Jeremy Barnum questions the business model of stablecoins with yield on the blockchain

JPMorgan’s chief financial officer, Jeremy Barnum, has raised substantive concerns about the operating structure of platforms such as Usual, ENA and Unitas. Its central argument is straightforward: these platforms function as traditional financial intermediaries, but without the safeguards that the banking industry has developed over centuries.

The danger of ‘banking shadows’ on the blockchain

Jeremy Barnum explained that these stablecoin protocols work similarly to conventional banks. They attract deposits from users by offering yields, creating capital streams that need to be allocated to assets to generate returns. This dynamic replicates the traditional banking model, but without the equivalent supervision. Unlike regulated banks, these platforms operate in a regulatory gray zone, where competitive pressures encourage risky behavior.

Structural deficiencies that multiply vulnerabilities

Jeremy Barnum’s analysis identifies three critical flaws in the framework of these platforms. First, the absence of adequate capital requirements means that they can operate with insufficient capital bases to absorb losses. Second, they do not have deposit guarantee systems equivalent to those of traditional banks, leaving investors unprotected in stress scenarios. Third, these regulatory gaps create incentives for more aggressive behavior, significantly increasing the potential for systemic instability.

The combination of these structural deficiencies, as Jeremy Barnum warns, sets the perfect scenario for potentially severe financial crises, replicating cycles of bubbles and collapses already observed historically in the financial system.