Steakhouse Financial Finds Its DeFi Playbook in 18th-Century Scotland

"You have two parallel GDPs, the Scottish GDP and the DeFi GDP," he said. "They both grow because of the emergence of an ecosystem of private money, like stablecoins." How it functioned, he believes, could offer some insight into how DeFi should be seen as it enters mainstream finance.

Private banking, stablecoins

For years, Scotland ran a banking system with no central bank. Private companies issued their own notes, redeemable on demand, and competed for the public's willingness to hold them. Adam Smith recorded in 1776 that "the business of the country is almost entirely carried on by means of the paper of those different banking companies."

That history is now a live argument in stablecoins. On 25 May, the Wall Street Journal's chief economics commentator Greg Ip published a column arguing that stablecoins are private money and that this is why they threaten the economy. "No legislation can fully remove risk that is intrinsic to the design of stablecoins," Ip wrote.

Nic Carter of Castle Island Ventures has spent much of the past year rebutting the framing that stablecoins are inherently risky on X, arguing that critics reach for the chaotic American version of free banking while ignoring the Scottish and Canadian systems that ran for decades with almost no failures.

Steakhouse Financial, whose curated vaults held more than $4.5bn as of July 2026, has taken Carter's side. On 26 Jun it brought Sydney Checkland's Scottish Banking: A History, 1695-1973 back into print, an academic history out of circulation since the 1970s.

How Scotland ran money without a central bank

Scotland entered the 18th century with nothing much to bank on. "There's no natural resources, there's nothing," Cachinero Vasiljevic said. "The emergence of banking really helped catalyze the industrial revolution in Scotland in a way that was independent of the developments that took place in England."

He described the Scottish free banking history as bookending "this period of incredible intellectual and commercial development that just catapulted Scotland, which is just this rocky nothing, into a place that contributed well in excess of its size to the world economy."

The system began with the establishment of the Bank of Scotland in 1695 and expanded to 30 banks at its peak. What set them apart from institutions backed by a central bank, and what Cachinero Vasiljevic pointed to as the decisive factor, was that they were not in the business of financing government.

"All of these banks with the royal charter had the main mission to fund the activities of the government," he said. "This is the one thing that was missing from the Scottish experiment. So the banks were really just focused on developing commerce, developing the colonies, developing trade, developing industry."

Discipline came from rivals rather than regulators. Banks collected each other's notes and presented them in bulk for redemption in kind, so it was clear when an issuer printed beyond its reserves. The Bank of Scotland created an optional clause printed into its larger notes in 1730, letting it defer payment for six months at interest, which Parliament banned in 1765.

One of the major catastrophes from the experiment came in 1772, when the Ayr Bank, founded three years earlier by two dukes, two earls and around 140 other landowners, set out to out-issue the competition. The bank lent loosely against land and ultimately collapsed, taking many of the country's private banks with it. Creditors were, however, made whole because the partners carried unlimited liability and sold off much of their land in Ayrshire to fulfil their debt.

"There were failures, but not that many, and for reasons that you can rationally explain," Cachinero Vasiljevic said. "The losses were known and bounded. People who took risks lost money, and that's kind of how capitalism works."

Pipes on the outside of the bank

Within his analogy, Cachinero Vasiljevic put issuers such as Circle in the position of the Scottish banks, with Tether as the one taking the most balance sheet risk. Entities such as Stripe, which issues stablecoins through Bridge, he compares to the tobacco houses that issued scrip, privately printed paper that stood in for money, to fund their own trade.

Steakhouse fits nowhere in that scheme, which is where the DeFi sector deviates from the free banking comparison. "We're heading towards the future where stablecoin issuers can't do their own credit because the stablecoin issuers are going to be forced to be narrow banks," he said, referring to institutions that hold only safe, liquid assets against their liabilities and do not lend. "I do think that you can have a credit layer on top of narrow banking emerge, which is where Steakhouse fits. We're part of the unbundled bank, if you will."

A Scottish bank issued the note, took the deposit, made the loan and absorbed any losses on one balance sheet. In the stablecoin sector, those functions are often separated. Robinhood's Earn product, for which Steakhouse curates a vault, splits them between four parties: Paxos issues USDG, Robinhood distributes it, Morpho supplies the lending markets and Steakhouse handles the vault.

"We love this type of setup because it's very much the promise of DeFi," Cachinero Vasiljevic said. "No interference, no intermediation, no control. We focus just on building the most efficient lending markets and letting users meet each other."

He argued the split is an improvement on the single balance sheet because it is more transparent. "It's kind of like the Pompidou Centre in Paris with all the pipes on the outside. This is how we see the credit world in stablecoins. All of the risk is kind of outside, so you can see it." The appeal to the distributing partner, he said, is that their exposure stays off their balance sheet.

Why liquidity matters more than solvency

Risk within vault curation, which is where Steakhouse is positioned, comes down to the capacity and speed of liquidation. "The solvency of the borrower is not as relevant as much as the solvency of the collateral," he said. "We more often say no to riskier collateral than we do yes."

By riskier, he means less liquid. "You can have a collateral that's solvent, but if there's no ability for liquidators to get stablecoins or sell the collateral, then it will just stay open and accrue bad debt."

"We have more background in traditional finance, so we're more eager to experiment with things like tokenized securities," he said.

Cachinero Vasiljevic said central bankers react with alarm when he describes a vault falling from $200mn to $50mn during a stress event elsewhere. He reads that elasticity as information instead, letting people gauge the exposure.

When USDC broke its peg during the Silicon Valley Bank failure, he explained, "the depeg contained information about the exposure of the balance sheet to SVB. It was a useful market feedback mechanism, which you don't get in a bank run." Credit Suisse, by contrast, faced a bank run in 2023 with an unknown amount of credit risk in its assets. He made the same point about the credit crunch of 2008.

"With credit built on top of stablecoins, you don't eliminate insolvencies, but you can spot them immediately, and you can size what the impact is."

Was Scottish banking really independent?

Not everyone agrees that Scottish free banking was independent of England's central bank. Checkland's own conclusion was that "the principal and ultimate source of liquidity [of the Scottish banks] lay in London, and, in particular, in the Bank of England."

In a 1988 essay for the Review of Austrian Economics, the economist Murray Rothbard argued that the Scottish banks were neither independent of the Bank of England nor better run than their English counterparts, pointing out that Checkland's book focused only on the lack of bank failures, not on the Scottish banks' willingness to lend or issue notes. He also noted that the Scottish banks went through cycles similar to English ones.

Ip and many central banks have reached a similar conclusion on stablecoins to Rothbard's scepticism on Scottish free banking, although they look to the US version to back their case.

The Bank for International Settlements concluded in its 2025 annual economic report that stablecoins fail the tests of singleness, elasticity and integrity, noting that holdings are tagged with the name of their issuer "much like private banknotes circulating in the 19th century Free Banking era in the United States", the version Ip also drew on. The BIS has since warned that stablecoins risk fuelling dollarization in emerging economies.

The American version critics reach for

The American system, which ran at the state level from the 1830s until the Civil War, required banks to back their notes with state government bonds. When those bonds fell in value, the notes fell with them, meaning a $10 note might buy only $8.50 worth of goods.

Scottish banks, however, chose their own backing, and their shareholders were personally liable for any shortfall. Carter's objection was that the American system failed because of the forced backing of government bonds, rather than because private issuance is unstable by nature.

Cachinero Vasiljevic attributed the end of the Scottish free banking era to the expanding reach of the Bank of England rather than to a collapse. As London's share of economic activity grew, the reach of the Bank of England spread. "It just kind of chipped away and eventually [the Scottish banking sector] merged into the overall banking sector."

He sees the same mechanism working on stablecoins through Europe's Markets in Crypto-Assets (MiCA) regime and the US GENIUS Act. "When the Scottish banking sector was absorbed into the rest of the United Kingdom [...] banking activity consolidated into a few players," he said. "There was much less experimentation, much less innovation."

Three central banks, three postures

Whether the argument for stablecoin stability gets a hearing depends on the approach of each individual central bank. "The European Central Bank is neurotically against stablecoins for reasons that just completely elude me," said Cachinero Vasiljevic. ECB President Christine Lagarde has argued publicly that the case for promoting euro-denominated stablecoins is weaker than it appears, pushing instead for a digital euro backed by central banks by 2029 and warning that dollar tokens risk digital dollarization in Europe. A consortium of European banks is proceeding with a MiCA-regulated euro stablecoin regardless.

The Swiss National Bank takes the opposite posture. "The SNB is way more on the pragmatic side," said Cachinero Vasiljevic. "They're very much on the side of, people will just use whatever they want, our business is the Swiss franc and that's what we'll do, and people want to build on top of that and they will, and it's our job to make sure they do it safely."

The Federal Reserve sits between the two. "They see the value of dollarization and more stablecoinization. You probably have more conservative people inside that organization as well. But if you have the reserve currency of the world, it's probably a good thing if more people use the reserve currency."

As the stablecoin market grows and the economy built on it moves into mainstream finance, the open question is which of those three postures hardens into rule.