US Treasury see stablecoins driving ‘structural demand’ for T-bills

The US Treasury, in a presentation to the Treasury Borrowing Advisory Committee (TBAC), outlined how the expansion of stablecoins might reshape demand for Treasury payments, doubtlessly altering their proportion in future issuances.

An estimated $120 billion in stablecoin collateral is tied up in Treasuries, a lot of it by way of investments in T-bills and Treasury-backed repo transactions, signaling the speedy reputation and vital function that T-bills now maintain within the crypto market.

The presentation, a part of broader Treasury discussions on fiscal coverage and monetary stability, highlighted the speedy rise of stablecoins over the previous decade.

Pegged to steady property just like the greenback, stablecoins have gained reputation as collateral in DeFi and for facilitating crypto transactions.

This, coupled with projected stablecoin development, hints at a structural shift in demand for short-term US Treasuries.

Nonetheless, the presentation additionally raised issues in regards to the dangers linked to stablecoins’ reliance on T-bills, emphasizing historic classes from the “Wild Cat” banking period and cash market fund runs in 2008 and 2020, which underscore the necessity for strong collateral.

Regardless of improved collateral, stablecoins nonetheless face dangers. Frequent runs and situations the place stablecoins have misplaced their peg to the US greenback or collapsed spotlight vulnerabilities.

A collapse of a serious stablecoin like Tether might set off a hearth sale of its US Treasuries holdings, impacting the T-bills market.

Past stablecoins, the presentation additionally explored how the institutionalization of crypto, notably Bitcoin, might enhance demand for Treasuries.

As Bitcoin’s volatility prompts institutional traders to hunt hedges, Treasuries might see sustained demand as a dependable hedging instrument.

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