Dan Romero
@dwr.eth
Having seen how compliance sausage is made, definitely ripe for automation.
Cameron Armstrong
@cameron
@saymore Dan would love to see a screenshot essay on how the compliance sausage is made in reality at a scaling startup 🫡
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Farcaster Comments
Dan Romero
@dwr.eth
⭐ Threadstarter
Type of financial entity that should exist:
- Consumers and businesses can easily sign up
- Federally regulated
- Only function is to custody USD
- No fractional reserve
- Ability to opt-in to yield via US Treasuries
- Revenue model: cut of Treasury yield or $9.99/m subscription
Dan Romero
@dwr.eth
Normal custodians not open to retail, no easy access to consumer apps via Plaid, basic functionality like checking and bill pay etc.
mk
@mk
I doubt the Fed would allow such a reasonable option. All the money would go there
Fastackl.eth
@fast
Who is going to bag hold all the HTM assets on bank’s balance sheets though when depositors flee to the new 1:1 backed provider. And then where will credit come from 😱😅
Dan Romero
@dwr.eth
Most people won’t switch right away.
Joe Blau
@joeblau
This seems too straight forward for anyone in Silicon Valley to look into, but this is an amazing idea.
Cameron Armstrong
@cameron
I can already imagine the look on the VC’s face when I say I’m gonna charge a $100M deposit account $9.99 a month 😂😂😂
(If I can get a $20M on $100M terms from a FC investor I’ll pivot to this TODAY 😩💰🫡)
🌹 Zach Harris 🥀
@zachharris
I guess the FDIC is underwriting the risk… poorly
David Moon
@davidmoon
Swiss banks charge for deposits so I guess it checks out
Dan Romero
@dwr.eth
It’s just a database entry.
Cameron Armstrong
@cameron
Mechanically 💯%
Compliance wise?
Spicy paperwork for days.
tldr (tim reilly)
@tldr
And they shall call it:
"Mattress of America" 🛏️
🕳️
💰
Joey Roth | Dyad
@joeyroth
unfortunately this could not compete with a more fragile system that creates credit and thus offers higher yield.
we need a robust system that offers competitive yield via closed-loop credit formation without ever being net undercollateralized
Cameron Armstrong
@cameron
Super interesting - appreciate the take 🫡
Cameron Armstrong
@cameron
@remindme 3 days
Hexidethmal
@hexidethmal
Could a smaller bank with an existing charter simply switch to this model?
dinislam
@dinislam.eth
How do custodians custody cash? Do they have accounts at the Fed?
tldr (tim reilly)
@tldr
😂 but actually…
…people would use? 🤔🤔🤔
Fred Blauer
@fblauer
The insurance Co's could just offer insurance for deposits that are not covered by FDIC. But I suspect that people wouldn't buy it since it lowers the rate that they are earning on deposits. You don't need to create new entities that are not profitable. I don't think there is incentive to do that.
Fred Blauer
@fblauer
Only during bear markets. rates would be so low, you might as well custody yourself (like crypto). (the mattress analogy)
Fred Blauer
@fblauer
Seems to me that SVB was federally regulated. How did that help?
Jackson
@jacks0n
I would
Dan Romero
@dwr.eth
Higher bar. Necessary but not sufficient.
Dan Romero
@dwr.eth
So then it functions as a digital safety deposit box. Revealed preference for average consumer is they don’t want hassle / tail risk of self custody
Dan Romero
@dwr.eth
You don’t need insurance if you change the model.
timdaub 🥝/🫦
@timdaub.eth
sounds almost like USDC, or not?
Dan Romero
@dwr.eth
No the issue is USDC has cash at SVB.
Dave
@dave
This reminds me of Payments Banks in India. They were created a few years ago, mostly from a financial inclusion perspective, and they've had a mixed success rate so far. The business model was really tough when they couldn't lend.
Fred Blauer
@fblauer
Which is better. Seems to me that changing the model is more difficult, more unknowns. All systems have risks if they need to make a profit. They need risk management and hedging. If they don't have insurance they are self insured.
Fred Blauer
@fblauer
If you spread your investment in 250k chunks over several banks than all your deposits will be covered by FDIC insurance. Easier than changing laws and regulations.
Dan Romero
@dwr.eth
That’s a hassle and not desirable from a consumer perceptive. Consumers want a digital safety deposit box for dollars.
Fastackl.eth
@fast
Yes - to be clear I was being facetious. The product you outline makes WAY more sense than creating dodgy stablecoins (aka bank deposits) backed 90% by illiquid HTM assets. But bc it makes so much more sense, the idea probably would be shut down faster than Libra 😅
0xAnimist
@0xanimist
Didn’t Russia do this with the ruble post-Ukraine sanctions?
Fred Blauer
@fblauer
So you are saying that consumers don't want to earn a return on their deposits. With inflation, their deposits would keep shrinking. So in effect that would get negative interest. Also where would the funds come from for small business loans?
Dan Romero
@dwr.eth
1. Consumers could opt in to yield on Treasuries.
2. Not the consumers problem
Fred Blauer
@fblauer
Treasuries are only 1 kind of investment. Do they have to ask the consumer each time they want to sell one and buy another investment? Not very practical. Business loans are another one of those kinds investments. If there is demand for what you describe why is no one offering it?
Dan Romero
@dwr.eth
> If there is demand for what you describe why is no one offering it?
The government did not allow the creation of a narrow bank. Worried it would attract too many customers and hurt their ability to use existing banking system to control monetary policy.
Carlos Matallín
@matallo.eth
Reminds me of
I have experience building a similar frontend for this in the past and is something I'd love to work on.
Fred Blauer
@fblauer
As I understand the system, its not the government that controls monetary policy. Its the federal reserve.
Dan Romero
@dwr.eth
Fed is controlled by the government, despite the claim it's "indpt"
Fred Blauer
@fblauer
And the government is controlled by corporations