Important points
Stablecoin collateral currently accounts for approximately $120 billion in U.S. Treasury holdings. Potential risks remain as the stablecoin sector relies on Treasury bills.
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The U.S. Treasury, in a presentation to the Treasury Borrowing Advisory Committee (TBAC), explained how stablecoin growth will reshape demand for Treasury bills and determine the proportion of Treasury bills in future issuance. Outlined what could be changed.
An estimated $120 billion of stablecoin collateral is held in U.S. Treasuries, much of it through investments in T-bills and Treasury-backed repurchase transactions, with T-bills currently rapidly gaining momentum in the crypto market. This shows that they are very popular and play an important role.
The presentation was part of Treasury’s broader discussion on fiscal policy and financial stability, and highlighted the rapid rise of stablecoins over the past decade.
Stablecoins, which are pegged to stable assets such as the dollar, are gaining popularity as DeFi collateral and to facilitate cryptocurrency transactions.
This, combined with stablecoin growth expectations, suggests a structural shift in demand for short-term US Treasuries.
But the presentation also raised concerns about the risks associated with relying on stablecoin Treasury bills, and historical lessons from the “wildcat” banking era and the money market fund runs of 2008 and 2020. and emphasized the need for strong collateral.
Despite improved collateral, stablecoins still face risks. Frequent runs and instances of stablecoins losing or collapsing their peg to the US dollar highlight their vulnerabilities.
The collapse of a major stablecoin like Tether could trigger a fire sale of U.S. Treasury holdings and impact the Treasury bill market.
Beyond stablecoins, the presentation also considered how the institutionalization of cryptocurrencies, particularly Bitcoin, could increase demand for U.S. Treasuries.
Bitcoin’s volatility has led institutional investors to seek hedges, and sustained demand for U.S. Treasuries may see them as a reliable hedge.
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