Welcome to Cash Equivalence
In decentralized floats we trust.
The dawn of a new funding age?
This publication starts from a simple premise: stablecoin markets are poised to challenge the Eurodollar system as the West moves away from traditional fractional-reserve banking and towards something closer to narrow banking.
As this transition happens, the market will need a new specialist service that tracks such developments. Cash Equivalence thinks it can fill that void.
But first, here’s the context.
Following the 2008 financial crisis, the cracks in the old architecture became too obvious to ignore. Tokenization, blockchain primitives, and programmable finance offered a new path — one where financial services could be unbundled from traditional banking, rebuilt on transparent, rule-based systems, and backed by instruments that mimic money but with clearer constraints.
Narrow banking, in this context, is not a revolution. It’s the path of least resistance — a response to capital constraints, regulatory overhang, and a system already overstretched in terms of leverage and political tolerance. We see this as a natural progression toward a type of equity-funded banking model, as first advocated by Anat Admati in the aftermath of 2008. Her vision — once considered too costly — now feels like an inevitability, not through regulation, but via market forces.
There are two ways this narrow banking system can take shape in international funding markets. One is via extraterritorial CBDCs. The other is via stablecoins.
Stablecoins are a key part of that story.
What We’re Tracking
At Cash Equivalence, we are watching five key developments as the financial system reorients:
1. The battle between stablecoins and CBDCs
We are entering a battle for the soul of future finance: will it be governed by decentralized, market-driven fully-backed stablecoins—or by central bank digital currencies (CBDCs) that reinforce sovereign control? The outcome will shape everything from privacy and competition to international capital flows.
2. Why some jurisdictions will always prefer CBDCs
China and the Eurozone, with their bank-centric and export-led models, are structurally predisposed toward centrally issued digital currencies. Their ecosystems are more amenable to top-down control, and the political economy of their monetary systems is less tolerant of private credit innovation. But that doesn’t mean they won’t try to get into the game.
3. Stablecoins as a trust solution for offshore dollars
In offshore markets — where legal enforceability is weaker and counterparty risk looms large — fully reserved stablecoins are the obvious trust mechanism. Unlike onshore systems that can rely on regulatory supervision and deposit insurance, offshore systems need transparency and full backing to function credibly
4. The rise of the ‘pawnbroker for all seasons’ model
The stablecoin architecture is already pushing us toward a world where all runnable liabilities are collateralized in advance, echoing former BoE governor Mervyn King’s and former BoE deputy governor Paul Tucker’s proposal for a system where pre-positioned collateral supports all obligations. It is the quiet end of shadow banking.
5. A new model for seigniorage and credit extension
Stablecoins don't just digitize dollars — they reshape how credit is extended. Rather than speculative money creation, they rely on seigniorage proceeds to fund lending. That creates incentive alignment: the best capital allocators earn trust, and risk-takers bear consequences. Caveat emptor returns, not as a slogan, but as a structural feature.
In time, we believe this ecosystem will evolve into a bespoke credit provisioning system, with dominant stablecoin issuers redistributing their rents across networks of specialist funds, risk managers, and international debt recovery professionals. The result: a modular, private credit system that thrives where conventional supervision cannot reach.
And eventually, stablecoin liquidity might even become a lender of last resort to banks themselves. Instead of relying on central bank overdraft facilities, banks may tap real-time stablecoin funding to manage intraday shortfalls, creating a new real-time, market-driven liquidity layer.
As and when that develops, Cash Equivalence will be watching.
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