Stablecoin issuers like Tether and Circle now hold $80 billion in short-term U.S. government debt, underscoring the growing role of digital asset players in traditional financial markets.
Tether and its peers accounted for 2% of the market for Treasuries — debt instruments commonly used as cash equivalents on corporate balance sheets — in May, JPMorgan research found, more than the proportion held by Warren’s investment. Buffett the giant Berkshire Hathaway. JPMorgan said new issuers have “considerable room for growth if stablecoins become a form of digital payment.”
The growing importance of stablecoin issuers in a market historically dominated by low-risk investors is one of the factors prompting global financial regulators to step up their scrutiny of the broader crypto industry.
Stablecoins are cryptocurrencies designed to act as a bridge between crypto and traditional markets, allowing traders to buy and sell digital tokens faster and easier. They are normally pegged to the largest and most stable currencies in the world. The top three stablecoins by market cap, Tether, Circle’s USDC, and Binance’s BUSD have a combined market cap of around $140 billion, according to price-tracking site Coingecko. These are generally assumed to be backed at all times by reserves of highly liquid traditional financial assets.
But in May, that safety net was thrown into question when Tether’s US dollar peg briefly collapsed under punitive selling pressure – a mistake that followed the failure of a smaller stablecoin, TerraUSD. .
Janet Yellen, US Treasury Secretary, said the TerraUSD collapse was an event that “just illustrates that this is a rapidly growing product and there are rapidly growing risks”.
Regulators are particularly concerned about the quality of the assets that stablecoin operators say they hold in reserve. Terra was an algorithmic stablecoin that had no reserve wallet, relying on computers and financial incentives to track the value of $1.
The Responsible Financial Innovation Bill, co-sponsored by Senators Cynthia Lummis and Kirsten Gillibrand, also called for reserve disclosure requirements for stablecoin issuers.
In response, Tether and Circle, which together account for around 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 to buy US Treasuries, which are considered ultra low-risk assets. The operators have also promised to improve their transparency.
Tether’s market dominance fell from over $80 billion in May to less than $70 billion. But USDC – the stablecoin produced by Tether’s main competitor, Circle – has been more stable, with around $53 billion in circulation.
“We believe a key driver of this sea change has been the superior transparency and asset quality of USD Coin’s reserve assets,” JPMorgan said.
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