

Factual Intro

Arthur: Given the incredible speed of stablecoins, could they fundamentally change what we consider the "risk-free rate" and introduce a new benchmark for markets, perhaps even replacing traditional anchors like the 10-year Treasury yield?

Quick Take

Mia: Yes, it’s plausible that as on-chain lending and borrowing scale up, the on-chain RFR could become a primary reference point, much like SOFR replaced LIBOR, leading to investors checking it before even looking at traditional bonds.

The "Aha!" Moment: Off-Chain vs. On-Chain Loops

Arthur: You’ve described a potential shift towards an "on-chain RFR" and a future where investors check this first. This sounds like the emergence of a "dual-loop" financial system. Can you elaborate on what this off-chain and on-chain loop system would look like, and how money flows between them?

Mia: The off-chain loop handles traditional flows like salaries and taxes in sovereign currencies, while the on-chain loop handles instant, programmable transactions like DeFi and AI payments. These are connected like water tanks, with money flowing to balance differences, creating a distinct but interconnected financial ecosystem.

Conclusion & Transition

Arthur: So, we're looking at a future with two distinct financial loops, one off-chain and one on-chain, connected by the flow of money. This brings up another comparison: if stablecoins operate outside direct central bank control and function like money, could they be considered a form of "shadow banking" or "shadow money"?

Shadow Money and AI's Future

The Unseen Forces Shaping Finance

Stablecoins function as "shadow money"—issued and circulated outside direct central bank control, akin to "shadow banking." While efficient (like playground "tickets"), this can amplify economic shocks, raising regulatory concerns.

Crucially, future AI systems will heavily rely on stablecoins' instant, programmable, global nature for data exchange and micro-transactions. AI could become the largest user of stablecoins, far surpassing retail or hedge funds.

Factual Intro

Arthur: You mentioned a dual-loop system. This idea of stablecoins operating outside direct central bank control, functioning like money, reminds me of "shadow banking." Would you categorize stablecoins as a form of "shadow money"?

Quick Take

Mia: Yes, stablecoins are essentially "shadow money" – they issue liabilities that act like money but exist outside the direct oversight of entities like the Fed, much like kids issuing their own accepted "tickets" on a playground.

The "Aha!" Moment: AI as Primary User

Arthur: The concept of "shadow money" raises concerns about stability and authority. You also touched upon AI. How do you see AI interacting with stablecoins, and could AI become the primary driver of stablecoin adoption, far exceeding human usage?

Mia: AI transactions, especially for data exchange, will demand the instant, programmable nature of stablecoins. AIs won't wait for slow traditional transfers; they'll transact in tokens, making AI potentially the biggest user of stablecoins, essentially "paving the roads" for their future adoption.

Conclusion & Recap

Arthur: That's a wild thought – AIs as the main drivers of stablecoin usage, with humans beta-testing for them. So, to recap, we've gone from the fundamental economic equation of velocity, to how stablecoins disrupt banks, create dual financial loops, act as shadow money, and might ultimately be powered by AI. Valerio, this has been incredibly insightful.

Key Takeaways

1

Velocity is stablecoins' core differentiator, not just supply.

2

Stablecoins (30-50 velocity) are dramatically faster than M2 (1.2-1.4 velocity).

3

High velocity challenges traditional banking models reliant on slow deposits.

4

Stablecoins may shift market benchmarks to on-chain risk-free rates.

5

An emerging "dual-loop" financial system: off-chain (traditional) and on-chain (instant, programmable).

6

Stablecoins function as "shadow money," operating outside direct central bank control.

7

Artificial Intelligence is poised to be a major driver of stablecoin adoption for rapid, automated transactions.