Founders Fund investor on stablecoins: one-to-one backed deposits threaten fractional reserve banking but could be the future

Summary

Stablecoins have achieved what most of crypto has not: genuine product-market fit. The irony, as Bridget of Founders Fund notes from ETHcc in France, is that the asset with the most traction is simply a tokenized US dollar, a far cry from the original Bitcoin-maximalist vision of rebuilding global finance from scratch.

The Yield Prohibition and Its Implications

The stablecoin legislation that recently cleared the Senate contains a provision barring stablecoin issuers from passing yield back to holders. Bridget attributes this directly to banking lobbyists. The mechanics are straightforward and the threat is real: stablecoins must be backed one-to-one with T-bills or cash equivalents, meaning every dollar that migrates from a traditional bank to a stablecoin issuer like Circle removes a dollar from the fractional reserve system. Banks lend out deposits and create new money in the process; stablecoin issuers cannot. At scale, mass adoption of fully-reserved stablecoins would structurally compress credit creation across the Western financial system.

The Narrow Bank Problem, Restated

Bridget and a co-author published a piece earlier this year examining what a stablecoin bank would look like in practice. The model maps directly onto the narrow bank concept, one-to-one backed deposits, T-bill collateral, no credit creation. The reason the narrow bank never gained traction is instructive: it could not obtain a Fed master account or a charter, because regulators and the Federal Reserve recognized that meaningful deposit inflows would constitute a systemic threat. The same logic applies to stablecoin banks. The SVB and First Republic failures in 2023 gave mainstream audiences a crash course in fractional reserve risk, but the regulatory architecture has not changed to accommodate the alternative.

Incumbents Are Moving Fastest

Despite the structural tension, established players are capturing the stablecoin opportunity more aggressively than challengers. JP Morgan is piloting a tokenized deposit program. Visa and Mastercard, with a combined market cap Bridget puts in the trillions, are actively innovating on the stablecoin side. Stripe acquired Bridge and Privy, then launched its own stablecoin USDB via Bridge. The Credit Card Competition Act, which would have forced banks to accept payment networks beyond Visa and Mastercard and created an opening for stablecoin rails, had roughly a 3% chance of Senate passage and did not advance.

Tokenized Equities: Regulatory Arbitrage Outside the US

On tokenized stocks, the clearest use case is international access. Non-US investors have historically faced barriers to US equities, and tokenization provides a regulatory arbitrage pathway. For US investors, the existing equities infrastructure works well enough that the incremental value is limited. Robinhood announced private company share tokenization, citing SpaceX and OpenAI as targets, but OpenAI's public pushback illustrated the legal and custody complexity involved.

Bridget draws a sharp distinction between wrapped tokenization and native issuance. Wrapping an existing asset, taking Apple stock, for example, and re-issuing it on Arbitrum, adds counterparty risk, custody risk, additional fees, and removes direct ownership of the underlying. Native issuance, where a company issues shares directly on-chain as the primary instrument, eliminates those layers. Tether's tokenized gold, where the token is the only representation of the underlying asset rather than a derivative of an exchange-traded product, is the model. Robinhood CEO Vlad Tenev's stated vision aligns with this: if private companies like OpenAI or SpaceX can natively issue on-chain shares representing a clean economic stake, the traditional IPO pathway becomes less necessary as a liquidity mechanism. Native issuance is expected to become the standard and will, over time, pull broader financial infrastructure on-chain.