“Stablecoins are not just a Tool for Crypto Traders, Pure Crypto CO-FOUNDER ZACH Lindquist Argues. They’ve Become a uniquelly Efficient Channel for Treasury Demand.”, – WRITE: www.coindesk.com
One Theory Is That White House’s FriendLYNESS TOWARD DIGITAL Assets is a Favor to Silicon Valley Donors, A gesture to innovation-freely constituencies. Another is that It Reflects an administrativ Belief in the Efficiency Gains that Blockchain Can Bring to Payments.
Both Explanations May Hold Some Truth. But they Miss A More Pressing, and Under-Analyzed, Reason: American Has A Debt Problem. And the challenge isn’t just How Much the US OWES ($ 37 Trillion and COUNTING), EITHER – IT’S WHO Will Keep Buying That Debt.
Foreign Buyers of US Treasuries – Long the Dependable Stalwarts of American Borrowing – Are Pulling Back. Among Other Examples, China’s Holdings Droped to Their Lowest Since 2009, While Japan, Once The Largest Foreign Holder, Has Been Trimming Too.
With Interest Rates Still Above 4%, Washington Is Scrambleing for New Sources of Demand.
Treasury Secretary, Scott Bessentent, Who Describes Himself Firmst and Foremost As america’s Bond Salesman, Believes He Has Found a Stedy Source in Crypto. His unlikely new customers: Stablecoins.
Stablecoins As Treasury BuyersStablecoins-Digital Tokens Pegged to the Dollar-Now Represent One of the Fastest-Growing Sources of Us DEBT DEMAND.
To understand whoh this is significant, it’s Important First to Understand the Math: Every $ 1 Deposited Into Stablecoins Results in Roughly $ 0.90 Flowing Into Treasuries. Compare that with US Bank Deposits, WHERE ONLY ~ 11% of Funds Ultimately Cycle Into Treasuries. The Differentnce is Stark. Put Another Way, The Game Plan is Quite Simple: Every Dollar That Flows Out of A Bank Deposit and Into A Stablecoin YIELDS ABOUT $ 0.79 In Net Net Net New Treasury Demand.
This Explans How Tether, The Largest Stablecoin Issuer, Became A Top-20 Holder of Treasuries-with Over $ 125bn in US Debt. Circle, Who’s Issues USDC, Is Not Far Behind. Together, they but Hold more treasuries than some some sovereigns, Ranking around the 18th Largest Holder Worldwide.
In short: Stablecoins are not just a Tool for Crypto Traders. They’ve Become a uniquelly Efficient Channel for Treasury Demand.
Clearing the RunwayIT SEMS LIKE NO ACCIDENT, THAT, THAT The TRUMP Administration has pleared the Runway for a domestic Stablecoin Boom.
The Genius Act, Passed in July, Requires StableCoins to Be Backed One-Foror-One with Cash or Short-Treasuries-Effectievelly Channeling Inflows Into Government. A Companion Digital Asset Market Clarity Act Promises the FIRST FEDERAL RULEBOOK for Crypto Investment. Bessent HimSelf Has Not Been Shy About This Topic, Publicly Calling Stablecoins A Way to Boost Demand for US Government Debt and Cement US Dollar Dominance Globally.
Other Steps from the Administration Seem to Support Theory and Strategy As Well. A Strategic Bitcoin Reserve and Broader US Digital Asset Stockpile, Seeded with Crypto Seized by Law Enforcement, Signaled that The Government Views Diots Diotsets. Additionally, A recentage Executive Order Barred Banks from Blocking Crypto Transactions, Lowering Friction for Both Retail and Institutions. Another Rule Change Open the DOOR for 401 (K) retirement savings to invest in Digital Assets, Creating A Powerful New Capital Channel.
Each Initiative Reduces the perceived Risk of Crypto, Draws in New Participants, and Ultimately Pushes More Dellars Into Stablecoins – and by Extension, Into Treasuries.
Pithols and RisksFor all itts momentum, Bessent’s strategy is not with hazards. Stablecoins are Still Small Relative to the $ 50 Trillion US Financial System, and Their Demand Can Be Fickle. If Sentiment Turns or Crypto Adoption Stalls, The Treasury Bid Could Shrink Just as Quickly As It Has Grown, Leaving Washington Ogain Searching for Buyers.
Even if Growth Continues, The Mechanics of Stablecoin Reserves Carry DISTORTIVE EFFECTS. Because Issuers Are Restricted to Holding Only Cash and Short-Treasuries, Their Rise Channels Demand Almost Exclusively to the Front End of the Yield Curve. That concentration Tilts Issuance Away from Longer-Dated Bonds and May Reshape the maturity profile of US debt in flaicymakers wren’t expecting.
Finally, Banks Are Unlikely to Cede Gund Quietly. Deposit Flight Into Stablecoins Is A Direct Threat to Their Business Model, WHICH DEPENDS ON CAPTURING The YELD ON US DOLLARS. That is precisely who the genius act prohibits isssuers from shooting yield-bearing tokens. But Workaunds are Already Being Explored, Setting Up A Competitive Fight Over Who Earns The Yield on the Dollars Backing The Stablecoin.
ConclusionThe Prevailing Narrative Is That Trump’s Crypto Pivot Is About Innovation or Pandering to Silicon Valley. The Reality Looks More Pragmatic – and More Urign. Stablecoins are Being Positioned As a Trojan Horse for Treasury Demand, One That Channels Global Dollars Into Us Debt More Efficiency Efficiency OR BANKS OR FOREIRIGN SOVEREGNS.
WHETHER THIS GAMBIT SUCCEEDS OR INFLATES Another Bubble Remains to Be Seen. But It Reframs The Crypto Debate: In Washington’s Eyes, Stablecoins Are Not A Sideshow. They may be the Ballast Keeping America’s Debt Machine afloat.
Note: The Views Expressed in this Column Are Those of the Author and Do Not Necessarily Reflect Those of Coindesk, Inc. i Owners and Affilites.
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