Circle and Hashnote: melding money and securities

You’re reading the free weekly Crypto is Macro Now, where I reshare/update a couple of posts from the week, and include something from outside the crypto/macro sphere that is currently inspiring me (it’s a fascinating world out there).

Hi everyone,

Welcome to February and the second free weekly Crypto is Macro Now.

I’ll reshare/update a couple of posts from the week, and include something from outside the crypto/macro sphere that is currently inspiring me (it’s a fascinating world out there).

If you’re not a subscriber to the premium daily, I do hope you’ll consider becoming one! For $12/month, you’ll get ~daily commentary on how crypto is impacting the macro landscape, and vice versa. I talk about adoption, regulation, tokenization, stablecoins, CBDCs, market infrastructure shifts and more, as well as the economy and investment narratives.

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In this newsletter:

Circle and Hashnote: melding money and securities

Central banks and BTC: it’s an age thing

Some of the topics discussed in the dailies:

Monday, Jan 27

The perils of concentration

Market reaction

Something else?

Looking ahead

Tuesday, Jan 28

The cycle inflection point

Can blockchains deliver cost savings?

Wednesday, Jan 29

Circle and Hashnote: melding money and securities

BUIDL as collateral

Fintech stablecoins

Tether expansion

Friday, Jan 31

FOMC bookends

Central banks and BTC: it’s an age thing

Circle and Hashnote: melding money and securities

One of the most intriguing announcements over the past month was stablecoin issuer Circle’s purchase of tokenized money market fund issuer Hashnote.

With this move, Circle takes over the market’s largest tokenized money market fund USYC, which passed previous market leader BUIDL, issued by BlackRock and Securitize, in assets under management (AUM) at the beginning of December. Hashnote’s flagship token went on to reach a peak of $1.8 billion market cap earlier this month; since then, it has declined by roughly a third but still stands at almost double that of the runner up.

(USYC market cap via rwa.xyz)

The purchase raises a key question: why would Circle want to acquire a much less profitable business, rather than focus on increasing demand for its stablecoin USDC? Hashnote distributes 90% of yield earned on underlying securities to token holders; Circle, on the other hand, gets to keep it all.

One likely reason is that the boost in size should give Circle a higher potential IPO value – its S-1 was filed in January of last year, although as far as I know we haven’t seen further details as to amount or timing.

The immediate bump in AUM isn’t much, though, in relative terms. USYC adds roughly $1.2 billion to USDC’s almost $52 billion.

(USDC market cap via Visa)

And the potential market is more limited, as USYC is only available to qualified investors, while USDC can be used by anyone.

The sum is greater than the parts

Looking ahead, the boost will come more from synergies and increased liquidity in both. Circle is entering into a partnership with key market liquidity provider DRW and its crypto arm Cumberland (from whose incubation lab Hashnote emerged in 2023), to deepen available pools of USDC and USYC.

Working together off exchanges, USDC and USYC can support each other’s liquidity via smart contracts. Currently, USYC enables funding and redemption 24/7 via the web page. Originally, this functionality was fed by PayPal’s stablecoin PYUSD; now, USDC is also an option, and given the token’s superior liquidity, is likely to become the main settlement token. What’s more, acting as an on- and off-ramp for USYC gives USDC yet another use case and driver of demand as well as circulation.

It's this easy conversion into and out of yield-bearing assets that is, in my opinion, the key to the whole deal. It’s more than just a new service – it leverages the utility of both flagship assets. And it nudges forward the transformation of how money works.

With seamless switching, traders, crypto businesses and other regular users of stablecoin USDC can convert their holdings into a yield-bearing asset, instantly, with little more than the push of a button. “Money” now earns a yield.

Of course, this is also available in traditional markets, but not without several intermediate steps and probably an entity to advance the funds or securities on credit. In traditional markets, money and securities move on different rails, which complicates switching. On blockchains, they’re on the same rail, and actual, no-credit-involved switching happens in seconds.

The opportunity to