U.S. Treasury Report on Digital Assets

In a new report evaluating digital assets, the U.S. Treasury noted that "growth in stablecoins has resulted in a modest increase in demand for short-dated Treasuries."

Overview of the Report

The Treasury's 132-page report, released Wednesday for the Treasury Borrowing Advisory Committee, addresses the impact of prominent digital assets like Bitcoin and stablecoins.

The report states, "Digital assets have witnessed rapid growth albeit from a small base. Growth has come from native crypto coins like Bitcoin and Ethereum, as well as stablecoins." However, it adds that the market capitalization of digital assets remains low compared to other financial and real assets, indicating that growth so far hasn’t negatively impacted Treasuries.

Tether and Treasury Holdings

Tether, the issuer of the largest stablecoin by market cap (USDT), claims to invest a significant portion of its capital in Treasuries. CEO Paolo Ardoino stated that Tether possesses more Treasury bills than some countries, including the United Arab Emirates, Australia, and Spain.

Stablecoin Investment in Treasuries

The U.S. Treasury estimates that approximately $120 billion of stablecoin collateral is invested in Treasuries, with Tether holding about $81 billion in T-bills. The overall market for stablecoins is currently valued at over $177 billion, according to The Block Data Dashboard.

The Treasury highlighted the integral role of stablecoins in facilitating transactions, noting that over 80% of all crypto transactions involve stablecoins.

Future of Stablecoins

While anticipating continued growth in stablecoins, the Treasury warned that regulatory and policy decisions will significantly impact the future of these "private currencies." The report cautioned that historical trends indicate that "private currency" not meeting certain requirements can lead to financial instability, which is considered undesirable.

Additionally, the Treasury mentioned that as the digital asset market cap increases, structural demand for Treasuries may also rise, serving as a hedge against price volatility and acting as a safe-haven asset on-chain.