Stablecoin issuers have become significant holders of US Treasury notes, amassing over $120 billion in total. This makes them the 18th largest holder of US debt, surpassing the holdings of many countries around the world. Circle, a stablecoin issuer, holds approximately $29 billion, while Tether holds a substantial $91 billion. Circle mainly holds short-dated US Debt such as repos, while Tether holds Treasuries.
The increasing demand for US Debt within the crypto industry and beyond is raising concerns about the management of the country’s debt. The US government’s debt has exceeded $34 trillion this year, with interest payments projected to reach $892 billion by the end of the year. Analysts predict that the country’s debt could soar to $50 trillion within the next decade, potentially leading to a decline in the strength of the Dollar and increased political uncertainty.
Stablecoin issuers rely on cash and its equivalents, including US Debt, to back their dollar-pegged assets. These assets not only support the stablecoins but also generate significant revenues for companies like Tether and Circle through interest. As a result, stablecoin issuers heavily leverage US Debt to drive profits.
The demand for stablecoins within the crypto ecosystem has been instrumental in enabling these issuers to acquire substantial amounts of US Debt. Stablecoins serve as a vital tool for storing value, trading, and conducting transactions on-chain, driving their popularity and demand. This growing demand has prompted US legislators to consider the first-ever stablecoin bill in the country, which aims to support the asset and its users.
There is a belief among many that stablecoins will be officially recognized before this year’s elections. Legislators previously attempted to introduce stablecoin regulations in essential bills but were unsuccessful. They are now looking to the lame-duck period, the time between the election and the formal inauguration of the new president, as an opportunity to revisit and potentially pass stablecoin regulations.
Overall, the rise of stablecoin issuers as significant holders of US Debt underscores the growing influence of the crypto industry on traditional financial markets. As stablecoins continue to gain traction and acceptance, it remains to be seen how regulators will navigate this evolving landscape to ensure financial stability and security for all stakeholders.