To: Hidden Recipient Date: Thu, 15 Jan 2026 19:10:21 +0000 Content-Type: multipart/alternative; boundary="_----XAKSDED7GljTGp8qXBp0ag===_3A/39-62560-D9B39696" MIME-Version: 1.0 Subject: Money Stuff: Stablecoin Narrow Banking From: "Matt Levine" X-Hiring: We are hiring, reach out at header-hacker@emailshot.io X-EmailShot-Signature: EC82kq2ZD12lAwC_cvr77X-hehFsqFWnMJEOcenNOSJECuKQvxUAJFR_My2yr8imruv8_suOvjwoR0ksyiVWDQ== --_----XAKSDED7GljTGp8qXBp0ag===_3A/39-62560-D9B39696 Content-Transfer-Encoding: quoted-printable Content-Type: text/plain; charset="UTF-8" Money Stuff =0A Covenants, DATs, securities fraud. =0A=0AView in browser =0A =0A=0A =0A=0A =0A=0A=0A=0A=0AStablecoin interest=0A=0A= If you have dollars, you can put them in a checking account at a bank. This= is =0Aconvenient (the bank will let you use those dollars to make payments= ) and =0Afairly safe (the bankprobably won=E2=80=99t fail, and if it does y= our deposits are =0Ainsured, up to some limit, by the US government), but n= ot especially lucrative. =0AThe bank will use your money to do stuff =E2=80= =94 make loans, buy securities, etc. =E2=80=94 =0Aand will make some money = from those activities, but you won=E2=80=99t see much of that =0Amoney. The= bank will lose some money (from bad loans or bad trades), and it =0Awill u= se a lot of the money to pay for branches and salaries and stock buybacks = =0Aand stuff. It will pay you something close to 0% interest on your checki= ng =0Aaccount.=0A=0AOf course, there are all sorts of ways to earn more mon= ey on your money, at =0Athe cost of convenience (your money might get locke= d up) and safety (you might =0Alose some of it). You can put the money in p= rivate credit funds or Nvidia stock =0Aor Bitcoin or whatever. None of thes= e things is really a substitute for a =0Achecking account.=0A=0AAnother thi= ng you can do is invest in Treasury bills. Short-term US Treasury =0Abills = pay about 3.6% interest. They are fairly convenient (they mature in a =0Amo= nth or two, and you can sell them any time in a hugely liquid market) and = =0Aquite safe (they mature at par in a month or two, and the US government = will =0Aprobably pay). They are not a perfect substitute for a checking acc= ount, =0Athough. You can=E2=80=99t write checks against them; you can=E2=80= =99tinstantly use your =0ATreasury bills to pay your bills. You have to con= vert them to cash, put the =0Acash in a checking account, and write checks = against that.=0A=0AHere is an arbitrage:=0A=0A * Start a bank. =0A * Offer = checking accounts. =0A * Take deposits from customers. =0A * Put their mone= y directly into short-term Treasury bills paying 3.6%. =0A * Don=E2=80=99t = do anything else: No loans, no credit cards, no long-term =0Ainvestments, n= o branches, no customer service line, no free toasters, almost no =0Asalari= es. (Obviously you get a salary!) Costs are low (a website and your =0Asala= ry), say 0.1% of the money you take in. =0A * Pass the other 3.5% on to the= customers. =0AThis product is much better for customers than a regular che= cking account in =0Atwo respects:=0A=0A * You are paying them 3.5% instead = of roughly 0%. =0A * You are safer than the other banks. The other banks pr= obably won=E2=80=99t fail, =0Aand if they do their deposits are insured up = to some limit, but banks do fail =0Asometimes, and some deposits are over t= he limit. Your bank, though, kind ofcan=E2=80=99t=0Afail: All your money is= in short-term Treasury bills with essentially no credit =0Aor interest-rat= e risk. All the stuff that banks do that could cause them to =0Afail =E2=80= =94 lending, trading, interest-rate bets =E2=80= =94 you =0Adon=E2=80=99t do. (Obviously the other thing that banks do that = cause them to fail is =0A=E2=80=9Csteal all the money,=E2=80=9D which youco= uld do, but you should try not to.) You are a =0A=E2=80=9Cnarrow bank,=E2= =80=9D taking deposits and parking them somewhere perfectly safe. =0AIt is = worse than a regular checking account in some other respects =E2=80=94 mini= mal =0Acustomer service, no loans, no branches, no toasters =E2=80=94 but t= his is 2026 and a =0Alot of your customers are probably fine with that. The= y do everything on their =0Aphones anyway; they don=E2=80=99t need branches= .=0A=0ACan you do this=3F Well. You=E2=80=99re kind of not supposed to, no= t exactly, not =0Aliterally. For one thing, USbank leverage requirements = =0A are a problem: You need to have some capital = against =0Ayour holdings of Treasury bills, so you can=E2=80=99t really pas= s all of the interest =0Aback to customers; a lot of it has to go to shareh= olders. More broadly, US bank =0Aregulators take a dim view of this sort of= thing. We have talked =0A a few times about TNB =0AUSA Inc., =E2=80=9CThe Narrow Bank,=E2=80=9D= which aimed to do roughly this trade. (Instead of =0ATreasury bills, it wo= uld put the money in interest-bearing deposits at the =0AFederal Reserve, w= hich have similar properties of being extremely safe and =0Apaying interest= .) The Fed didn=E2=80=99t like it. =E2=80=9CFed Rejects Bank for Being Too= Safe=E2=80=9D =0Awas my headline .=0A=0AThe prob= lem is: What about all the other banks=3F They are taking deposits and =0Au= sing them to make loans; they use depositors=E2=80=99 money to provide the = credit that =0Alubricates the economy. There is some cost to that lubricati= on, and the cost =0Ashows up in forms like =E2=80=9Cthe bank pays you 0% on= your deposits=E2=80=9D and =0A=E2=80=9Coccasionally a bank fails and is ba= iled out by the government.=E2=80=9D You can get =0Arid of the costs throug= h narrow banking, but that might also get rid of the =0Alubrication.=0A=0AT= he more specific problem is: Look, in good times, people will keep their = =0Amoney in their local bank because they like the fancy branch and the cus= tomer =0Aservice and the toasters. But in apanic, people will take their mo= ney out of =0Atheir local bank andput it into a narrow bank, because it=E2= =80=99s safer. Narrow =0Abanking arguably undermines thestability of the br= oader banking system; it =0Amakes the regular banks less safe.=0A=0ASo you = mostly can=E2=80=99t do exactly this sort of narrow banking in a bank. Not = =0Anever, though. We talked last month about a t= hing =0Acalled N3XT, a =E2=80=9CWyoming Special Purpose Depository Institut= ion=E2=80=9D where =E2=80=9Cevery =0Adollar of deposits is backed one-to-on= e by cash or short-term U.S. treasuries, =0Amaking N3XT the first =E2=80=98= narrow bank=E2=80=99 in the United States.=E2=80=9D=0A=0AAnd outside of =E2= =80=9Cbanking,=E2=80=9D you can get pretty close to this trade. The classic= =0Aexample is a government money-market fund. That=E2=80=99s just a pot of= money invested =0Ain short-term US Treasury bills. There are lots of those= , and they tend topay =0Aabout 3.6% interest the= se days: They buy Treasury =0Abills, collect the interest and pass almost a= ll of it on to customers. Unlike =0Abanks, they do not really have capital = requirements. And your broker will =0Aprobably let you write checks against= them.=0A=0AThere is a little tension here: US bank regulators are nervous = about narrow =0Abanking because they worry that it will undermine the stabi= lity of the banking =0Asystem, but they allow government money market funds= . And in fact there=E2=80=99s an =0Aargument that those fundsdo undermine = the stability of the banking system: Back =0Ain 2023, we discussed worries = that deposits were =0Afleeing troubled US region= al banks for money market funds, and that this would =0Aput the banks at ri= sk. Still, the banks have mostly survived competition from =0Amoney market = funds.=0A=0AThen there are stablecoins. As we have discussed , =0Astablecoins are a form of narrow banking: They take depos= its and (mostly) park =0Athe money in cash and Treasury bills. You occasion= ally hear worries that this =0Awill undermine the banking system: People wi= ll prefer to put their money in =0Astablecoins (which are convenient for cr= ypto-y sorts of payments, and invested =0Ain Treasury bills) rather than in= banks (which are less crypto-native and take =0Amore credit risk).=0A=0AIn= the US, the regulatory solution to this worry is prohibiting stablecoins = =0Afrom paying interest. That=E2=80=99s in the GENIUS Act =0Aregulating stablecoins: They can=E2=80=99t pay interest. They = are safer [1] <> and =0Amore crypto-y than bank accounts, but they are no = more lucrative than checking =0Aaccounts, and less lucrative than many savi= ngs accounts.=0A=0AAs we have discussed a few = times =0A, though, there are some pretty straight= forward ways =0Aaround that restriction:=0A=0A * The stablecoin issuer can= =E2=80=99t pay interest, but it can pay fees to crypto =0Aexchanges (for en= couraging their customers to hold the stablecoin), and the =0Aexchanges can= pass those fees along to the customers. To the customers, this =0Alookspre= tty much exactly like =E2=80=9Cinterest on a =0A= stablecoin.=E2=80=9D =0A * If you=E2=80=99re a customer who holds a stablec= oin, you can lend it out to crypto =0Atraders for their crypto trades, and = get a second layer of interest =0A. =0AAnd so in = practice stablecoins kind of do pay interest. Does this undermine =0Athe sa= fety and profitability of the banking system=3F I mean, the banks think so.= =0ATheWall Street Journal reports :=0A=0AThe cry= ptocurrency and banking industries are locked in a lobbying battle over =0A= digital tokens that yield annual payouts, a fight that threatens to derail = =0Alegislation intended to bring crypto into mainstream finance.=0A=0AThe t= wo sides are clashing about what crypto firms call rewards, or annual =0Apa= yments to investors based on a percentage of their total holdings. They are= =0Acommonly used for stablecoins, popular tokens typically pegged to the U= .S. =0Adollar and used for trading, overseas payments and money transfers.= =0A=0ATo banks, rewards on stablecoins from companies such as Coinbase Glob= al that =0Apay out 3.5% resemble high-yielding deposits=E2=80=94but without= the regulations they =0Aface for holding customers=E2=80=99 cash. Bank-ind= ustry groups have flooded lawmakers =0Awith letters and phone calls arguing= the rewards would decimate Main Street =0Alenders. The national average in= terest rate for a standard interest-bearing =0Achecking account is below 0.= 1%.=0A=0A=E2=80=9CWe are hearing every day from community bankers who are w= orried about the =0Aimpact stablecoins offering yield will have on their de= posit bases and their =0Aability to lend and support their local communitie= s,=E2=80=9D said Brooke Ybarra, =0Asenior vice president for innovation and= strategy at the American Bankers =0AAssociation, an industry group.=0A=0AI= n theory, one solution here is to allow stablecoins to pay interest (like = =0Abanks) but also impose capital requirements (like banks). I would not be= t on =0Athat happening though.=0A=0A =0A=0A=0A =0A=0A=0ACovenant-lite private credit=0A=0AHere is a rough styliz= ed story of covenants. In the olden days, companies had =0Atwo ways to borr= ow money: They could issuebonds to public investors, or they =0Acould getlo= ans from their banks. In a bond offering, the company would send out =0Aa d= isclosure document (a prospectus or offering memorandum) to dozens of =0Apo= tential buyers =E2=80=94 insurance companies, mutual funds, hedge funds, in= dividuals =0A[2] <> =E2=80=94 and would take money from whoever wanted to = invest at some =0Amarket-clearing terms. In a bank loan, the company would = sit down with its =0Arelationship banker, who had known the company for dec= ades, and would negotiate =0Aa loan based on the banker=E2=80=99s deep know= ledge of the company and trust in the =0Acharacter of its executives.=0A=0A= Because bonds were impersonal capital markets transactions, while bank loan= s =0Awere products of long-term personal relationships, they had different = terms. =0AAmong the differences: Loans traditionally had =E2=80=9Cmaintenan= ce covenants.=E2=80=9D A =0Amaintenance covenant says something like: =E2= =80=9CThe company=E2=80=99s debt can=E2=80=99t exceed six =0Atimes its earn= ings,=E2=80=9D or =E2=80=9Cthe company=E2=80=99s interest expense can=E2=80= =99t exceed half its =0Aearnings.=E2=80=9D [3] <> The company promises to = have at least a certain amount of =0Aearnings, relative to its debt. What i= f it doesn=E2=80=99t=3F What if it has a bad year =0Aand doesn=E2=80=99t ma= ke as much money as it promised=3F Well, then it is in default, and =0Athe = lender can demand its money back immediately. Even if the company is =0Acur= rent on its loan payments, if it breaches a covenant, then it is in default= =0Aand has to pay back its loans.=0A=0AThis seems harsh, and you could ima= gine the company objecting. =E2=80=9CLook, if we =0Amake enough money to pa= y your interest, and wedo pay your interest, what do you =0Acare if we make= twice as much=3F=E2=80=9D The bank could reasonably reply: =E2=80=9CIf you= are =0Aonly barely making enough to cover our interest this quarter, that = makes your =0Aloan much riskier than we thought, and we want the ability to= get our money =0Aback. We are not in the business of taking wild risks; we= want a safe credit =0Awhere you make plenty of money, and if things change= we want out.=E2=80=9D=0A=0ABut that was mostly not exactly what the banks = said. Instead, the standard =0Aanswer went more like this: =E2=80=9CWe unde= rstand that this seems harsh. Obviously, if =0Ayou have a bad year and don= =E2=80=99t make a lot of money, it would be terrible for you =0Aif we also = demanded that you repay our loan early. It would be monstrous of us =0Ato d= o that. But we are not monsters. We have a long personal relationship with = =0Ayou; you know and trust us. No, the point of the maintenance covenant is= not =0Athat we=E2=80=99ll take our money back at the first sign of trouble= . The point of the =0Amaintenance covenant is that we want towork with you= if there=E2=80=99s trouble. We =0Awant you to call us so we can work somet= hing out. Maybe we=E2=80=99ll extend the term =0Aof the loan. Maybe we=E2= =80=99ll ask for more collateral. Maybe we=E2=80=99ll help you find an =0Ao= utside investor. We=E2=80=99re a bank; we can do lots of things. But in tha= t scenario, =0Awhere your business isn=E2=80=99t going as well as we both e= xpect, we want an early =0Awarning, and we wantleverage. We want the abilit= y to call in our loan, so that =0Awe have a seat at the table while you wor= k things out. But we won=E2=80=99tuse that =0Aability, or not immediately a= nd arbitrarily. The covenant is just a part of our =0Arelationship.=E2=80= =9D=0A=0AThat answer broadly made sense, and maintenance covenants in bank = loans were =0Apretty common . But this whole line= of reasoning =0Adoesn=E2=80=99t work forbonds. A bond is not like a bank l= oan, where the lender is a =0Asingle bank with a long relationship with the= company. In a bond deal, there =0Aare lots of lenders, they change every d= ay as people buy and sell the bonds, =0Aand they don=E2=80=99t necessarily = have any special relationship with the company=E2=80=99s =0Amanagers. So bo= nds do not normally have maintenance covenants; bonds do not =0Anormally sa= y =E2=80=9Cif the company=E2=80=99s income falls below X it=E2=80=99s a def= ault and the =0Abondholders get their money back immediately,=E2=80=9D beca= use thatwould be a disaster. =0A[4] <> It would be too hard for the compan= y to negotiate with all the =0Abondholders if that happened, so they probab= ly would demand their money back, =0Aand the company might go bankrupt.=0A= =0AThat is the old-timey story. One thing that happened over the last few d= ecades =0Ais that =E2=80=9Cbank loans,=E2=80=9D and particularly =E2=80=9Cl= everaged loans=E2=80=9D to =0Anon-investment-grade companies, became much m= ore like bonds. In fact the name =0A=E2=80=9Cbank loan=E2=80=9D is now some= what antiquated, and people are more likely to call them =0A=E2=80=9Cbroadl= y syndicated loans.=E2=80=9D As the name implies, they are broadly syndicat= ed: A =0Acompany=E2=80=99s lead bank willarrange the loan, but the money wi= ll come from lots of =0Alenders. The lenders will include some banks, but a= lso hedge funds and credit =0Afunds and collateralized loan obligations. Th= e loans will trade in a secondary =0Amarket; the company=E2=80=99s lender b= ase can change each day.=0A=0AAnd so the old arguments for maintenance cove= nants =E2=80=94 that they were part of a =0Arelationship, and that the lend= er would work with the company in case a =0Acovenant was breached =E2=80=94= got much weaker. =E2=80=9CIf our income goes down, we don=E2=80=99t =0Awan= t to be in default,=E2=80=9D companies could reasonably say, =E2=80=9Cbecau= se our collection =0Aof random hedge funds and CLO managers won=E2=80=99t w= ork with us and we=E2=80=99ll just go =0Ainto bankruptcy.=E2=80=9D=0A=0AAnd= lenders were largely like =E2=80=9Cyeah I see your point,=E2=80=9D and the= re was a long =0Arise in=E2=80=9Ccovenant-lite=E2=80=9D loans , that is, loans without =0Amaintenance covenants. The old-tim= ey relationship theory of covenants no longer =0Amade sense, so they droppe= d out of a lot of loans.=0A=0AThe big story in credit in recent years is th= e rise of private credit. Private =0Acredit is in many ways like theold mod= el of bank lending: A company negotiates =0Aone loan with one lender, the l= ender puts up the money and holds the loan to =0Amaturity, and the company = has a relationship with the lender. If things go =0Awrong, the lender will = work with the company to fix them; their interests are =0Aaligned and they = have a long-term relationship. [5] <> The difference is that =0Athe lender= is not a bank , but it is not a rapacious =0Ahed= ge fund either; it=E2=80=99s a long-term asset manager that understands cre= dit =0Amarkets and invests in relationships with its borrowers. Of course t= he company =0Ashould be happy to work with its private credit lender if it = runs into trouble, =0Aand of course the private credit lenders =E2=80=94 wh= o hold loans to maturity and take =0Aconcentrated risks on individual borro= wers =E2=80=94 should want covenants to protect =0Athemselves. And private = credit loans usually have maintenance covenants.=0A=0AAnd then the inevitab= le continuation of that story is:=0A=0A * Private credit loans get bigger a= nd more distributed. =0A * They start trading. =0A * Everything starts to f= eel a bit more impersonal. =0A * Covenant-lite private credit. =0AWe talke= d about that story back in 2023, and it=E2=80=99= s =0Acontinuing. Bloomberg=E2=80=99s Francesca Veronesi and Kat Hidalgo rep= ort =0A:=0A=0APrivate credit firms=E2=80=99 effor= ts to reap leveraged debt business from Wall Street =0Ais coming at a steep= cost =E2=80=94 safeguards that made them less vulnerable to an =0Aeconomic= downturn. =E2=80=A6=0A=0AThe safeguards, along with access to nonpublic fi= nancial information, are part =0Aof why industry chiefs like to claim priva= te is safer than bank credit. They =0Aalso say that they vet deals more car= efully. While the rates at which private =0Aborrowers default is up for deb= ate, they=E2=80=99ve been reported in a range of 2% to =0A3% =E2=80=94 lowe= r than for leveraged loans made by banks.=0A=0ATraditional private credit c= arries maintenance covenants =E2=80=94 limits on leverage =0Athat are teste= d regularly. As soon as a borrower breaches its limits, a lender =0Acan see= k an equity injection from shareholders or private equity owners, push =0At= hem into asset sales for the good of lenders, or demand more collateral. If= a =0Alender favors a debt restructuring, or even wants to take over a comp= any, a =0Acovenant breach would be the starting point.=0A=0AThe right to cu= rb unhealthy debt levels is also a way for private credit firms =0Ato hedge= risks like recession or tariffs that can zero corporate profits.=0A=0ABut = now direct lenders are making deals on the same terms as banks =E2=80=94 br= eaking =0Along-standing convention that gave them more rights to manage a b= orrower=E2=80=99s debt.=0A=0AIn the long run, private credit will probably = end up like every other kind of =0Acredit.=0A=0A=0AMrBeast treasury company= =0A=0ABack in simpler times, a year ago, BitMine Immersion Technologies Inc= ., as its =0Aname implies, was a technology company that mined Bitcoin usi= ng immersion. =0ASomething like that. From itsannual report in December 202= 4 =0A: =0A=0ASince July 2021, our business has be= en as a blockchain technology company that =0Ais building out industrial sc= ale digital asset mining, equipment sales and =0Ahosting operations. The Co= mpany=E2=80=99s primary business is self-mining bitcoin for =0Aits own acco= unt, as well as hosting third-party equipment used in mining of =0Adigital = asset coins and tokens, specifically bitcoin. ...=0A=0AWe plan to operate o= ur data centers using immersion cooling technology. =0AImmersion cooling is= the process of submerging computer components (or full =0Aservers) in a th= ermally, but not electrically, conductive liquid (dielectric =0Acoolant) al= lowing higher heat transfer performance than air and many other =0Abenefits= .=0A=0AIntuitive! But 2025 was a pretty weird year, and if you ran a publi= c company =0Athat was at all connected to crypto, it was awfully tempting t= o become a =0Adigital asset treasury company. As we discussed a =0Alot around here , there =0Awas a period of at least several months where a p= ot with $100 worth of crypto =0Awould trade at $200 on the stock exchange, = so everyone rushed to do that. That =0Abubble has now pretty definitively b= urst : Many =0Adigital asset treasury companies a= re trading below net asset value, and now a =0Apot of $100 worth of crypto = is more likely to trade at $90 than $200.=0A=0ALike everyone else, BitMine = did the pivot : =E2=80=9CDuring =0A2025, the Comp= any refined its business strategy to emphasize digital asset =0Atreasury op= erations, reflecting a transition from primarily mining and hosting =0Aacti= vities toward the long-term accumulation and optimization of digital asset = =0Aholdings.=E2=80=9D Never mind about the immersion. Also it transitioned = from Bitcoin to =0AEthereum, =E2=80=9Cbecoming the largest corporate holder= of ETH, with over 3,737,140 =0Atokens valued at approximately [$10.5 billi= on] as of November 30, 2025.=E2=80=9D =E2=80=9CThe =0AAlchemy of 5%=E2=80= =9Dis its slogan , apparently meaning =0Athat, if= it ends up holding at least 5% of Ethereum, then, uh, that would be =0Agoo= d. In 2025, that was a strategy!=0A=0ALike everyone else, BitMine might be = having second thoughts. By this Monday, =0Aits holdings wereup to $14 billion of assets, =0Aconsisting mostly of =E2=80=9C4= ,167,768 ETH at $3,119 per ETH,=E2=80=9D or about $13 billion of =0AEthereu= m, but also =E2=80=9C193 Bitcoin (BTC), $23 million stake in Eightco Holdin= gs =E2=80=A6 =0Aand total cash of $988 million.=E2=80=9D BitMine has essent= ially no debt, so that=E2=80=99s a =0Anet asset value of about $14 billion.= Bloomberg tells me that BitMine=E2=80=99s market =0Acapitalization on Mond= ay was about $13.3 billion. [6] <> Ah well.=0A=0AWhat do you do, if you pi= voted to the crypto treasury strategy and it stopped =0Aworking=3F We have = talked about one approach, which is =0Ato run th= e strategy in reverse, selling crypto to buy back stock. BitMinehas =0Aanot= her idea :=0A=0ALAS VEGAS, Jan. 15, 2026 /PRNewsw= ire/ -- (NYSE AMERICAN: BMNR) Bitmine =0AImmersion Technologies, Inc. ("Bit= mine" or the "Company") the leading Ethereum =0Atreasury company in the wor= ld, announced a $200 million equity investment into =0ABeast Industries. Bi= tmine also implements an innovative digital asset strategy =0Afor instituti= onal investors and public market participants.=0A=0A"MrBeast and Beast Indu= stries, in our view, is the leading content creator of =0Aour generation, w= ith a reach and engagement unmatched with GenZ, GenAlpha and =0AMillennials= ," said Thomas 'Tom' Lee, Chairman of Bitmine. "Beast Industries is =0Athe = largest and most innovative creator based platform in the world and our =0A= corporate and personal values are strongly aligned."=0A=0AI suppose part of= the point here is, like, get a YouTuber to get the kids more =0Ainterested= in Ethereum=3F Likehere are some words :=0A=0A= =E2=80=9CIt=E2=80=99s our view that ethereum, which is a smart contract pla= tform, is the =0Afuture of finance, where digitalization of not only dollar= s but stocks and =0Aequities [are] going to take place,=E2=80=9D Bitmine Ch= airman Tom Lee said on CNBC=E2=80=99s =0A=E2=80=9CSquawk Box=E2=80=9D on Th= ursday. =E2=80=9COver time, that really blurs what is a service =0Aversus w= hat=E2=80=99s digital money, and that=E2=80=99s where a collaboration and i= nvestment =0Ainto Beast Industries makes sense.=E2=80=9D ...=0A=0A=E2=80=9C= I think it=E2=80=99s part of the sort of evolution of digital platforms and= money, =0Aand I think it=E2=80=99s really uniting the No. 1 creator in the= world with the biggest =0Aethereum platform in the world,=E2=80=9D Lee add= ed.=0A=0AThere are other advantages. There is some controversy =0A about whether digital asset treasury companies are =0A= =E2=80=9Cinvestment funds=E2=80=9D or operating businesses. [7] <> This co= ntroversy strikes me =0Aas dumb: They are obviously investment funds; their= business is mainly =0Ainvesting in crypto, and their value comes from the = value of that crypto. But =0Athey are a weird passive sort of investment co= mpany, not =E2=80=9Cour hard-working team =0Aof professionals makes brillia= nt investing decisions=E2=80=9D but rather =E2=80=9Chey here=E2=80=99s a = =0Apot of Ethereum.=E2=80=9D=0A=0AThey don=E2=80=99t have to be that way, t= hough. There was a time when =E2=80=9Chey here=E2=80=99s a =0Apot of Ethere= um=E2=80=9D was a really good pitch to investors, so lots of crypto =0Acomp= anies pivoted their strategy to accumulating as much as they could of their= =0Afavorite token. Now that pitch has stopped working. But all those compa= nies =0Apivoted to becoming investment funds; now they have huge pots of ca= sh that they =0Ainvest in stuff. Mostly Ethereum, in BitMine=E2=80=99s case= , but =E2=80=A6 you can change that =0Aeasily enough=3F You=E2=80=99ve got = a $14 billion pot of money and a free hand to invest =0Ait; investing it al= l in Ethereumused to be cool, but now it is less cool. Maybe =0Ado some ven= ture capital too.=0A=0A=0AEverything is securities fraud: AI data centers= =0A=0AYou know the deal: Every bad thing that a public company does is also= =0Asecurities fraud, and =E2=80=9Cbad=E2=80=9D is in the eye of the behold= er. For instance, one =0Athing that has happened in financial markets in th= e last few years is that a =0Alot of big technology companies have committe= d to spend a zillion dollars =0Abuilding data centers for the artificial in= telligence boom. Is that bad=3F Well, =0Athe companies don=E2=80=99t think = so. Their shareholders, by and large, don=E2=80=99t think so =0A=E2=80=94 t= here is a lot of enthusiasm for the AI boom and the profits that it might = =0Aone day create =E2=80=94 though there are dissenters.=0A=0AOn the other = hand, there are some investors who might be less happy. If you =0Awere acre= ditor of a big tech company a few years ago, you probably felt great. =0A= =E2=80=9CThis company makes tons of money, doesn=E2=80=99t have to spend th= at much, and has =0Avery little debt,=E2=80=9D you thought; =E2=80=9Cthat= =E2=80=99s just how Big Tech works.=E2=80=9D Now, the way =0ABig Tech works= is that companies borrow money and sign leases obligating them =0Ato pay t= ens of billions of dollars a year for many years to build data centers =0As= o they can compete in AI. Having zillions of dollars of lease and interest = =0Aobligations is a worse credit profile than not having that. There are wa= ys to =0Amitigate this risk =E2=80=94 companies = can do some sleight =0Aof hand to make the data-center debt notquite count = as debt =E2=80=94 but this can only =0Aaccomplish so much.=0A=0ASo if you a= re a bondholder of a big tech company, you might think =E2=80=9Cthe AI boom= =0Ais bad, so it is securities fraud.=E2=80=9D (I mean: If you were a bond= holder before =0Athe AI boom, or, at least, before the company=E2=80=99s la= test round of debt financing =0Aor data-center commitments. Lots of credito= rs love the AI boom =0A, in the sense that it all= ows them to buy new bonds =0Aat high interest rates. But if you were a pre-= boom bondholder who bought old =0Abonds at low interest rates, the boom is = bad for the price of those bonds.)=0A=0ABloomberg=E2=80=99s Caleb Mutua re= ports :=0A=0AOracle Corp. was sued by bondholders= who claim that the database giant failed =0Ato disclose plans to raise mor= e debt when it borrowed $18 billion in one of =0A2025=E2=80=99s largest cor= porate bond offerings.=0A=0AThe Ohio Carpenters=E2=80=99 Pension Plan, whic= h was among bondholders that bought =0Abonds issued in September, claims th= at Oracle didn=E2=80=99t tell investors that it =0Aneeded to raise a =E2=80= =9Csignificant amount of additional debt=E2=80=9D to finance its =0Aartific= ial intelligence infrastructure, according to a lawsuit filed in a New =0AY= ork state court Wednesday.=0A=0ASeveral weeks after issuing the notes, Bloo= mberg reported that banks were also =0Aproviding a $38 billion debt offerin= g to help fund data centers in Texas and =0AWisconsin tied to Oracle. As a = result of the additional debt, Oracle=E2=80=99s bonds =0Abegan to trade wit= h yields and spreads similar to lower-rated issuers as =0Aconcerns about Or= acle=E2=80=99s credit risk grew.=0A=0A=E2=80=9CThe offering documents were = false and misleading and omitted to state that, =0Aat the time of the offer= ing, Oracle was organizing to raise that additional =0Adebt, which would ul= timately bring the creditworthiness of these bonds into =0Aquestion,=E2=80= =9D according to the lawsuit.=0A=0AHere is the complaint . These are not exactly =0Apre-AI-boom bondholders =E2=80=94 they b= ought these bonds in September 2025 =E2=80=94 but since =0Athen =E2=80=9Cre= ports emerged that Oracle was looking to raise an additional $38 =0Abillion= in debt sales to help fund its AI buildout=E2=80=9D and these bonds traded= =0Adown. The bond offering documentsdid say things like =E2=80=9COracle Co= rporation and =0Aits subsidiaries may incur additional indebtedness in the = future,=E2=80=9D but they =0Adidn=E2=80=99t say that itwould incur the addi= tional debt, so, lawsuit.=0A=0AI suggested above that all of this makes a c= ertain amount of sense as a matter =0Aof disgruntled Big Techbondholders, b= ut that Big Tech shareholders might have =0Aless cause to sue about the AI = boom. But that=E2=80=99s only loosely true. Incurring =0Azillions of dollar= s of debt to build data centers feels (1) fairly =0Astraightforwardly bad f= or credit but (2) ambiguous for equity. But of course =0A=E2=80=9Cambiguous= for equity=E2=80=9D doesn=E2=80=99t mean that peoplecan=E2=80=99t sue. Eve= ry bad thing that =0Aa public company does is also securities fraud, and = =E2=80=9Cbad=E2=80=9D is in the eye of the =0Abeholder. If the stock went d= own, sure, securities fraud. And Oracle=E2=80=99s stockis =0Adown since Sep= tember. Here=E2=80=99s alaw firm press release := =0A=0ALOS ANGELES, Jan. 15, 2026 (GLOBE NEWSWIRE) -- The Portnoy Law Firm a= dvises =0AOracle Corporation, (=E2=80=9COracle" or the "Company") (NYSE:ORC= L) investors that the =0Afirm has initiated an investigation into possible = securities fraud, and may =0Afile a class action on behalf of investors. ..= .=0A=0AOn September 10, 2025, Oracle and OpenAI OpCo, LLC (=E2=80=9COpenAI= =E2=80=9D) announced a $300 =0Abillion, five-year cloud computing contract = to supply OpenAI with computing =0Apower. On November 13, 2025, reports eme= rged that Oracle was seeking to raise =0Aan additional $38 billion in debt = sales to help fund its AI buildout, with loan =0Aproceeds to fund two data = centers that would support the Oracle-OpenAI =0Aagreement. On this news, Or= acle=E2=80=99s stock price fell $9.42 per share, or 4.15%, =0Ato close at $= 217.57 per share on November 13, 2025. Then, on a December 10, =0A2025 earn= ings call, Oracle=E2=80=99s Executive Vice President and Principal Financia= l =0AOfficer disclosed that the Company =E2=80=9Cnow expect[s] fiscal 2026 = CapEx will be =0Aabout $15 billion higher than we forecasted after Q1.=E2= =80=9D On this news, Oracle=E2=80=99s =0Astock price fell $24.16 per share,= or 10.83%, to close at $198.85 per share on =0ADecember 11, 2025.=0A=0AYep= , building AI data centers, securities fraud.=0A=0A=0AThings happen=0A=0AAm= azon Blasts Saks Funding Deal , Says Equity Is = =0A=E2=80=98Worthless.=E2=80=99 Inside theMad Dash to Save Saks , =0AAmerica=E2=80=99s Last Luxury Retailer.Goldman=E2=80=99= s Stock =0ATraders Beat Their Own Wall Street Re= cord. BlackRock =0ATotal Assets Hit Record $14 T= rillion as ETFs Surge. Citi CEO Warns of More Job =0ACuts, Calls Time on = =E2=80=98 Old, Bad Habits .=E2=80=99 Kalshi and = =0APolymarket race tocrack =E2=80=98parlays=E2=80=99 as stakes rise in =0Asports betting. Hedge Funds Revive Dispute Over A= rgentina GDP-Linked Securities =0A. Blackstone Re= al-Estate Fund =0A Stages Comeback With Best Retu= rn in Three Years. =0ADonald Trump=E2=80=99s =E2=80=98unpredictable=E2=80= =99 policies to fuelmultiyear shift from US =0A, = Pimco says. Blackstone to Offer Private Investments=0A in Empower 401(k)s. BlackRock, Microsoft AI =0APartnership Raises $12.5 Billion So Far. OpenAI =0AForges Multibill= ion-Dollar ComputingPartnership With Cerebras =0A= . Hedge Funds Hire Talent Scouts in Japan =0A t= o Tap Comeback. Key Wall Street Regulator Grapples =0AWith Crypto, Sports G= ambling . Amazon Becomes First =0ABuyer of Arizon= a Copper Made by Rio=E2=80=99s Nuton. =0AMasterc= ard, Visa, Revolut Lose London Suit Over Card Fee Cap =0A. Soho House Shares Rise =0AAfter New Fu= nding Secured For Take-Private Deal. People Are Paying $99 a Month =0Ato Ta= lk to aTony Robbins Chatbot . India tells =0Adeli= very companies tostop promising 10-minute service =0A. Elon Musk bows to pressure overGrok creating sexualised AI images =0A= . Meta Lays Off 1,500 People in Metaverse Divisio= n =0A.=0A=0AIf you'd like to get Money Stuff in h= andy email form, right in your inbox, =0Apleasesubscribe at this link . Or you can subscribe =0Ato Money Stuff and other gre= at Bloomberg newslettershere =0A. Thanks!=0A=0A[1= ] Other than, arguably, the =E2=80=9Cyou can steal the money=E2=80=9D risk.= =0A=0A[2] I mean, not really individuals, in modern corporate bond markets,= but in =0Athe olden days probably.=0A=0A[3] Those covenants, or variations= on them, are the two main ones =0A: a =E2=80=9Cl= everage ratio=E2=80=9D covenant and an =E2=80=9Cinterest =0Acoverage=E2=80= =9D or =E2=80=9Cfixed charge coverage=E2=80=9D covenant. Generally =E2=80= =9Cearnings=E2=80=9D will be not =0Anet income but EBIT (earnings before in= terest and taxes), or EBITDA (earnings =0Abefore interest, taxes, depreciat= ion and amortization), or adjusted EBITDA =0A(earnings before whatever the = lenders agreed to back out).=0A=0A[4] Many bonds have =E2=80=9Cincurrence c= ovenants ,=E2=80=9D =0Abasically =E2=80=9Cwe can= =E2=80=99t take on *more* debt if our income is below X,=E2=80=9D which is = =0Aless likely to lead to disaster.=0A=0A[5] In particular, the =E2=80=9Cco= mpany=E2=80=9D is often a private equity portfolio company, =0Aand the priv= ate credit lender has a repeat relationship with the sponsor and =0Awants t= o stay in good favor so it can get more deals.=0A=0A[6] Blockworks calculat= es that Bitmine's "mNAV" =0A(multiple of net ass= et value) is right around 1, down from 8.7 in the boom =0Atimes.=0A=0A[7] N= ot in the sense of being =E2=80=9Cinvestment companies=E2=80=9D under the U= S securities =0Alaws, a technical term that applies to firms that invest pr= imarily in =0A*securities* and that leads to much more regulation. DATs are= not investment =0Acompanies in that sense , beca= use they buy crypto =0Arather than stocks.=0A=0A=0A =0A=0AFollow Us = =0A Get the newsletter =0A=0A=0ALike getting this newsletter=3F Subscribe to Bloomberg.com = =0A=0A for unlimited access to trusted, data-driven journalism and sub= scriber-only =0Ainsights.=0A=0ABefore it=E2=80=99s here, it=E2=80=99s on th= e Bloomberg Terminal. Find out more about how the =0ATerminal delivers info= rmation and analysis that financial professionals can=E2=80=99t =0Afind any= where else.Learn more =0A=0A.=0A=0AWan= t to sponsor this newsletter=3F Get in touch here =0A=0A.=0A=0A You received this message because you are subscr= ibed to Bloomberg's Money =0AStuff newsletter. =0AUnsubscribe =0A=0A |Bloomberg.com | Contact Us =0A =0A=0A | =0ABloomberg L.P. 731 Lexington, New York, NY, 10022 =0A --_----XAKSDED7GljTGp8qXBp0ag===_3A/39-62560-D9B39696 Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="UTF-8" Money Stuff =0D=0A
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Covenants, DATs, securities fraud.
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3D"Bloomberg"

Stablecoin interest
=

If you have dollars, you can put them in a che= cking account at a bank. This is convenient (the bank will let you use thos= e dollars to make payments) and fairly safe (the bank=C2=A0probably=C2= =A0won=E2=80=99t fail, and if it does your deposits are insured, up to= some limit, by the US government), but not especially lucrative. The bank = will use your money to do stuff =E2=80=94=C2=A0make loans, buy securities, = etc. =E2=80=94=C2=A0and will make some money from those activities, but you= won=E2=80=99t see much of that money.=C2=A0The bank will lose some money= =C2=A0(from bad loans or bad trades), and it=C2=A0will use a lot of the mon= ey to pay for branches and salaries and stock buybacks and stuff. It will p= ay you something close to 0% interest on your checking account.=C2=A0

<= p style=3D"margin: 16px 0;">Of course, there are all sorts of ways to earn = more money on your money, at the cost of convenience (your money might get = locked up) and safety (you might lose some of it). You can put the money in= private credit funds or Nvidia stock or Bitcoin or whatever. None of these= things is really a substitute for a checking account.=C2=A0

Another thing you can do is invest in Treasury bills. = Short-term US Treasury bills pay about 3.6% interest. They are fairly conve= nient (they mature in a month or two, and you can sell them any time in a h= ugely liquid market) and quite safe (they mature at par in a month or two, = and the US government will probably pay). They are not a perfect substitute= for a checking account, though. You can=E2=80=99t write checks against the= m; you can=E2=80=99t instantly=C2=A0use your Treasury bills to pay= your bills. You have to convert them to cash, put the cash in a checking a= ccount, and write checks against that.

Her= e is an arbitrage:

  1. Start a bank.
  2. Offer checking accounts.
  3. Take deposits from customers.
  4. Put their money directly into short-term Treasury bills= paying 3.6%.
  5. Don=E2=80=99t do anyth= ing else: No loans, no credit cards, no long-term investments, no branches,= no customer service line, no free toasters, almost no salaries. (Obviously= you get a salary!) Costs are low (a website and your salary), say 0.1% of = the money you take in.
  6. Pass the othe= r 3.5% on to the customers.

This pr= oduct is much better for customers than a regular checking account in two r= espects:

  • You are paying them 3.5% inst= ead of roughly 0%.
  • You are=C2=A0= safer=C2=A0than the other banks. The other banks=C2=A0probably=C2= =A0won=E2=80=99t fail, and if they do their deposits are insured up to= some limit, but banks do fail sometimes, and some deposits are over the li= mit. Your bank, though, kind of=C2=A0can=E2=80=99t=C2=A0fail: All = your money is in short-term Treasury bills with essentially no credit or in= terest-rate risk. All the stuff that banks do that could cause them to fail= =E2=80=94=C2=A0lending, trading, interest-rate b= ets =E2=80=94=C2=A0you don=E2=80=99t do. (Obviously the other thing tha= t banks do that cause them to fail is =E2=80=9Csteal all the money,=E2=80= =9D which you=C2=A0could=C2=A0do, but you should try not to.) You = are a =E2=80=9Cnarrow bank,=E2=80=9D taking deposits and parking them somew= here perfectly safe.

It is worse th= an a regular checking account in some other respects =E2=80=94=C2=A0minimal= customer service, no loans, no branches, no toasters =E2=80=94=C2=A0but th= is is 2026 and a lot of your customers are probably fine with that. They do= everything on their phones anyway; they don=E2=80=99t need=C2=A0branches.<= /p>

Can you do this=3F Well. You=E2=80=99re ki= nd of not supposed to, not exactly, not literally. For one thing, US bank leverage requirements are a problem: You need t= o have some capital against your holdings of Treasury bills, so you can=E2= =80=99t really pass all of the interest back to customers; a lot of it has = to go to shareholders. More broadly, US bank regulators take a dim view of = this sort of thing. We have talked a few times about TNB USA Inc., =E2=80=9CThe Narrow Ban= k,=E2=80=9D which aimed to do roughly this trade. (Instead of Treasury bill= s, it would put the money in interest-bearing deposits at the Federal Reser= ve, which have similar properties of being extremely safe and paying intere= st.) The Fed didn=E2=80=99t like it. =E2=80=9CFed Rejects Bank for Being To= o Safe=E2=80=9D was my headline.

The problem is: What about all the other banks=3F=C2= =A0They=C2=A0are taking deposits and using them to make loans; the= y use depositors=E2=80=99 money to provide the credit that lubricates the e= conomy. There is some cost to that lubrication, and the cost shows up in fo= rms like =E2=80=9Cthe bank pays you 0% on your deposits=E2=80=9D and =E2=80= =9Coccasionally a bank fails and is bailed out by the government.=E2=80=9D = You can get rid of the costs through narrow banking, but that might also ge= t rid of the lubrication.

The more specifi= c problem is: Look, in good times, people will keep their money in their lo= cal bank because they like the fancy branch and the customer service and th= e toasters. But in a=C2=A0panic, people will take their money out = of their local bank and=C2=A0put it into a narrow bank, because it= =E2=80=99s safer. Narrow banking arguably undermines the=C2=A0stability= =C2=A0of the broader banking system; it makes the regular banks less s= afe.

So you mostly can=E2=80=99t do exactl= y this sort of narrow banking in a=C2=A0bank. Not never, though. W= e talked last month about a thing called N= 3XT, a =E2=80=9CWyoming Special Purpose Depository Institution=E2=80=9D whe= re =E2=80=9Cevery dollar of deposits is backed one-to-one by cash or short-= term U.S. treasuries, making N3XT the first =E2=80=98narrow bank=E2=80=99 i= n the United States.=E2=80=9D

And outside = of =E2=80=9Cbanking,=E2=80=9D you can get pretty close to this trade. The c= lassic example is a government money-market fund. That=E2=80=99s just a pot= of money invested in short-term US Treasury bills. There are lots of those= , and they tend to pay about 3.6% interest=C2= =A0these days: They buy Treasury bills, collect the interest and pass almos= t all of it on to customers. Unlike banks, they do not really have capital = requirements. And your broker will probably let you write checks against th= em.

There is a little tension here: US ban= k regulators are nervous about narrow banking because they worry that it wi= ll undermine the stability of the banking system, but they allow government= money market funds. And in fact there=E2=80=99s an argument that those fun= ds=C2=A0do=C2=A0undermine the stability of the banking system: Bac= k in 2023, we discussed worries that deposit= s were fleeing troubled US regional banks for money market funds, and that = this would put the banks at risk. Still, the banks have mostly survived com= petition from money market funds.

Then the= re are stablecoins. As we have discussed, st= ablecoins are a form of narrow banking: They take deposits and (mostly) par= k the money in cash and Treasury bills. You occasionally hear worries that = this will undermine the banking system: People will prefer to put their mon= ey in stablecoins (which are convenient for crypto-y sorts of payments, and= invested in Treasury bills) rather than in banks (which are less crypto-na= tive and take more credit risk).

In the US= , the regulatory solution to this worry is=C2=A0prohibiting stablecoins= from paying interest. That=E2=80=99s in the GENIUS Act regulating stablecoins: They can=E2=80=99t pay interest. Th= ey are safer [1] =C2=A0and more crypto-y= than bank accounts, but they are no more lucrative than checking accounts,= and less lucrative than many savings accounts.

As we have discussed a few times, though, there are some pretty straightforward wa= ys around that restriction:

  • The stable= coin issuer can=E2=80=99t pay=C2=A0interest, but it can pay=C2=A0<= em>fees=C2=A0to crypto exchanges (for encouraging their customers to h= old the stablecoin), and the exchanges can pass those fees along to the cus= tomers. To the customers, this looks pretty much = exactly like =E2=80=9Cinterest on a stablecoin.=E2=80=9D
  • If you=E2=80=99re a customer who=C2=A0holds=C2=A0a stablecoin, you can lend=C2=A0it=C2=A0out to crypto trad= ers for their crypto trades, and get a second la= yer of interest.

And so in prac= tice stablecoins kind of=C2=A0do=C2=A0pay interest. Does this unde= rmine the safety and profitability of the banking system=3F I mean, the ban= ks think so. The Wall Street Journal reports:=

The cryptocurrency and banki= ng industries are locked in a lobbying battle over digital tokens that yiel= d annual payouts, a fight that threatens to derail legislation intended to = bring crypto into mainstream finance.

The = two sides are clashing about what crypto firms call rewards, or annual paym= ents to investors based on a percentage of their total holdings. They are c= ommonly used for stablecoins, popular tokens typically pegged to the U.S. d= ollar and used for trading, overseas payments and money transfers.

To banks, rewards on stablecoins from companies su= ch as Coinbase Global that pay out 3.5% resemble high-yielding deposits=E2= =80=94but without the regulations they face for holding customers=E2=80=99 = cash. Bank-industry groups have flooded lawmakers with letters and phone ca= lls arguing the rewards would decimate Main Street lenders. The national av= erage interest rate for a standard interest-bearing checking account is bel= ow 0.1%.

=E2=80=9CWe are hearing every day= from community bankers who are worried about the impact stablecoins offeri= ng yield will have on their deposit bases and their ability to lend and sup= port their local communities,=E2=80=9D said Brooke Ybarra, senior vice pres= ident for innovation and strategy at the American Bankers Association, an i= ndustry group.

In=C2=A0 theo= ry, one solution here is to allow stablecoins to pay interest (like banks) = but also impose capital requirements (like banks). I would not bet on that = happening though.
<= /table>

Here is a rough stylized story of cove= nants. In the olden days, companies had two ways to borrow money: They coul= d issue=C2=A0bonds=C2=A0to public investors, or they could get loans=C2=A0from their banks. In a bond offering, the company would se= nd out a disclosure document (a prospectus or offering memorandum) to dozen= s of potential buyers =E2=80=94=C2=A0insurance companies, mutual funds, hed= ge funds, individuals [2] =C2=A0=E2=80= =94=C2=A0and would take money from whoever wanted to invest=C2=A0at some ma= rket-clearing terms. In a bank loan, the company would sit down with its re= lationship banker, who had known the company for decades, and would negotia= te a loan based on the banker=E2=80=99s deep knowledge of the company and t= rust in the character of its executives.

B= ecause bonds were impersonal capital markets transactions, while bank loans= were products of long-term personal relationships, they had different term= s. Among the differences: Loans traditionally had =E2=80=9Cmaintenance cove= nants.=E2=80=9D A maintenance covenant says something like: =E2=80=9CThe co= mpany=E2=80=99s debt can=E2=80=99t exceed six=C2=A0times its earnings,=E2= =80=9D or =E2=80=9Cthe company=E2=80=99s interest expense can=E2=80=99t exc= eed half its earnings.=E2=80=9D [3] =C2= =A0The company promises to have at least a certain amount of earnings, rela= tive to its debt. What if it doesn=E2=80=99t=3F What if it has a bad year a= nd doesn=E2=80=99t make as much money as it promised=3F Well, then it is in= default, and the lender can demand its money back immediately. Even if the= company is current on its loan payments, if it breaches a covenant, then i= t is in default and has to pay back its loans.

This seems harsh, and you could imagine the company objecting. =E2=80= =9CLook, if we make enough money to pay your interest, and we do=C2=A0<= /em>pay your interest, what do you care if we make twice as much=3F=E2=80= =9D The bank could reasonably reply: =E2=80=9CIf you are only barely making= enough to cover our interest this quarter, that makes your loan much riski= er than we thought, and we want the ability to get our money back. We are n= ot in the business of taking wild risks; we want a safe credit where you ma= ke plenty of money, and if things change we want out.=E2=80=9D=C2=A0

But that was mostly=C2=A0not exactly=C2= =A0what the banks said. Instead, the standard=C2=A0answer went more like th= is: =E2=80=9CWe understand that this seems harsh. Obviously, if you have a = bad year and don=E2=80=99t make a lot of money, it would be terrible for yo= u if we also demanded that you repay our loan early. It would be monstrous = of us to do that. But we are not monsters. We have a long personal relation= ship with you; you know and trust us. No, the point of the maintenance cove= nant is not that we=E2=80=99ll take our money back at the first sign of tro= uble. The point of the maintenance covenant is that we want to=C2=A0wor= k=C2=A0with you if there=E2=80=99s trouble. We want you to call us so = we can work something out. Maybe we=E2=80=99ll extend the term of the loan.= Maybe we=E2=80=99ll ask for more collateral. Maybe we=E2=80=99ll help you = find an outside investor. We=E2=80=99re a bank; we can do lots of things. B= ut in that scenario, where your business isn=E2=80=99t going as well as we = both expect, we want an early warning, and we want=C2=A0leverage. = We want the=C2=A0ability=C2=A0to call in our loan, so that we have= a seat at the table while you work things out. But we won=E2=80=99t=C2=A0<= em>use=C2=A0that ability, or not immediately and arbitrarily. The cove= nant is just a part of our relationship.=E2=80=9D

That answer broadly made sense, and maintenance covenants in bank l= oans were pretty common. But this whole line = of reasoning doesn=E2=80=99t work for=C2=A0bonds. A bond is not li= ke a bank loan, where the lender is a single bank with a long relationship = with the company. In a bond deal, there are lots of lenders, they change ev= ery day as people buy and sell the bonds, and they don=E2=80=99t necessaril= y have any special relationship with the company=E2=80=99s managers. So bon= ds do not normally have maintenance covenants; bonds do not normally say = =E2=80=9Cif the company=E2=80=99s income falls below X it=E2=80=99s a defau= lt and the bondholders get their money back immediately,=E2=80=9D because t= hat would=C2=A0be a disaster. [4] <= /a>=C2=A0It would be too hard for the company to negotiate with all the bon= dholders if that happened, so they probably would demand their money back, = and the company might go bankrupt.

That is= the old-timey story. One thing that happened over the last few decades is = that =E2=80=9Cbank loans,=E2=80=9D and particularly =E2=80=9Cleveraged loan= s=E2=80=9D to non-investment-grade companies, became=C2=A0much=C2=A0more li= ke bonds. In fact the name =E2=80=9Cbank loan=E2=80=9D is now somewhat anti= quated, and people are more likely to call them =E2=80=9Cbroadly syndicated= loans.=E2=80=9D As the name implies, they are broadly syndicated: A compan= y=E2=80=99s lead bank will=C2=A0arrange=C2=A0the loan, but the mon= ey will come from lots of lenders. The lenders will include some banks, but= also hedge funds and credit funds and collateralized loan obligations. The= loans will trade in a secondary market; the company=E2=80=99s lender base = can change each day.

And so the old argume= nts for maintenance covenants =E2=80=94=C2=A0that they were part of a relat= ionship, and that the lender would work with the company in case a covenant= was breached =E2=80=94=C2=A0got much weaker. =E2=80=9CIf our income goes d= own, we don=E2=80=99t want to be in default,=E2=80=9D companies could reaso= nably say,=C2=A0=E2=80=9Cbecause our collection of random hedge funds and C= LO managers won=E2=80=99t work with us and we=E2=80=99ll just go into bankr= uptcy.=E2=80=9D

And lenders were largely l= ike =E2=80=9Cyeah I see your point,=E2=80=9D and there was a long rise in <= a href=3D"https://links.message.bloomberg.com/s/c/fncPHiS6aqpnOOmdcPou_x0dG= hs-dQMIax5TtXJoMFoLCNihADJUVL8jS1iflNhVyH8gCq7Lsg-3RzUl_xxUEAsvS97JoZn9dT6y= 6vhyVwQ8vC8tT0q3fmrbuefPHIyUEsYYlJ8VIb4L019r_RVtuBqmWvKpVqomUjdFfrkzW9ymGY-= wzRMVbZLaAjd_cNNhJujgzIfQ26o3XlVIKNWzVaKUJ5-tLOaBfMoNrBiegZ_t6LHnzTlbPEJIU7= A_LsBh55VqAvSK_VKpyCyDZTZLXiflY3dLBYNUk9JBl_WeEyhUs-R-o5kTG2yyLRBI5Ky1mwVyY= L_IXhYXrTHtO59kb-onuxj7XhSCur_Iw1OwhcFYztU_aWp93eDRfe8/uz8P2qBLeiBLyqQC7eu4= G7iwZCqVXJyH/16" itemprop=3D"StoryLink" itemscope=3D"itemscope" target=3D"_= blank" style=3D"color: #000000; text-decoration: none !important; border-bo= ttom-width: 1px; border-bottom-color: #000000; border-bottom-style: solid; = background-color: #ccc;">=E2=80=9Ccovenant-lite=E2=80=9D loans, that is= , loans without maintenance covenants. The old-timey relationship theory of= covenants no longer made sense,=C2=A0so they dropped out of a lot of loans= .

The big story in credit in recent years= is the rise of private credit. Private credit is in many ways like the=C2= =A0old=C2=A0model of bank lending: A company negotiates one loan w= ith one lender, the lender puts up the money and holds the loan to maturity= , and the company has a relationship with the lender. If things go wrong, t= he lender will work with the company to fix them; their interests are align= ed and they have a long-term relationship. [5] =C2=A0The difference is that the lender is not a bank,=C2=A0but it is not a rapacious hedge fund either; it=E2= =80=99s a long-term asset manager that understands credit markets and inves= ts in relationships with its borrowers. Of course the company should be hap= py to work with its private credit lender if it runs into trouble, and of c= ourse the private credit lenders =E2=80=94=C2=A0who hold loans to maturity = and take concentrated risks on individual borrowers =E2=80=94=C2=A0should w= ant covenants to protect themselves. And private credit loans usually have = maintenance covenants.

And then the inevit= able continuation of that story is:

  1. Private credit loans get bigger and more distributed.
  2. They start trading.
  3. Everything starts to feel a bit more impersonal.
  4. Covenant-lite private credit.

We talked about=C2=A0that story b= ack in 2023, and it=E2=80=99s continuing. Bloomberg=E2=80=99s Francesca Veronesi and Kat Hidalgo report:

Private credit firms=E2=80=99 efforts to re= ap leveraged debt business from Wall Street is coming at a steep cost =E2= =80=94 safeguards that made them less vulnerable to an economic downturn. = =E2=80=A6

The safeguards, along with acces= s to nonpublic financial information, are part of why industry chiefs like = to claim private is safer than bank credit. They also say that they vet dea= ls more carefully. While the rates at which private borrowers default is up= for debate, they=E2=80=99ve been reported in a range of 2% to 3% =E2=80=94= lower than for leveraged loans made by banks.

Traditional private credit carries maintenance covenants =E2=80=94 lim= its on leverage that are tested regularly. As soon as a borrower breaches i= ts limits, a lender can seek an equity injection from shareholders or priva= te equity owners, push them into asset sales for the good of lenders, or de= mand more collateral. If a lender favors a debt restructuring, or even want= s to take over a company, a covenant breach would be the starting point.

The right to curb unhealthy debt levels is a= lso a way for private credit firms to hedge risks like recession or tariffs= that can zero corporate profits.

But now = direct lenders are making deals on the same terms as banks =E2=80=94 breaki= ng long-standing convention that gave them more rights to manage a borrower= =E2=80=99s debt.

In the long= run, private credit will probably end up like every other kind of credit.<= /p>

Covenant-lite private credit
=

MrBeast treasury company
=

Back in simpler times, a year ago, BitMine Im= mersion Technologies Inc., as its name implies,=C2=A0was a technology compa= ny that mined Bitcoin using immersion. Something like that. From its annual report in December=C2=A02024:=C2=A0

Since July 2021, our business has bee= n as a blockchain technology company that is building out industrial scale = digital asset mining, equipment sales and hosting operations. The Company= =E2=80=99s primary business is self-mining bitcoin for its own account, as = well as hosting third-party equipment used in mining of digital asset coins= and tokens, specifically bitcoin. ...

We = plan to operate our data centers using immersion cooling technology. Immers= ion cooling is the process of submerging computer components (or full serve= rs) in a thermally, but not electrically, conductive liquid (dielectric coo= lant) allowing higher heat transfer performance than air and many other ben= efits.=C2=A0

Intuitive! But = 2025 was a pretty weird year, and if you ran a public company that was at a= ll connected to crypto, it was awfully tempting to become a=C2=A0digital as= set treasury company. As we discussed a lot around here,= =C2=A0there was a period of at least several months where a pot with $100 w= orth of crypto would trade at $200 on the stock exchange, so everyone rushe= d to do that. That bubble has now pretty definit= ively burst: Many digital asset treasury companies are trading below ne= t asset value, and now a pot of $100 worth of crypto is more likely to trad= e at $90 than $200.

Like everyone else, Bi= tMine did the pivot: =E2=80=9CDuring 2025, th= e Company refined its business strategy to emphasize digital asset treasury= operations, reflecting a transition from primarily mining and hosting acti= vities toward the long-term accumulation and optimization of digital asset = holdings.=E2=80=9D Never mind about the immersion. Also it transitioned fro= m Bitcoin to Ethereum, =E2=80=9Cbecoming the largest corporate holder of ET= H, with over 3,737,140 tokens valued at approximately [$10.5 billion] as of= November 30, 2025.=E2=80=9D =E2=80=9CThe Alchemy of 5%=E2=80=9D is its slogan, apparently meaning that, if it ends=C2= =A0up=C2=A0 holding at least 5% of Ethereum, then, uh, that would be good. = In 2025, that was a strategy!

Like everyon= e else, BitMine might be having second thoughts. By this Monday, its holdin= gs were=C2=A0up to=C2=A0$14 billion of assets= , consisting mostly of =E2=80=9C4,167,768 ETH at $3,119 per ETH,=E2=80=9D o= r about $13 billion of Ethereum, but also =E2=80=9C193 Bitcoin (BTC), $23 m= illion stake in Eightco Holdings =E2=80=A6=C2=A0and total cash of $988 mill= ion.=E2=80=9D=C2=A0BitMine has essentially no debt, so that=E2=80=99s a net= asset value of about $14 billion. Bloomberg tells me that BitMine=E2=80=99= s market capitalization on Monday was about $13.3 billion. [6] Ah well.

What do y= ou do, if you pivoted to the crypto treasury strategy and it stopped workin= g=3F We have talked about one approach, whic= h is to run the strategy in reverse, selling crypto to buy back stock. BitM= ine has another idea:

LAS VEGAS, Jan. 15, 2026 /PRNewswire/ -- (NYSE AMERI= CAN: BMNR) Bitmine Immersion Technologies, Inc. ("Bitmine" or the "Company"= ) the leading Ethereum treasury company in the world, announced a $200 mill= ion equity investment into Beast Industries. Bitmine also implements an inn= ovative digital asset strategy for institutional investors and public marke= t participants.

"MrBeast and Beast Industr= ies, in our view, is the leading content creator of our generation, with a = reach and engagement unmatched with GenZ, GenAlpha and Millennials," said T= homas 'Tom' Lee, Chairman of Bitmine. "Beast Industries is the largest and = most innovative creator based platform in the world and our corporate and p= ersonal values are strongly aligned."

I suppose part of the point here is, like, get a YouTuber to get = the kids more interested in Ethereum=3F Like here= are some words:

=E2=80= =9CIt=E2=80=99s our view that ethereum, which is a smart contract platform,= is the future of finance, where digitalization of not only dollars but sto= cks and equities [are] going to take place,=E2=80=9D Bitmine Chairman Tom L= ee said on CNBC=E2=80=99s =E2=80=9CSquawk Box=E2=80=9D on Thursday. =E2=80= =9COver time, that really blurs what is a service versus what=E2=80=99s dig= ital money, and that=E2=80=99s where a collaboration and investment into Be= ast Industries makes sense.=E2=80=9D ...

= =E2=80=9CI think it=E2=80=99s part of the sort of evolution of digital plat= forms and money, and I think it=E2=80=99s really uniting the No. 1 creator = in the world with the biggest ethereum platform in the world,=E2=80=9D Lee = added.

There are other advan= tages. There is some controversy about wheth= er digital asset treasury companies are =E2=80=9Cinvestment funds=E2=80=9D = or operating businesses. [7] =C2=A0This = controversy strikes me as dumb: They are obviously investment funds; their = business is mainly investing in crypto, and their value comes from the valu= e of that crypto. But they are a weird passive sort of investment company, = not =E2=80=9Cour hard-working team of professionals makes brilliant investi= ng decisions=E2=80=9D but rather =E2=80=9Chey here=E2=80=99s a pot of Ether= eum.=E2=80=9D=C2=A0

They don=E2=80=99t have=C2=A0to be that way, though. There was a time when =E2=80=9Chey = here=E2=80=99s a pot of Ethereum=E2=80=9D was a really good pitch to invest= ors, so lots of crypto companies pivoted their strategy to accumulating as = much as they could of their favorite token. Now that pitch has stopped work= ing. But all those companies pivoted to becoming investment funds; now they= have huge pots of cash that they invest in stuff. Mostly Ethereum, in BitM= ine=E2=80=99s case, but =E2=80=A6=C2=A0you can change that easily enough=3F= You=E2=80=99ve got a $14 billion pot of money and a free hand to invest it= ; investing it all in Ethereum=C2=A0used=C2=A0to be cool, but now = it is less cool. Maybe do some venture capital too.

You know the deal: Every bad thing that a pub= lic company does is also securities fraud, and =E2=80=9Cbad=E2=80=9D is in = the eye of the beholder. For instance, one thing that has happened in finan= cial markets in the last few years is that a lot of big technology companie= s have committed to spend a zillion dollars building data centers for the a= rtificial intelligence boom. Is that bad=3F Well, the companies don=E2=80= =99t think so. Their shareholders, by and large, don=E2=80=99t think so =E2= =80=94=C2=A0there is a lot of enthusiasm for the AI boom and the profits th= at it might one day create =E2=80=94=C2=A0though there are dissenters.

=

On the other hand, there=C2=A0are=C2=A0some investors who might be less happy. If you were a=C2=A0creditor= =C2=A0of a big tech company a few years ago, you probably felt great. = =E2=80=9CThis company makes tons of money, doesn=E2=80=99t have to spend th= at much, and has very little debt,=E2=80=9D you thought; =E2=80=9Cthat=E2= =80=99s just how Big Tech works.=E2=80=9D Now, the way Big Tech works is th= at companies borrow money and sign leases obligating them to pay tens of bi= llions of dollars a year for many years to build data centers so they can c= ompete in AI. Having zillions of dollars of lease and interest obligations = is a worse credit profile than not having that. There are ways to mitigate this risk =E2=80=94=C2=A0companies can do = some sleight of hand to make the data-center debt not=C2=A0quite=C2=A0<= /em>count as debt =E2=80=94=C2=A0but this can only accomplish so much.

=

So if you are a=C2=A0bondholder=C2=A0= of a big tech company, you might think =E2=80=9Cthe AI boom is bad, so it i= s securities fraud.=E2=80=9D=C2=A0(I mean: If you were a bondholder before = the AI boom, or, at least, before the company=E2=80=99s latest round of deb= t financing or data-center commitments. Lots of creditors love the AI boom, in the sense that it allows them to buy new= bonds at high interest rates. But if you were a pre-boom bondholder who bo= ught old bonds at low interest rates, the boom is bad for the price of thos= e bonds.)

Bloomberg=E2=80=99s Caleb Mutua reports:

Oracle Corp.=C2=A0was sued by bondholders who claim that the dat= abase giant failed to disclose plans to raise more debt when it borrowed $1= 8 billion in one of 2025=E2=80=99s largest corporate bond offerings.

The Ohio Carpenters=E2=80=99 Pension Plan, which= was among bondholders that bought=C2=A0bonds issued=C2=A0in September, cla= ims that Oracle didn=E2=80=99t tell investors that it needed to raise a =E2= =80=9Csignificant amount of additional debt=E2=80=9D to finance its artific= ial intelligence infrastructure, according to a=C2=A0lawsuit=C2=A0filed in = a New York state court Wednesday.

Several = weeks after issuing the notes, Bloomberg=C2=A0reported=C2=A0that banks were= also providing a $38 billion debt offering to help fund data centers in Te= xas and Wisconsin tied to Oracle. As a result of the additional debt, Oracl= e=E2=80=99s bonds began to trade with yields and spreads similar to=C2=A0lo= wer-rated issuers=C2=A0as concerns about Oracle=E2=80=99s credit risk grew.= =C2=A0

=E2=80=9CThe offering documents wer= e false and misleading and omitted to state that, at the time of the offeri= ng, Oracle was organizing to raise that additional debt, which would ultima= tely bring the creditworthiness of these bonds into question,=E2=80=9D acco= rding to the lawsuit.

Here i= s the complaint. These are not exactly pre-= AI-boom bondholders =E2=80=94=C2=A0they bought these bonds in September 202= 5 =E2=80=94=C2=A0but since then =E2=80=9Creports emerged that Oracle was lo= oking to raise an additional $38 billion in debt sales to help fund its AI = buildout=E2=80=9D and these bonds traded down. The bond offering documents= =C2=A0did=C2=A0say things like =E2=80=9COracle Corporation and its= subsidiaries may incur additional indebtedness in the future,=E2=80=9D but= they didn=E2=80=99t say that it=C2=A0would=C2=A0incur the additio= nal debt, so, lawsuit.

I suggested above t= hat all of this makes a certain amount of sense as a matter of disgruntled = Big Tech=C2=A0bondholders, but that Big Tech shareholders= =C2=A0might have less cause to sue about the AI boom. But that=E2=80=99s on= ly loosely true. Incurring zillions of dollars of debt to build data center= s feels (1) fairly straightforwardly bad for credit but (2) ambiguous for e= quity. But of course =E2=80=9Cambiguous for equity=E2=80=9D doesn=E2=80=99t= mean that people can=E2=80=99t sue.=C2=A0Every bad thing that a p= ublic company does is also securities fraud, and =E2=80=9Cbad=E2=80=9D is i= n the eye of the beholder. If the stock went down, sure, securities fraud. = And Oracle=E2=80=99s stock=C2=A0is=C2=A0down since September. Here= =E2=80=99s a law firm press release:

LOS ANGELES, Jan. 15, 2026 (GLOBE NEW= SWIRE) -- The Portnoy Law Firm advises Oracle Corporation, (=E2=80=9COracle= " or the "Company") (NYSE:ORCL) investors that the firm has initiated an in= vestigation into possible securities fraud, and may file a class action on = behalf of investors. ...

On September 10, = 2025, Oracle and OpenAI OpCo, LLC (=E2=80=9COpenAI=E2=80=9D) announced a $3= 00 billion, five-year cloud computing contract to supply OpenAI with comput= ing power. =C2=A0On November 13, 2025, reports emerged that Oracle was seek= ing to raise an additional $38 billion in debt sales to help fund its AI bu= ildout, with loan proceeds to fund two data centers that would support the = Oracle-OpenAI agreement. =C2=A0On this news, Oracle=E2=80=99s stock price f= ell $9.42 per share, or 4.15%, to close at $217.57 per share on November 13= , 2025. =C2=A0Then, on a December 10, 2025 earnings call, Oracle=E2=80=99s = Executive Vice President and Principal Financial Officer disclosed that the= Company =E2=80=9Cnow expect[s] fiscal 2026 CapEx will be about $15 billion= higher than we forecasted after Q1.=E2=80=9D =C2=A0On this news, Oracle=E2= =80=99s stock price fell $24.16 per share, or 10.83%, to close at $198.85 p= er share on December 11, 2025.

Yep, building=C2=A0AI data centers, securities fraud.

Things happen

Amazon Blasts Saks Funding Deal, Says Equ= ity Is =E2=80=98Worthless.=E2=80=99=C2=A0Inside the Mad Dash to Save Saks, America=E2=80=99s Last Luxury Retailer.=C2=A0= Goldman=E2=80=99s Stock Traders Beat Their Ow= n Wall Street Record. BlackRock Total Assets= Hit Record $14 Trillion as ETFs Surge. Citi CEO Warns of More Job Cuts, Ca= lls Time on =E2=80=98 Old, Bad Habits.=E2=80= =99=C2=A0Kalshi and Polymarket race to crack =E2= =80=98parlays=E2=80=99 as stakes rise in sports betting. Hedge Funds Re= vive Dispute Over Argentina GDP-Linked Securitie= s. Blackstone Real-Estate Fund Stages Com= eback With Best Return in Three Years. Donald Trump=E2=80=99s =E2=80=98unpr= edictable=E2=80=99 policies to fuel multiyear shi= ft from US, Pimco says.=C2=A0Blackstone to = Offer Private Investments in Empower 401(k)s. BlackRock, Microsoft AI Partnership Raises $12.5 Billion So Far. Ope= nAI Forges Multibillion-Dollar Computing Partners= hip With Cerebras.=C2=A0Hedge Funds Hire Tal= ent Scouts in Japan to Tap Comeback. Key Wall Street Regulator Grapples= With Crypto, Sports Gambling. Amazon Become= s First Buyer of Arizona Copper Made by Rio= =E2=80=99s Nuton.=C2=A0Mastercard, Visa, Revolut Lose London Suit Over Card Fee Cap.=C2=A0Soh= o House Shares Rise After New Funding Secured For Take-Private Deal. Pe= ople Are Paying $99 a Month to Talk to a Tony Rob= bins Chatbot. India tells delivery companies to stop promising 10-minute service. Elon Musk bows to pressure over Grok creating sexualised AI images.=C2=A0Meta L= ays Off 1,500 People in Metaverse Division.<= /p>

If you'd like to get=C2=A0Money= =C2=A0Stuff=C2=A0in handy email form, right in your inbox, please=C2=A0subscribe at this link. Or you can subscribe to Money Stuff and other great Bloomberg newsletter= s here. Thanks!

[1] Other than, arguabl= y, the =E2=80=9Cyou can steal the money=E2=80=9D risk.

[2] I mean, not really individuals, in modern corporate bond markets, but = in the olden days probably.

[3] Those covenants, or vari= ations on them, are the two main ones: a =E2= =80=9Cleverage ratio=E2=80=9D covenant and an =E2=80=9Cinterest coverage=E2= =80=9D or =E2=80=9Cfixed charge coverage=E2=80=9D covenant. Generally =E2= =80=9Cearnings=E2=80=9D will be not net income but EBIT (earnings before in= terest and taxes), or EBITDA (earnings before interest, taxes, depreciation= and amortization), or adjusted EBITDA (earnings before whatever the lender= s agreed to back out).

[4] Many bonds have =E2=80=9Cincurrence covenants,=E2=80=9D basically =E2=80= =9Cwe can=E2=80=99t take on *more* debt if our income is below X,=E2=80=9D = which is less likely to lead to disaster.

[5] In particu= lar, the =E2=80=9Ccompany=E2=80=9D is often a private equity portfolio comp= any, and the private credit lender has a repeat relationship with the spons= or and wants to stay in good favor so it can get more deals.

[6] Blockworks calculates that Bitmine's= "mNAV" (multiple of net asset value) is right around 1, down from 8.7 in t= he boom times.

[7] Not in the sense of being =E2=80=9Cin= vestment companies=E2=80=9D under the US securities laws, a technical term = that applies to firms that invest primarily in *securities* and that leads = to much more regulation. DATs are not investment= companies in that sense, because they buy crypto rather than stocks.

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