- Tether’s USDT, Circle’s USDC and Binance’s BUSD alone have a combined market cap of roughly US$140 billion, making their movements in traditional financial markets increasingly important and significant.
- Stablecoin issuers such as Tether and Circle now hold US$80 billion worth of short-term U.S. government debt, highlighting the expanding role of digital asset players in traditional financial markets.
Designed to act as a bridge between the cryptocurrency and fiat currency markets, stablecoins have long made it faster and easier for traders to buy and sell digital tokens, providing a brief respite from the volatility inherent in cryptocurrencies.
According to price-tracking site Coingecko, Tether’s USDT, Circle’s USDC and Binance’s BUSD alone have a combined market cap of roughly US$140 billion, making their movements in traditional financial markets increasingly important and significant.
While stablecoins are supposed to be backed at all times by reserves of actual dollars, or highly liquid mainstream financial assets, in practice, they have not been free from controversy, especially Tether, which has long been coy about what backs its USDT.
However the collapse of the TerraUSD algorithmic stablecoin, have put regulators on alert and spurred many of them to question the quality of the assets that stablecoin operators say they hold in reserve.
According to research from JPMorgan, as of May, Tether, the biggest stablecoin operator, and its peers, accounted for 2% of the market for U.S. Treasury bills – short-term debt instruments that are commonly used as a cash equivalent on corporate balance sheets.
Stablecoin issuers such as Tether and Circle now hold US$80 billion worth of short-term U.S. government debt, highlighting the expanding role of digital asset players in traditional financial markets.
And while 2% of the liquid U.S. Treasury markets may not sound like a lot, if stablecoin issuers were to dump their holdings of U.S. government debt, for instance, in the case of a slew of redemptions, their selling may have serious repercussions, especially given that liquidity is no longer a given.
U.S. Treasury markets have long been assumed to be the deepest and most liquid in the world, but the reality however is that periods of market crisis have seen liquidity evaporate and forced central banks to shore up Treasury values by becoming a buyer of last resort.
Even though a handful of the largest stablecoin issuers hold just 2% of short-term U.S. Treasuries, if a fresh market crisis were to emerge that would require issuers to sell off their holdings, it could have a material impact on Treasury prices, especially as markets become less liquid during difficult times.
