Stablecoin issuers have emerged as significant players in the United States Treasury market, holding a substantial amount of US Treasury bills.
Interestingly, data indicate that four major US dollar stablecoin issuers collectively hold approximately $182 billion in US Treasury bills.
Notably, this figure positions them as a significant holder of US debt, ranking 17th on the Treasury Department’s country-by-country league table, surpassing countries such as South Korea and the United Arab Emirates.
When factoring in overnight Treasury-collateralized repurchase agreements (repos) and Treasury-heavy money market funds, their holdings would place them between Norway and Saudi Arabia in terms of US debt ownership.
Stablecoin Issuers’ Individual US Treasury Holdings
Within the holding position, Tether, with its USDT stablecoin, leads the pack. Its first-quarter attestation revealed $120 billion in Treasuries, a figure that CEO Paolo Ardoino later stated had increased to over $125 billion.
Circle, the issuer of USDC, reported holding $28.7 billion in T-bills and $26.5 billion in overnight repos in its May accountant’s report, totaling $55.2 billion.
Moreover, First Digital, with its FDUSD stablecoin, held approximately $1.3 billion in Treasury bills as of May 31, representing 78% of its reserves.
Paxos, responsible for PayPal USD (PYUSD), utilizes overnight reverse-repo agreements collateralized primarily by Treasuries. With $878 million outstanding, this equates to roughly $880 million in government debt.
Nonetheless, these issuers favor short-dated government debt for several reasons. These instruments offer T-plus-zero settlement at clearing banks.
Additionally, they also provide attractive yields, which have risen above 5% in the current economic environment. The dominance of Treasury paper in stablecoin reserves is evident.
Recently, Tether’s latest assurance revealed that Treasuries, repos, and Treasury-only money-market funds sum to over 80% of its collateral, significantly contributing to its first-quarter profit of $1 billion.
Meanwhile, Circle utilizes BlackRock’s SEC-registered Circle Reserve Fund to manage its bills and repos, allowing for rapid liquidation in response to redemption spikes.
Impact on US Debt Demand
Interestingly, stablecoin issuers argued that their activities generate increased demand for US debt, thereby avoiding reliance on the traditional banking system. Tether’s CEO, Paolo Ardoino, has emphasized that their holdings surpass those of countries like Germany, the UAE, and Spain.
Regulatory bodies in the United States and Europe are actively considering legislation that would govern the composition of stablecoin reserves.
The GENIUS Act, which recently passed the Senate, seeks to formalize these limitations. Similarly, Europe’s Markets in Crypto-Assets (MiCA) regime prohibits the inclusion of commodities in the reserves backing euro-pegged stablecoins.
Manage all your crypto, NFT and DeFi from one place
