Stablecoin Issuers Have $80 Billion in Short-Term US Government Debt

Stablecoin Issuers Have $80 Billion in Short-Term US Government Debt

Stablecoin issuers like Tether and Circle now have $80 billion in short-term US government debt, highlighting the growing role of digital asset players in traditional financial markets.

Tether and his colleagues accounted for 2 percent of the Treasury bill market — debt instruments often used as cash equivalents on corporate balance sheets — in May, according to research by JPMorgan — more than the share owned by Warren Buffett’s investment behemoth Berkshire Hathaway. JPMorgan said the newer issuers have “significant room to grow as stablecoins become a form of digital payment.”

The increasing prominence of stable coin issuers in a market traditionally dominated by lower risk investors is one of the factors driving global financial regulators to step up their oversight of the broader crypto industry.

Stablecoins are cryptocurrencies designed to act as a bridge between the crypto and traditional markets, making it faster and easier for traders to buy and sell digital tokens. They are normally pegged to the world’s largest and most stable currencies. The top three stablecoins by market cap, Tether, Circle’s USDC and Binance’s BUSD, have a combined market cap of about $140 billion, according to price tracking site Coingecko. These are generally considered to be backed at all times by reserves of highly liquid regular financial assets.

Composition Bar Chart of the T-bill Investor ($ Billion) Showing Stablecoin Issuers Own $80 Billion in U.S. Treasury Bills

But in May, that backstop was called into question when Tether’s US dollar peg briefly collapsed under punishing selling pressure — a misstep that followed the failure of a smaller stablecoin, TerraUSD.

US Treasury Secretary Janet Yellen said the TerraUSD collapse was an event that “simply illustrates that this is a fast-growing product and there are fast-growing risks.”

Regulators are particularly concerned about the quality of the assets stablecoin operators say they hold in reserve. Terra was an algorithmic stablecoin that had no portfolio of reserves, reliant on computers and financial incentives to track its $1 value.

The proposed Responsible Financial Innovation Act, co-sponsored by Senators Cynthia Lummis and Kirsten Gillibrand, has also called for reservation requirements for stable coin issuers.

In response, Tether and Circle, which together account for about four-fifths of all stablecoin issuance, have pledged to reduce their reliance on a type of short-term corporate debt known as commercial paper and buy US Treasuries, which are considered ultra-large. low-risk assets. Operators have also pledged to improve their transparency.

Tether’s market dominance has shrunk from over $80 billion in May to less than $70 billion. But USDC – the stablecoin produced by Circle, Tether’s main competitor – has been more stable, issuing around $53 billion.

“We believe that one of the key drivers behind the dramatic shift has been the superior transparency and asset quality of USD Coin’s reserve assets,” said JPMorgan.

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