TheU.S.TreasuryDepartmentisconcernedaboutthegrowthofthestablecoinmarketandbelievesprivatelyissuedstablecoinsshouldeventuallybereplacedbyastate-backedcentralbankdigitalcurrency(CBDC),accordingtoaTreasuryreportreleasedWednesday.
“Inasimilarmannertohowprivately-issued‘wildcat’currencieswerereplacedbygovernment-backedcentralcurrenciesinthelate-1800s,CentralBankDigitalCurrencies(CBDC)willlikelyneedtoreplacestablecoinsastheprimaryformofdigitalcurrencyunderpinningtokenizedtransactions,”thereport,whichwaspreparedbytheTreasury’sOfficeofDebtManagement,said.
Stablecoinsdominatedmuchofthe132pagereportonthestateoftheTreasury’sfinancesinQ42024.MuchwasmadeofthesignificantamountofU.S.Treasuries,akaT-bills,thathavebeenboughtupbystablecoinissuerssuchasTetherandCircle.TheTreasuryestimatesthat$120billionworthofT-billshavebeenpurchasedtoserveasyield-bearingstablecoincollateral.Themajorityofthatsum—nearly$81billion—hasbeenpurchasedbyTether,thecompanybehindthecryptomarket’slargeststablecoin,USDT.
WhilemanystablecoinadvocateshavearguedthatU.S.dollar-backedstablecoinsbolsterthedollar’sstrengthbyincreasingdemandforT-bills,theTreasuryappearsunconvinced.
Wednesday’sreportfixatedonthe“commonoccurrence”ofstablecoinsdepeggingorcollapsingentirelyinrecentyears,asituationtheTreasurybelievescouldleadtodisasterifT-billsbecomeincreasinglyintegratedwiththestablecoinindustry.
Stablecoinsareacrucialcomponentofthecryptoindustry.Byholdingasteadyvalue,theyallowcryptotraderstoenterandexitpositionswithouttouchingafiatcurrencyliketheU.S.dollar.Stablecoinsalsofunctionasdollarequivalentsinmarketswheredollarsarehardtocomeby.
TheTreasurydepartmentestimatesthatover80%ofallcryptotransactionsinvolveastablecoin.Tether\'sUSDTisfarandawaythemostwidelytradedcryptocurrency,generating$53billionintradingvolumeinthelast24hoursalone.
AndtheincreasinginterconnectivityofstablecoinsandtraditionalfinancialmarketsthroughT-billsiscauseforconcern,accordingtotheTreasury.
“AcollapseofamajorstablecoinlikeTethercouldresultina‘fire-sale’oftheirU.S.Treasuriesholdings,”Wednesday’sreportsaid.“WhilestablecoinscurrentlyrepresentamarginalsegmentoftheT-billsmarket,growthovertimemayexposetheT-billsmarkettoincreasedriskoffiresalesduetorunsinthestablecoinmarket.”
Thus,thereportrecommendedthattheU.S.governmenteventuallystepintoreplaceprivatestablecoinswithaCBDCpresumablyissuedbytheFederalReserve.
Inthelasttwoyears,CBDCshavebecomeincreasinglycontroversialinAmericanpolitics.SeveralprominentRepublicanlawmakershavepledgedtopreventtheirdevelopment,chastisingaU.S.government-issuedstablecoinas“BigBrother’sdigitaldollar.”
FormerpresidentDonaldTrump,too,hasemergedasavocalCBDCcriticwhilecampaigningforre-electionthisyear.Despitethatstance,Trump’scryptoproject,WorldLibertyFinancial,planstoissueitsownstablecoin,asDecryptfirstreportedearlierthisweek.
Trumpandhisbusinesspartnershave,formonths,framedprivatestablecoinsasaneffectivemeanstopromotethepurchaseofT-billsand,therefore,thedominanceoftheU.S.dollarworldwide.
Thatplanmayhaveitsfans—butitwouldappeartheU.S.Treasuryisn’toneofthem.
decrypt.co