> For the complete documentation index, see [llms.txt](https://docs.xft.finance/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.xft.finance/learn/lending.md).

# Lending

<mark style="color:$danger;">PROBLEM</mark>

Low cost local small business loans come from local customer deposits. "Relationship bankers" fund local loans with local deposits using soft information more than large banks. ie JPM wont lend to SME. XFT kills the community bank and everything is now a stablecoin. No redeem.&#x20;

<mark style="color:$danger;">SOLUTION</mark>

XFT IDN sweeps. Programmatically routes stablecoin deposits to placement network banks.

***

soft info = "i know this guy wont screw me"

hard info = "this guy finances dominos and pays klarna back on time"

MMF = wholesale

Bank deposit = retail

***

&#x20;deposit-funded v investor-funded

loan = cash flow = income&#x20;

bdc = sme decentralized protocol lending vehicle&#x20;

cef = deposit, no redeem.

xft cef = deposit, no redeem, but can use to buy groceries at walmart. &#x20;

mmf = seek return / "yield" ie it is more of investment product.&#x20;

***

Blockchain enables net-new all-to-all third layer of liquidity. ie in return for a consumer deposit, they get "token". if token can be used as collateral, cool.  Traditional bank deposits do not give customers collateral for $$$. tokenized deposits.&#x20;

Loan

Deposit

Token

***

Stablecoin reserves or the underlying bonds held at JPM can be lent. &#x20;

MMFs put lending further behind banks.&#x20;

Retail is not accustomed to gain a return on funds deposited at bank like wholesale investors + MMF.&#x20;

***

<mark style="color:$primary;">**Retail funding**</mark> refers to the various types of deposits that
\
households and small companies keep with a bank. This type
\
of funding is <mark style="color:$danger;">‘unsecured’</mark>, since depositors do not ask the bank
\
to give them collateral as a guarantee for keeping hold of their
\
money.

In many instances, deposits provide a relatively cheap source
\
of funding for banks because, unlike wholesale investors,
\
households and companies do not just hold deposits at banks
\
to gain a return on these funds.

bank deposit = cheap retail funding, better for stress

MMF = wholesale funding

***

RESOURCES

1. <https://www.icmagroup.org/market-practice-and-regulatory-policy/repo-and-collateral-markets/icma-ercc-publications/frequently-asked-questions-on-repo/5-who-are-the-main-users-of-the-repo-market/>
2. <https://www.fdic.gov/news/press-releases/2026/fdic-approves-proposal-implement-genius-act-requirements-and-standards>
3. <https://www.federalreserve.gov/econres/notes/feds-notes/what-drives-the-substitution-between-bank-deposits-and-money-market-funds-20251106.html>
4. <https://www.ici.org/viewpoints/23-view-mmf-myths-facts>
5. <https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/bank-funding-costs-what-are-they-what-determines-them-and-why-do-they-matter.pdf>
6. <https://www.federalreserve.gov/econres/notes/feds-notes/monitoring-high-credit-growth-the-link-between-local-deposits-and-cre-lending-20260501.html>
7. <https://www.kellogg.northwestern.edu/faculty/petersen/htm/papers/soft_hard_gersenzee.pdf>
8. <https://www.congress.gov/crs-product/R45957>
9. <https://lawreview.uchicago.edu/sites/default/files/14%20Levitin_ART_Final_0.pdf>

| Money Market Account             | Money Market Fund              |
| -------------------------------- | ------------------------------ |
| A savings account                | An investment vehicle          |
| Insured by the FDIC              | Not federally insured          |
| Opened at a bank or credit union | Opened with a brokerage firm   |
| May or may not have account fees | Probably have maintenance fees |

HMmMMM they thought stables were like etfs in 2019 too. create redeem

Facebook Libra's ETF-Like Characteristics

Facebook is among the technology companies that have expressed interest in entering financial services. In June 2019, the social media company announced its intention to develop a new cryptocurrency called Libra—a revelation that has attracted congressional interest. At a hearing addressing the issue, several Members of Congress questioned Facebook officials about how Libra should be regulated and whether it meets the existing regulatory definition of an ETF, among other issues.194 Some commentators have argued that because Libra will be backed by reserve assets that certain authorized sellers can exchange for units of the cryptocurrency, its operational structure is similar to that of ETFs, which rely on a roughly comparable creation and redemption process.195 Although Facebook officials acknowledged that Libra uses operational mechanisms that are similar to ETFs, the company maintained that the cryptocurrency should not be considered an ETF because it is intended to operate as a payment tool rather than an investment vehicle.196 If Libra did qualify as an ETF, it would fall under the SEC's oversight and require regulatory approval. The SEC is reportedly evaluating whether the cryptocurrency will fall within that category.197

```
Domino or spillover effects—when one firm's failure imposes debilitating losses on its counterparties.
Feedback loops—when fire sales of assets depress market prices, thereby imposing losses on all investors holding the same asset class.
Contagion effects—when one firm's distress affects other firms holding similar assets or following similar business models.
Disruptions to critical functions—when a market can no longer operate because of a breakdown in market infrastructure.134
```

```
COUNTERPARTIES
Stablecoin Holder
Stablecoin Issuer
Placement Network
Community Bank
Small Business

RESERVE RECYCLING FLOW
1. Stablecoin Holder purchases stablecoins with USD
2. Stablecoin Issuer allocates cash reserves to a Placement Network
3. Placement Network distributes cash chunks under 250k to Community Banks
4. Community Bank registers cash as core relationship deposits
5. Community Bank uses deposits to underwrite relationship loan for Small Business
```

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