Stablecoin Liquidity Squeeze Play

 

 

I used to work for a Global Mega Bank.  During a long visit to their NYC office, I went to lunch with coworkers at the company cafeteria and as mundane as any other lunch was charged somewhere between 10 and 20 dollars.  To my surprise though, when I handed the cashier a $20 bill, she replied, "We don't accept cash," to which I quipped, "Sorry, I'm fresh outta wampum."

The cafeteria required employees to use cash, credit, or ATM to charge a proprietary Global Mega Bank Cafeteria Card that you could (only) use to pay for lunch at any NYC Mega Bank location (they have several offices).  Minimum charge amount was $20.

I felt uneasy with this arrangement and for the next several months tried my best to game the system to maintain the minimum possible balance on my card.  Despite optimizing my meal choices around this approach, I typically carried somewhere between a $15 to $25 balance.

If each of Mega Bank's 40k to 50k NYC employees carries an average balance of $20, that's an aggregate balance of close to $1M on any day.  A modest annual return of 5% on that is $50k, risk free.  By holding their employees' lunch money captive, they're able to earn a minimum $50k over and above any margin they make on the food sales.

The employer/employee relationship here serves as a "moat," protecting this revenue stream.  The convenience of the on-premises locations, means that at some point, during a busy day or group interaction, employees are going to have to charge up their card.  Once they have, they're locked in.  They can't take the balance elsewhere or exchange it.  It's a one way trade from US Dollars but never back out.

One could go as far to say that the Mega Bank Cafeteria Card money IS its own currency.  In today's terminology, we'd call this a stablecoin, a digital asset whose value is pegged to a reference asset, like the US Dollar.

The future is wide open for stablecoins.  Their utility is still being openly explored.  They have the potential to turn almost any operation into a kind of bank, earning interest on captive "deposits" while simultaneously running their flagship business.  Companies with strong enough competitive positioning could require billing to be paid in their proprietary currency.  In addition to the float revenue from captive capital, they could charge an explicit transaction fee or "tax" for the exchange from dollars.

A portion of the margin could be passed on to the consumer.  Taken to an extreme, it could support a loss leader strategy where firms operate their flagship business at negative margins to drive out competition and establish monopoly power.