Beyond Supply: Stablecoin Velocity and AI's Financial Future
Valerio Li
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8-30Arthur: We often hear about the sheer amount of money in the crypto world, the market caps, the billions in supply. But what if the real story, the truly disruptive part, isn't about how much money there is, but how fast it moves?
Mia: That's exactly it. The real difference between stablecoins and traditional finance isn’t supply, it’s velocity.
Arthur: Okay, so you've mentioned this economic formula before, P times T equals M times V. Can you break that down for us in this context?
Mia: Of course. It sounds complicated, but the core idea is simple. Think of an economy as a restaurant. The amount of money, M, is like the number of plates you have. The velocity, V, is how quickly you can wash and reuse those plates. So, the core idea is that even with the same number of plates, if you can wash them faster, you can serve a much larger number of guests. Faster money can power a much larger economy.
Arthur: Got it. And you highlighted that in the traditional system, the velocity of money, or M2, is super low, around 1.2 to 1.4. But stablecoin velocity can hit 30 to 50. What does this massive difference in speed—from, say, a lazy cat to a hyperactive 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. It's a system where capital never sleeps. This kind of speed could make traditional banking models, which completely rely on that slow-moving, sleepy capital, almost obsolete.
Arthur: So, the speed of stablecoins is their real game-changer. This has huge implications. What actually happens to traditional banks when their entire business model relies on money that moves so much slower?
Mia: Well, banks are like a cloakroom at a fancy theater. Their business model relies on you leaving your coat with them for the entire three-hour show. They take that coat, and maybe lend it to someone else for a fee, knowing you won't be back for a while. But with stablecoins, it's like everyone in the audience wants their coat back every five minutes. The whole cloakroom system just can't function. It collapses.
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 this anchor for risk-free rates actually shift to on-chain assets because of stablecoin velocity?
Mia: Yes, it’s very plausible. As on-chain lending and borrowing grow to a massive scale, the on-chain risk-free rate could become a primary reference point. You know, much like how SOFR replaced the old LIBOR rate. I can easily imagine a future where a serious investor checks the on-chain rate on their Bloomberg Terminal before they even look at traditional bonds.
Arthur: An on-chain RFR that investors check first. That sounds like the emergence of a completely different kind of financial system. You’ve described this as a dual-loop system. Can you elaborate on what this off-chain and on-chain loop system would look like, and how money flows between them?
Mia: Right. So you'd have two parallel systems. The off-chain loop is the world we know now—it handles traditional flows like your salary and taxes, all in sovereign currencies like the dollar. The on-chain loop is for everything that needs to be instant and programmable: cross-border payments, DeFi, and especially payments between AI agents. Think of them like two big, connected water tanks. Money flows through a pipe between them to balance out any differences, creating this distinct but interconnected financial ecosystem.
Arthur: So, we're looking at a future with two distinct financial loops, one off-chain and one on-chain. This brings up another comparison. If stablecoins operate outside direct central bank control and function just like money, could they be considered a form of shadow banking or even shadow money?
Mia: Absolutely. Stablecoins are essentially shadow money. They issue liabilities that act just like money, but they exist outside the direct oversight of institutions like the Fed. It’s a bit like kids on a playground creating their own paper tickets that they all agree to accept for trading snacks. It works, but it's not part of the official school currency.
Arthur: The idea of shadow money definitely raises questions about stability. But you also brought up AI. How does AI fit into this picture, and could it become the primary driver of stablecoin adoption, maybe even far exceeding human use?
Mia: I think AI will be the single biggest user of stablecoins. Think about it. When two AIs are exchanging data or services, they're not going to wait three business days for a wire transfer to clear. They'll need instant, programmable, global microtransactions. Stablecoins are perfect for that. In a way, all of us using stablecoins now, whether for retail or trading, are just beta-testing the financial infrastructure for the AIs of the future. They will be the ones who truly need these new financial roads we're paving.
Arthur: That's a wild thought – AIs as the main drivers of stablecoin usage, with humans just beta-testing the system 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. This has been incredibly insightful. To wrap up, could you give us the key takeaways from our discussion?
Mia: Sure. First, the key differentiator for stablecoins is their high velocity, not their supply. Second, this speed is dramatically faster than traditional money, which challenges banking models that rely on slow deposits. Third, this could lead to new market benchmarks, like an on-chain risk-free rate. This creates a dual-loop system, with an off-chain loop for traditional finance and an on-chain one for instant transactions. Fifth, stablecoins function as shadow money outside central bank control. And finally, AI is poised to become the biggest driver of stablecoin adoption, using them for the rapid, automated transactions it will require.