Bitcoin Magazine

Ten Decrees: Old Masters, New Money

On August 15, 1971, Richard Nixon announced that he had directed Treasury Secretary John Connally “to suspend temporarily the convertibility of the dollar into gold.” The suspension was never lifted. Fifty-five years later to the day, Lucho Poletti unveiled the first of ten drawings responding to that decree.

Europe had experienced its own monetary upheavals. Hieronymus Bosch and Pieter Bruegel the Elder worked during an era of expanding banking, credit, and speculation. Antwerp, where Bruegel worked, became one of Europe’s great commercial centers. Both painters populated their compositions with hundreds of figures, constructing elaborate worlds in which human behavior, social order, and moral judgment could be examined simultaneously.

Bitcoin artists have increasingly returned to this visual tradition. Pepenardo’s Master Cuts Out the Stone, exhibited by BMAG earlier this year, reimagined Jan Sanders van Hemessen’s The Surgeon as a study of who extracts and who is extracted from. Carlijn Kingma’s The Waterworks of Money, shown at Bitcoin Amsterdam last year, depicted the modern monetary system as an interconnected landscape. Complex systems seem to invite pictures that hold everything in a single frame.

Lucho Poletti has made bitcoin-related art since 2017, describing his practice as visual propaganda for the monetary revolution. A contributor to the Bitcoin Conference art gallery since 2021, he returns to Bitcoin Amsterdam this November with Ten Decrees.

The series reimagines ten paintings, four by Bosch and six by Bruegel, around money. Fiat, Latin for “let it be done,” becomes the organizing principle. Nine titles issue commands: let there be fury, profit, chaff, a game, folly, hunger, refuge, collapse, and ash. The tenth, Ultima Fiat, reverses that authority: let it be the last.

Unveiled on August 15, 2026, the anniversary of Nixon’s announcement, the series follows a biweekly release schedule beginning August 29 and concluding January 3, 2027, the anniversary of Bitcoin’s Genesis Block. Each drawing contains hundreds of figures and objects, with inscriptions often visible only at close range. The 30-by-20-inch prints, produced in editions of ten, form a composition spanning approximately four meters when arranged in two rows of five.

Five drawings have been released, most recently Fiat Moria, after Bruegel’s Netherlandish Proverbs, on October 24. The sixth, Fiat Fames, follows November 7.

Ahead of Bitcoin Amsterdam, November 5–6, I spoke with Poletti about the recurring influence of Bosch and Bruegel on bitcoin art, the relationship between allegory and propaganda, and translating his densely detailed drawings to the conference’s main-stage LED installation.

BMAG: Bosch and Bruegel seem to be having a synchronistic moment among artists interested in Bitcoin. Both worked in what is now Belgium and the Netherlands, during a period when Antwerp was emerging as a major financial center and the Habsburgs were debasing coinage. What is it about transitional periods (like the current one) that draws artists back to Bosch and Bruegel and their densely populated landscapes?

Lucho Poletti: Because they had already solved the problem I was stuck with: how do you draw a whole society going wrong at once? Bosch and Bruegel put hundreds of people in a single frame, each busy with their own concerns. The system shows up in the sum of it. You don’t look at a Bruegel, you search it. It’s a great way to depict the effects of money, which nobody really sees and everybody feels.

They also lived through a money problem a lot like ours. Silver from the Americas poured into Europe through Seville and on to the bankers in Antwerp. Prices across Western Europe rose sixfold over 150 years. Philip II defaulted in 1557 and the crash spread across all of Europe. Two years later Bruegel painted Netherlandish Proverbs, a village where everyone is absorbed in something foolish and nobody can see the whole.

The four Bosch pieces are about appetite: the temptation, and the bill that shows up after. The six Bruegels are about the crowd, and how society behaves once the rules stop making sense. 

BMAG: The series draws on the original meaning of the F-word every bitcoiner knows. Nine of your titles use fiat as a command, while the tenth, Ultima Fiat, seems to reverse that authority. How did you arrive at Latin as the language of the series, and why does the final decree change speaker?

Lucho Poletti: Fiat was never a noun. In Latin it’s a verb, “let it be done.” It’s the word God speaks in the Latin Genesis before the light comes on: fiat lux. Someone with authority says so and it happens. That’s a literal description of how fiat money comes into existence, so I wanted the verb in every title.

Latin wasn’t a stretch for me. I’ve titled work in it for years: Moneta Divina, Cypher Deos, and Novus Moneta Seclorum dating back to 2020. The dollar already speaks it, too. Turn over a one-dollar bill and there are three Latin mottos on the back. Ultima Fiat, Fiat Lucrum and Furia Fiat had their names before the series did. Once there were three decrees in concept, I kept going until I had ten, and the name for the whole series became obvious. Ten Decrees has the Ten Commandments sitting under it, which suits work rebuilt out of painted sermons. In Fiat Lucrum there’s a lighthouse at the top left with FIAT LUX GENESIS 1:3 engraved into it. The title is the phrase rewritten for the money printers: let there be light turned into let there be profit.

Nine of the decrees are issued to you, in the flat voice an institution uses. Let there be profit, let there be hunger, let there be a game. The tenth is the only one we get to say back. Ultima fiat means “let it be the last,” which is closer to a plea than an order. Every one of us has been living under the first nine since 1971, whether we noticed or not, and Bitcoin is how we issue the tenth. It closes the series on January 3, the anniversary of the Genesis Block, which also happens to be my birthday.

BMAG: Bosch and Bruegel constructed extraordinarily complex visual worlds where allegory, satire, religious symbolism, and everyday life coexist. Their paintings invite close inspection but rarely offer a single, definitive interpretation. In Ten Decrees, you’re borrowing their compositions while introducing a more explicit critique of the monetary system. How do you approach the relationship between ambiguity and message in your work?

Lucho Poletti: The words carry the message so the people don’t have to. Bosch’s Garden of Earthly Delights doesn’t have a single word in it. Fiat Lucrum has more than fifty lettered objects, and some are as blunt as a protest sign: four money presses lettered QE-1, QE-2, QE-3 and QE-∞, and a little hand-lettered card on a broker’s desk that reads genius, we print, you pay, have a nice day. Nobody has to wonder what I think of the money system.

I keep the ambiguity in the people. In Fiat Lucrum there’s a crowd cheering a woman who holds up a $ on a golden staff under a sign that says ETF, and that crowd is wearing my mask. So is the man signing the leverage contract, and so is the woman taking the mortgage. In Fiat Palea a man in the mask is knee-deep in a pile of printed bills. Bosch drew his own neighbors into the middle of the garden, and I drew mine. If the ₿ on a forehead were a badge of honor, I wouldn’t hand it out like that. It’s more a badge of the aware, the initiated. Knowing the money is broken doesn’t make one a saint.

I’m careful with endings too. These pieces show the exit while not promising a way out. Near the middle of Fiat Moria there’s a lit doorway with MONEY ₿ BETTER WORLD over the arch, and a plain-faced man on the step looking back at the square. He hasn’t gone in yet, and nobody’s stopping him. Where you’d be standing in that picture is your call.

BMAG: In Fiat Lucrum, your reinterpretation of Bosch’s Garden of Earthly Delights, you introduce a system of waterworks: pipes, reservoirs, and flowing liquidity. Bosch often allowed viewers to recognize things that the figures within his paintings could not. What possibilities does that kind of visual allegory offer you when depicting something as abstract as the monetary system?

Lucho Poletti: What Bosch never had in his garden was plumbing, so I gave it some. Water organizes the whole of Fiat Lucrum. It starts clean high in the mountains on the left, pours out of a machine in Eden and settles in a reflecting basin. Cut into the basin’s wall there’s an inspection window with fish swimming behind the glass. Somebody built a viewing port into the reservoir so you could check it, and every full node on the Bitcoin network is that window.

Downstream the water widens into a lake. In the middle sits a glass tank lettered FRESH LIQUIDITY, with BOTTOMLESS engraved on the bowl, and eight people are having the party of their lives inside it. The valve wheel that controls the flow is on top of the dome, outside the glass, where none of them can reach it. Monetary policy gets set by someone who isn’t at the party. And the tank leaks. From there the water runs orange, down a stream and over a waterfall into a pool where a tick with a $ on its cheek drinks it through a hose.

That’s the Bosch trick you’re describing. The bathers can’t see the leak or the valve, and you can see both from across the room. Richard Cantillon worked out around 1730 that new money helps whoever gets it first and costs whoever gets it last. I drew it as a watercourse because everybody already understands water: whoever’s upstream drinks first, and everyone downstream gets what’s left.

BMAG: Looking across the series, are there particular details, references, or artistic decisions that you feel are especially important but might be overlooked by viewers? What would you want someone encountering these drawings for the first time to spend more time looking at?

Lucho Poletti: Up close is where these work, and most of what matters in them is small.

Start with the plain faces. Everybody spots the Satoshi masks and the $ skulls first because they’re the loud ones, but the plain faces belong to the people the system is happening to. In Furia Fiat a line of bald men crawl on their hands and knees with red tubes plugged into the backs of their skulls, and the red is the same color as the fluid in a bowl a few meters away that says TIME. That’s what’s being drained out of them. In Fiat Palea, Adam and Eve stand under a serpent with a $ for an eye. They’re wearing the mask, but neither of them has a ₿ on the brow yet.

Then look at how characters connect across a distance. In Fiat Ludus a sack lettered STIMULUS sits on a bench next to an older figure, and a little way off a kid walks away with the same sack on his back, lettered THE BILL. A blindfolded boy feels around with his arms out while the man lunging in beside him holds up a bunch of $ balloons the boy can’t see. Even the enrollment forms are signed by Seymore Debt and Max D. Out. 

In Fiat Palea a broken crate stenciled EXECUTIVE ORDER 6102 sits in the straw, and further back, bolted across a vault, a plate reads WINDOW, NO REDEMPTION. Roosevelt took the gold in 1933 and Nixon closed the window in 1971, and I put the two close enough that you read one and then find the other. Up higher in the same piece, a guy in the mask with WHOOPS across his vest is pouring gasoline on a burning bank. In Furia Fiat, the $ skulls stand on GNOSIS and clutch books of knowledge, keeping them for themselves.

The bubbles are dated. Fiat Ludus has a sphere with tulips growing out of the top, marked 1637 and 1720, and another with a hen sitting on a WALL STREET egg, marked 1929 and 2008. Variety’s front page the day after the 1929 crash read WALL ST. LAYS AN EGG. Some of the skies have thin straight lines of cloud behind the smoke, the kind a plane leaves.

Watch the prices, too. A price in dollars only goes up: at CANTILLON’S hot dog stand in Fiat Ludus the 5¢ is crossed out and the sign says $9. A price in sats only goes down: a fish stall in Fiat Moria has 4000 crossed out, then 2000, and now it’s 1000 SATS. In Fiat Ludus, the carrots changing hands have dropped from 7,500 to 3,000 SATS on the chalkboard next to the dollar hopscotch.

The Latin is there to be read. MORITURI TE SALUTANT, those who are about to die salute you, is carved around the rim of the arena in Fiat Ludus. EX NIHILO, out of nothing, is cut over an empty vault in Fiat Palea. In Fiat Moria the $ skull leaning out of the window has a plaque on either side of him: MUNDUS VULT DECIPI, the world wants to be deceived, and $TULTORUM INFINITUS EST NUMERUS, the number of fools is infinite, with a $ for the S. Fiat Lucrum has a little panel that runs a whole life in four stops: school, debt, work, death.

And in Fiat Moria there’s a small round time machine with NO RETURN on its side and 1944-2026 on the dial. A man is climbing out of it, staring at the village. 1944 is Bretton Woods, when the world tied its money to the dollar and the dollar to gold. He left then and he’s only just arrived, and he can’t quite believe what he’s looking at.

None of that comes with a caption. You find it by standing close for a long time, the way you would with a Bruegel, and the finding is the whole point.

BMAG: Each drawing is 18,000 pixels wide, populated by hundreds of figures, with every Satoshi mask drawn by hand and details that only reveal themselves up close. You’ve described the work as “crafted, not generated.” At a time when AI can convincingly imitate the Old Masters, what significance does that labor have for you, and how does it shape the way you want these works to be experienced?

Lucho Poletti: “Crafted, not generated” is a phrase I came up with to sum up where the work in these pieces actually is. There are machines in my process, but they’re only one part of it. A model I trained on years of my own work does the rough first pass on a composition. I think of it as an apprentice. Bosch came out of a family workshop, and the masters of his day leaned on assistants for the groundwork so their own hours could go into the meaning. Mine roughs out the scene and gives me a base to build toward the standard they set. Then I spend weeks on each piece in a grueling manual process in Photoshop, making the decisions and drawing in hundreds of figures, objects, symbols and phrases until the art says what I mean.

AI can imitate the look of a Bosch or a Bruegel pretty convincingly now. What it can’t do is mean anything. It won’t decide that the valve on the liquidity tank in Fiat Lucrum belongs outside the glass, where the bathers can’t reach it. It won’t decide that the slop on the ground should be piggy banks wired into the money presses, each with its own name: SAVINGS, PENSION, NEST EGG. It doesn’t make jokes either. It’s never going to sit a fool in a jester’s cap on a platform lettered TAKE IT AT FACE VALUE while a $ skull does his makeup. My personal philosophy is that if I don’t do the majority of the work, it’s not my art. I hold myself to that, and anyone who looks at these up close can see a person made the decisions that matter.

That’s how I’d like people to take these in: up close, and for a long time. I don’t ask anyone to trust me on how they were made. The work answers that better than I can.

BMAG: You’ve been part of the Bitcoin Conference since 2021, and this November Ten Decrees comes to the main stage at Bitcoin Amsterdam, not far from the historical centers where Bosch and Bruegel worked. These drawings are extraordinarily detailed, designed to reward close inspection. How are you approaching their translation to monumental LED screens, and does exhibiting them in the Netherlands carry any particular significance for you?

Lucho Poletti: The prints were meant for one person standing close to search the work and find details that speak to them. An LED wall gets a thousand people at fifty meters, which is an amazing opportunity to create a visual experience for the still pieces, so I’ve done my best to create a compelling one for each piece.

Each one gets fifteen seconds, in the order they were released. The big center wall carries the center of each piece in one slow pass from left to right, so the room gets the shape of it. The screen on the right opens on the Bosch or Bruegel it came from, with its name and date, and halfway through it wipes across to mine. The screen on the left side pulls out lateral details you’d never catch from the floor, like the ship of fools riding the mast in Fiat Moria, or the pigs feeding at the DEBASED trough. All five released so far play back to back as one loop, old master and new money side by side the whole way through.

The Netherlands matters to me. Bosch spent his whole life in ’s-Hertogenbosch, about an hour south of Amsterdam by train. Some of Bruegel’s proverbs are still in use in Dutch: people still say someone hangs his cloak to the wind when he turns with the crowd, and in Fiat Moria, a man wearing a Satoshi mask jumps off a mountain, holding his cloak in his hand—a reference to the Dutch proverb about changing one’s position to suit the prevailing winds.

Amsterdam has its own chapter in this story. The Bank of Amsterdam opened in 1609 to give merchants a money nobody could debase, and for over a century its bank guilder traded at a premium over ordinary coin because people trusted the silver was in the vault. David Hume held it up as the model of a fully backed bank. It had been lending to the Dutch East India Company quietly, and when that became public in 1790 the premium vanished and the bank declared itself insolvent. I can’t think of a better city to show a series about monetary decrees and trust, two months before the last one lands on the Genesis Block anniversary.

Exhibition & Further Reading

Lucho Poletti’s Ten Decrees will be on view on the main stage at Bitcoin Amsterdam, November 5–6, 2026, as part of the Bitcoin Museum & Art Gallery (BMAG) programming. Explore Poletti’s detailed write-ups on each Decree for a deeper look at the artwork, symbolism, and historical references throughout the series, and follow him on X.

Read more from BMAG’s Bitcoin Amsterdam series: The Undercurrent: Three European Artists on Making Money Visible and The Architecture of Money: Mapping Financial Power in the Age of Bitcoin.

The Bitcoin Museum & Art Gallery (BMAG) organizes international exhibitions, auctions, and artist collaborations exploring bitcoin and its cultural implications.

Join us at Bitcoin Amsterdam, November 5–6, 2026, and use code BA26-BMAG20 for discounted admission. Get your tickets here.

This post Ten Decrees: Old Masters, New Money first appeared on Bitcoin Magazine and is written by Dennis Koch.

Bitcoin Magazine

Understanding Digital Money and Digital Yield

The new business model of building on top of digital credit to create digital money and digital yield can be roughly categorized into two different architectures. 

1. Debt-based, tranching structures 
2. Full-reserve, spendable balance structures 

This article gives a general overview of these models, with an analysis of economic implications. 

Digital Credit, Digital Money and Digital Yield 

To get started, I will define these terms. Digital Credit is the credit-like instruments issued by corporations with large Bitcoin balance sheets. Today they are five Nasdaq-listed perpetual preferred equity—STRC, SATA, STRK, STRF, STRD—and all five are the top five most liquid preferred equity securities in the United States. Digital Credit is L2 because it is built on top of Bitcoin, which is L1. 

Digital Money and Digital Yield are the L3 products that could be built on top of Digital Credit. 

Now obviously, Bitcoin is Digital Money. In this article I am using the terms popularized by Michael Saylor in corporate bitcoin discourse to describe the economic ecosystem that is emerging on top of public company issuance of Bitcoin-linked securities. 

Under that paradigm, Digital Money refers to something that holds a very stable fiat-denominated value that is built on top of Digital Credit. And Digital Yield refers to something that concentrates and amplifies the yield of Digital Credit. Both Digital Money and Digital Yield are L3, since they exist on top of L2 Digital Credit. 

Now that we know Digital Money and Digital Yield, we will move on to the different architectures for them. 

Debt based tranching

The first and primary one is a debt-based tranching structure in which the digital credit is used as the base collateral asset. The junior tranche is effectively leveraged long digital credit, and the senior tranche is effectively principal protected via the junior tranche’s permanent capital. Right now this is by far the most common structure because we see quite a lot of AUM inside these types of systems. For example, Saturn is a tokenized protocol that holds a lot of STRC, and the financial engineering built on top of Saturn is Strata, which uses the same tranching approach (the name “Strata” likely refers to stratifying the different financial layers within the setup). 

Another very important example is UTXO Management’s Preferred Income Strategies LP. This is a dual-class fund: a junior fund share class and a senior fund share class. The juniors are effectively leveraged long the underlying digital credit portfolio and the seniors receive a highly principal-protected 7.5% annual yield. Now, the caveat is the portfolio value cannot fall below the invested capital representing the senior’s original principal. Seniors must get all their principal back before the juniors can get paid. UTXO is able to run some other alpha-generating strategies which may reduce downside risk of the digital credit portfolio or employ relative value trades to capture market mismatches. Such actions increase the returns of the total portfolio. And since the juniors are leveraged long this portfolio, they have the potential to outperform. Meanwhile, the seniors have the entire principal protection cushion. Tranching using the two share classes therefore matches different parties’ risk preferences and desires for total return in a way that services both investor profiles.

You might notice that this basic structure is quite similar to what a digital credit issuer like Strategy or Strive does with their own capital structure. If the issuer raises capital using preferred equity or debt, they have created a more senior layer—that becomes the principal protected layer, albeit it is asset value coverage rather than encumbered, callable protection—while the common equity becomes the junior tranche that is effectively leveraged beyond the underlying asset. In other words, the digital yield and digital money products built on top of digital credit using this tranching structure is a higher order retelling of the same digital credit and digital capital maneuvering done one layer below.

Now, it’s important to realize that any kind of leveraged system that borrows money and then invests the borrowed money into digital credit, is effectively engaging in the Layer 3 methodology of tranching, because that person is now leveraged long, and his counterparty is another person who becomes principal protected. Outside of raw asset coverage ratios, the specific degree of principal protection depends on whether the collateral asset—in this case the digital credit instrument—is sitting in some kind of custody that can be enforced. 

Put differently, should the digital credit position go underwater, the creditor is able to possess the assets, liquidate the collateral, and be made whole. Enforceability depends on the exact parameters of these structures. Within the case of something like Strata, it is enforced by a blockchain consensus dependent smart contract. The successful execution of that smart contract is where the trust resides. Within the UTXO Preferred Income Fund, you have an enforceable structure within the confines of a regulated hedge fund that all LPs partake in.

One key insight is that such a debt-based structure is far broader and more general than one might initially suspect. Let’s say somebody takes out a mortgage against their house and buys digital credit with it. They have somewhat created that L3 concept because money is being created via the traditional fractional reserve banking process, and collateral has been encumbered. Now, in this case, digital credit isn’t exactly the collateral because the house is the collateral. However, the entire economic setup would not be possible without the presence of digital credit serving as an investable asset and a location to deploy borrowed capital. In a sense, there is a bit of a shadow banking condition that emerges if a widespread group of people take out loans of various forms that might be secured by other assets or even unsecured, and then use the borrowed capital to invest in digital credit in order to be leveraged long digital credit.

The assets that emerge out of this type of behavior is basically conventional credit. It is not tokenized, and there is nothing special about it. It takes the form of an asset-backed security, and frankly, you wouldn’t even know that digital credit was on the other side of it most of the time. And for this reason, it’s not completely precise to call it the L3 digital yield concept, because it does not deal directly with digital credit. At the same time, it is a meaningful market mechanism which may emerge, and we should actively monitor the emergence of this behavior as digital credit scales.

Now I will go into the potential problems and current shortfalls of this type of debt-based, tranching method. The most obvious one is that there is no backstop besides the debtors’ own balance sheets and there is a constant need for debtors to take the leveraged long side for this to work. This is a persistent issue that caps the scalability of L3 digital money and digital yield solutions. If it is the case that you always need a leveraged long party in order to create the principal protection for the senior tranche, then you become constrained by the availability of leveraged long parties. First, there may be much better things to be leveraged long, so you might not have junior capital if there are more compelling opportunities out there. Second, there is always a push-pull relationship between the seniors and the juniors. Because the entire thing exists within a tranche structure, the total portfolio is a zero-sum game. Whatever the seniors gain, the juniors must lose, and vice versa. And because of this, the seniors can only demand yield up to a certain level before the juniors leave. Concurrently, the juniors must receive a return at least to a certain level before they would be willing to take the risk. This relationship needs to reach an equilibrium clearing price. But even at that clearing price, it is doubtful that there will be enough demand for leveraged long digital credit to persistently create the senior principal protected position. 

This exact challenge is supported by the anecdotes of the tranching structures I am aware of: there appears to be a relative shortage of folks willing to be juniors and a relative surplus of folks willing to be seniors. 

Now, the way the fiat system solves this problem actually presents a very interesting case study for L3’s current shortcomings. You see, fiat solves this problem by having an elastic public balance sheet behind the private credit system. Commercial banks can create credit and deposit money, while the central bank supplies the ultimate settlement asset (which is often called: M0, base money, or bank reserves). When systemwide deleveraging threatens the monetary system, the central bank can create reserves and replace disappearing private liquidity, while the Treasury, deposit insurer, or other public institutions can absorb or redistribute credit losses where policymakers choose to do so. This means the fiat system does not require a private actor to remain willing to be the marginal leveraged long investor during a panic: the public sector can temporarily take that role and prevent forced deleveraging. Thus fiat money can remain present even when the leverage behind it disappears. (Digital Money implemented via the tranching architecture cannot do this.)  

Equity and creditors can still be wiped out in fiat. But the distinctive feature of fiat is that there is no hard nominal constraint on the public sector’s ability to manufacture the settlement asset needed to stabilize the financial system. The ultimate macroeconomic constraint on sustained use of that capacity is the availability of real resources and the ability for individuals to tolerate the inflationary impact of such currency debasement. This is the true limit of fiat’s debt-based system at a societal level; and indeed this is also the core conclusion of Modern Monetary Theory.

Now, it should be easy to see that digital credit does not have this type of backing today. It is doubtful that any central bank today would consider buying digital credit when it is underwater to make investors whole (even though central banks do this often with traditional forms of credit like mortgages and other bank loans). And so in that sense, the concept of a fiat-banking-like system that is constructed on top of digital credit to serve as widespread L3 digital money is dubious at best within the next few years. Certain things need to happen—the main one being better Basel risk weights for Bitcoin—and even then meaningful progress would likely be quite slow.

Lacking the support of the commercial banking system or the central banking system, the only capital that can come in as the leveraged Digital Yield juniors to support the creation of the Digital Money seniors is private capital willing to take the risk. 

Full reserve, spendable balance 

This now brings us to the second form of L3 digital money. These are full-reserve, spendable balances. (A quick disclaimer here is that just because this one is “full reserve” does not imply that the tranching structure is “fractional reserve”. Full reserve just means that the available spendable balance is fully supported by unencumbered shares held on the spot.) 

This concept is to combine digital credit with a basket of other credit instruments to create a composite benchmark that is both highly liquid and yields over the risk-free rate (here the risk-free rate just means the short-term U.S. T-bill rate). And if this asset also had daily liquidity and could accrue interest on a daily basis, then you have what is like a money market fund with added risk premium and volatility. If this thing could then be tokenized or turned into a spendable balance, then you now have what could be considered a digital currency that pays higher yield. Note that the composite benchmark is not required: one could have only digital credit in the balance and make it spendable too. Since the volatility of digital credit is higher than short duration credit instruments like FLOT or FLTR (floating rate note ETFs) or JAAA or CLOA (AAA-rated CLO tranches), purely digital credit will be a more volatile albeit higher yielding spendable balance. 

The real hurdle for this concept is regulatory acceptance. Consider the recent plight over stablecoins and the Clarity Act, and how banks rejected Clarity because stablecoins serve as a big competitor to them. One of the most contentious issues was stablecoins paying yield, which would compete with traditional bank deposits. Now if we had a spendable balance with relatively stable par value that pays a higher-than-risk-free yield due to a credit risk premium, then this would probably create even more of an issue. In that sense, the idea of using relatively-stable-value securities (of which digital credit is just one group) as spendable balances is something that is sensitive when considering the different parties that need to be satisfied for this to become legally possible.

A softer version of the spendable balance concept is something like Castle: businesses can hold reserves in STRC, liquidate STRC into cash on demand, and then use that cash for operating expenses. The conversion follows normal securities T+1 settlement. This is like a brokerage account connected to a payment provider. Neither the shares nor representation of the shares (like a token) are being transferred to the final recipient of the payment. 

Of course, there are far less obstacles to creating a simple fund that holds digital credit without making the fund interests peer-to-peer transferable. OranjeBTC has done exactly this with their Digital Credit ETF launched in Brazil. In this specific case, OranjeBTC has even employed a currency hedge procedure to deliver yields denominated in Brazilian Real. Even though this return stream can probably be replicated without much difficulty, it is nevertheless far more convenient for most people to buy a single ticker that takes care of everything. 

Conclusion 

The existing developments and current regulatory parameters suggest that the debt-based tranching solution will likely be more of the activity within the L3 field. There are several different variations of both archetypes: within this article we’ve gone through a few different versions. 

I aim to explore such models—existing and theoretical—in greater depth in the future. Stay tuned.

Disclaimer: This content was prepared on behalf of Bitcoin For Corporations for informational purposes only. It reflects the author’s own analysis and opinion and should not be relied upon as investment advice. Nothing in this article constitutes an offer, invitation, or solicitation to purchase, sell, or subscribe for any security or financial product.

This post Understanding Digital Money and Digital Yield first appeared on Bitcoin Magazine and is written by Allard Peng.