Byron Gilliam

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<blockquote class="wp-block-quote is-style-default is-layout-flow wp-block-quote-is-layout-flow">
“There are only two ways to make money in business: bundling and unbundling.”



— Jim Barksdale, former CEO of Netscape
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Stablecoins might unbundle banking (and then re-bundle it)



Bundling and unbundling aren’t the only ways to make money, of course — you can also invent something new or do an old thing more efficiently, for example.



But Jim Barksdale’s comment — made spontaneously to close a roadshow meeting for the Netscape IPO — became a dictum in tech circles because it explains a lot of things about the business of technology.



Much of the internet revolution, for example, can be framed as unbundling.&nbsp;



The internet caused newspapers to be unbundled into Craigslist, search engines and blog posts.



Fiber optics caused cable TV to be unbundled into streaming services.



Barksdale&#8217;s Netscape might be said to have unbundled the internet, letting users bypass bundled services like AOL and CompuServe, including email, news, chat and curated web access.



Sometimes, these unbundled services then get rebundled.



It used to be that to listen to a single song we liked, we had to buy 12 of them bundled into an album.



With the advent of the internet, we could buy each song individually as MP3 files (or download them illegally for free).



Now, we typically buy a bundle of millions of songs from Apple Music or Spotify.



Something similar may now be happening with crypto and banking.



Stablecoins are often described as tokenized dollars or money market funds issued by a crypto version of narrow banks.



But the best way to understand their potential significance might be as an attempt to unbundle banking.



Banks bundle all kinds of financial services: deposits, custody, payments, credit cards, lending, asset management, investment banking — most of which you are probably not interested in when you open a bank account.&nbsp;



Stablecoins, by contrast, offer the two services you are definitely interested in — the storage and transfer of money — and nothing else.



This might catch on because doing one thing well and leaving everything else out is often what disruptive technologies do best.



Stablecoins are a disruptive technology because they turn money into software — composable, portable and always on.



This is likely to cause problems for the legacy banks that are dependent on deposits as a cheap source of funding and whose offerings are encumbered by legacy systems and compliance regulations.



Stablecoins could take business from them by being a better kind of money offered in a better kind of checking account.



But that doesn’t mean that issuing them will be a better kind of business.&nbsp;



The risk disclosure section of Circle’s recent <a href="https://www.sec.gov/Archives/edgar/data/1876042/000119312525070481/d737521ds1.htm">S1 filing</a>, for example, is long and frightening: Competition, it warns, is “intense and increasing,” its profitability is dependent on interest rates (and therefore out of its control), CBDCs could “eliminate or reduce the need” for stablecoins, and regulation remains highly uncertain.



The S-1 also makes clear that it’s more expensive to issue stablecoins than Tether&#8217;s oft-cited results might have you think: Circle incurred $482 million of operating expenses in 2024 and just over $1 billion of “distribution, transaction and other costs.”



But you don’t have to read a 225-page S1 to be concerned — you only have to read this morning’s <a href="https://www.bloomberg.com/news/articles/2025-04-23/paypal-aims-to-boost-stablecoin-use-by-offering-3-7-on-balances?utm_source=telegram&amp;utm_content=crypto&amp;utm_medium=social">Bloomberg headline</a> that “PayPal Aims To Boost Stablecoin Use By Offering 3.7% on Balances.”



That 3.7% is only about 60 bps below the fed funds rate, which isn’t much of a gross margin for issuers to work with.



If that becomes the norm, how will they make money from stablecoins?



Barksdale’s dictum suggests that stablecoins might have to become a loss leader for other, more profitable services.



As Circle’s S-1 implies, stablecoins seem likely to be issued by payments companies, banks and crypto exchanges as a way to attract or retain customers, irrespective of profitability.



To stay competitive, stablecoin issuers might need to offer the same core services — payments, banking and exchanges — as the companies they’re disrupting.



In other words: rebundle!&nbsp;



There is precedent for this.



As Barksdale’s Netscape colleague Marc Andreessen puts it, startups that disrupt incumbents by unbundling their services “often end up reforming themselves into a version of the company they took down.”



This has been a recurring pattern: As startups grow, the natural strategy is to “stay focused on your core and then add things to it,” Barksdale explains.&nbsp;



“And before long, you become a big bundle again.”



A current example is Robinhood, which will <a href="https://www.bankingdive.com/news/robinhood-to-launch-banking-product-deepak-rao/744277/">soon</a> offer checking and savings accounts, payments and cash withdrawals in addition to its core business of brokerage.



It feels like only a matter of time until it adds a stablecoin to that offering (as it has <a href="https://www.bloomberg.com/news/articles/2024-09-26/robinhood-revolut-explore-entering-the-burgeoning-stablecoin-sector">reportedly</a> considered doing).



Robinhood would probably treat it as a loss leader, if so, and that could threaten stablecoin issuers’ already thin margins.&nbsp;



To stay profitable, stablecoin issuers might then have to rebundle some of the banking services they left behind.



They might even be required to rebundle.



The risk section of Circle’s S-1 filing includes a warning that “legislation requiring stablecoin issuers to be banks or to be affiliated with banks could materially affect our business.”



That may be why Circle and others are <a href="https://www.wsj.com/finance/currencies/crypto-knocks-on-the-door-of-a-banking-world-that-shut-it-out-082b3968?st=VkCCZA">reportedly</a> planning to apply for bank charters and licenses, despite the considerable cost that entails.



But could all this be an upside risk, too?



Bundling, after all, is one of only two ways to make money.



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Stablecoins might unbundle banking (and then rebundle it)

This is a segment from the Blockworks Daily newsletter. To read full editions, <a href="https://blockworks.co/newsletter/daily">subscribe</a>.



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“I respect his independence,” former President Nixon reassured the White House crowd at the 1970 <a href="https://www.presidency.ucsb.edu/documents/remarks-the-swearing-dr-arthur-f-burns-chairman-the-board-governors-the-federal-reserve">swearing-in</a> of Fed Chair Arthur Burns.



“However, I hope that independently he will conclude that my views are the ones that should be followed.”



There’s no video of the event, so it’s hard to say for sure, but I’m guessing that was meant as a joke.



It’s also exactly how things worked out.



Burns famously allowed Fed policy to become subservient to Nixon’s political goals, fueling the 1970s epidemic of inflation.



The much-maligned Fed chair <a href="https://www.cato.org/publications/commentary/failed-fed">reportedly</a> acknowledged this as a tactical surrender: &#8220;We dare not exercise our independence for fear of losing it.&#8221;



Subsequent Fed chairs have fought their corner more resolutely, stressing that the Federal Reserve is an independent agency within government.



“Our independence is a matter of law,” Jerome Powell <a href="https://youtu.be/XUFVr430VLU?si=8g0IAiEL-1KBEuZn">said</a> just last week.



But that plain statement may mean less than it sounds.



Specifically, Powell meant that individual members of the FOMC are insulated from politics because they can’t be fired: “We’re not removable except for cause,” he noted. “We serve very long terms.”&nbsp;



(“Seemingly endless terms,” he added, drawing a laugh from the sympathetic crowd.)



This, he says, allows the FOMC to do its job “strictly without consideration of political or any other extraneous factors.”



“We’re never going to be influenced by any political pressure,” he promised.



If so, that would be a new development.



For the first two decades of its existence, political influence on the Fed was explicit: By law, the treasury secretary automatically served as the chair of the Federal Reserve as well.



That changed in 1935 as the Fed gained a measure of independence with the chair becoming a presidential appointee, no longer tied to the Treasury Department.



In 1951, the Fed won a further degree of independence when the Treasury Department formally agreed that the Fed could set interest rates without its input.



Still, this hard-won independence remained contingent on political approval.



The Fed was established by an Act of Congress and Congress retains the ability to revise the Act if it disapproves of how its creation is operating.



This is why, at his final press conference as Fed chair, Ben Bernanke offered a simple piece of <a href="https://www.richmondfed.org/publications/research/econ_focus/2016/q2/federal_reserve">advice</a> to his successor, Janet Yellen: “Congress is our boss.”



It’s been a reluctant boss, for the most part — after delegating its Constitutional power over money to the Fed, Congress has generally only held the Fed accountable after financial disasters.



Often, the Congressional response to those disasters is to grant the Fed more power, not less.



This is by design.



In <a href="https://www.amazon.com/Myth-Independence-Congress-Governs-Federal/dp/0691163197/ref=sr_1_1?crid=9YHOJHSKC7T0&amp;dib=eyJ2IjoiMSJ9.bsZyT3haiztxYj-2kE6IVQ.JVQBzmH_0aksmHRtvUROqFvO2YSV6vL3czdA0R9vIZM&amp;dib_tag=se&amp;keywords=the+myth+of+independence+how+congress+governs+the+federal+reserve&amp;qid=1745285598&amp;sprefix=the+myth+of+independ%2Caps%2C160&amp;sr=8-1">The Myth of Independence</a>, Sarah Binder and Mark Spindel explain that, whatever Fed chairs like to say, the Federal Reserve is actually “interdependent” with Congress — and that Congress retains the ultimate authority through the Federal Reserve Act and its power to revise it.



The Fed, they explain, is dependent on Congress for its authority and Congress is dependent on the Fed for its stewardship of the economy.



This arrangement works for Congress largely because it gives them someone to blame when things go wrong — Binder and Spindel note that former Fed Chair William Martin once testified in Congress that “we’re here to be blamed.”



The result, they say, is that the Fed is &#8220;acutely sensitive to the need to secure political support for its policy choices.”



Similarly, the monetary economist James Dorn <a href="https://www.cato.org/sites/cato.org/files/2019-09/cj-v39n3-5.pdf">found</a> that “the Fed is independent, but in practice that independence is continuously tested by political pressures for using accommodative monetary policy and credit allocation to win votes.”



It&#8217;s mostly been presidents who’ve exerted that political pressure.



Truman called William Martin a “traitor”; LBJ summoned the long-serving Martin to his Texas ranch to verbally assault him over interest rates; Burns was famously subservient to Nixon; Carter reassigned former Fed Chair William Miller to the Treasury Department because interest rates were too low; Paul Volcker was able to raise rates to 20% only because he had Reagan’s backing.



Dorn’s study found all this presidential pressure to be effective: “An examination of the evidence reveals that presidents tend to get the monetary policy they desire,” he concluded.



As a matter of principle, that may not be the worst thing — we wouldn’t let unelected bureaucrats set tax rates without political recourse, so why should we let Fed bureaucrats set interest rates?



As a matter of practice, however, it hasn’t worked out well.



In a <a href="https://econweb.umd.edu/~drechsel/papers/drechsel_political_pressure_shocks.pdf">study</a> of presidential influence on the Fed, the economist Thomas Drechsel unsurprisingly found that political pressure increases inflation “strongly and persistently.”



Specifically, he concluded that “increasing political pressure by half as much as Nixon, for six months, raises the price level more than 8% after a decade.”



Drechsel also found that presidential pressure to lower interest rates negatively affects GDP.



The effect is mild, but he cites it as evidence that “political pressure is not successful” for presidents hoping to win votes by raising economic activity.&nbsp;



That hasn’t stopped them from trying, of course, as we were reminded this week.



Does publicly calling Chair Powell a “major loser” amount to half as much political pressure as Nixon applied on former Chair Burns?&nbsp;



If so, history suggests we have an 8% increase to the price level to look forward to.



Or does President Trump’s schoolyard name calling amount to, say, twice as much pressure?&nbsp;



Drechsel doesn’t do the math on that because, before this week, who could have imagined a president exerting twice as much pressure on a Fed chair than Nixon did with Burns?



But investors appear to be doing the math for themselves: Bitcoin ETFs took in <a href="https://farside.co.uk/btc/">$381 million</a> yesterday — a notable reversal of the recent trend.



That’s helped push the price of bitcoin to near an <a href="https://x.com/MikeZaccardi/status/1914676954868973719">all-time high</a> relative to the S&amp;P 500 — a surprisingly sensible reaction to renewed presidential pressure on a Fed chair.



When former President Nixon swore in Chair Burns in 1970, gold traded at $35 an ounce.



When President Carter swore in Chair Volcker in 1979, it was about $300 and on its way to a high of $850 a year later.



Markets seem to sense the Fed has another tough decade ahead of it — one spent fighting for its independence.



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