Robert Leshner, a chartered financial analyst and the founder of Compound, a San Francisco-based firm focused on creating interest rate markets for crypto assets, recently told Fortune that one of the problems with digital currencies is that you cannot earn interest on them.

Backed By Andreessen Horowitz, Coinbase Ventures

Leshner’s response to this was to launch Compound – a company which holds users’ cryptocurrency and pays them a rate of return. Backed by investments from venture capital firm Andreessen Horowitz, and Coinbase Ventures, Compound lets users deposit their basic attention tokens (BAT), augur (REP), 0x (ZRX), and wrapped Ethereum (WETH) – in order to earn interest on them.

Leshner said his company is planning to add support for other cryptocurrencies in the future – including stablecoins. He thinks stablecoins, which are backed 1-to-1 with USD, are easy to create and there are many crypto traders interested in buying them.

However, Leshner noted that companies issuing stablecoins are actually borrowing money for free from the buyers as they are not paying any interest. These companies are also charging usage or transaction fees when they issue stablecoins.

Leshner, an economics graduate from the University of Pennsylvania, explained that many firms are supplying stablecoins because it’s a lucrative business. As CryptoGlobe reported in September, two regulated stablecoins were launched: Gemini Dollar (GUSD) and Paxos Standard (PAX).

There May Soon Be Over 50 Stablecoins

Since then, many other companies and organizations have announced that they are planning to introduce their own stablecoin. Leshner has predicted there could soon be over 50 actively traded stablecoins in the cryptocurrency market – which would be similar to the situation when many US banks in 19th century began issuing their own version of the dollar.

When questioned about whether the US Federal Reserve would start issuing its own digital dollar, Leshner said it was not something that would happen anytime soon.

Commenting on why there may be strong demand for blockchain-based fiat currencies, as there is currently a huge liquid market for traditional currencies due to the large number of forex traders, Leshner noted:

The advantage of tokenization is it brings transparency and programmability to currency. When dollars are open to blockchain there’s so much more innovation that can occur.

Robert Leshner

He explained that blockchain-based tokenized currencies have the ability to interact with smart contracts – which gives them more functionality compared to fiat money which is limited to serving as a medium of exchange.

Interestingly, Leshner believes the cryptocurrency market will be affected by the Federal Reserve’s recent decision to increase interest rates. He said:

We’ve always known crypto in an environment of essentially zero or low interest rates. And that’s an environment of easy and loose money where capital has been prolific and looking for returns wherever it was found. We’re finally starting to enter an environment of rising interest rates which crypto has never seen before and it’s going to be potentially challenging to the price of a lot of crypto assets just like it will be for a lot assets in general, including equities.

Robert Leshner

This means that cryptocurrencies will be impacted by the Federal Reserve’s monetary policies in the foresseable future, according to Leshner