With the growth of the cryptocurrency and digital asset economy has come the expansion of the stablecoin market in the US and abroad. As this asset class continues to grow, the distinctions between money funds and payment stablecoins has continued to converge.
Some stablecoins are moving towards paying interest, money market funds are exploring tokenization, and US legislators are considering explicitly defining what constitutes a collateralized dollar-backed payment stablecoin.
In a recent presentation the Treasury Borrowing Advisory Committee (TBAC) weighed terminal effects of interest-bearing stablecoins from a perspective of Treasury demand, USD hegemony, the expansion of dollar-backed payment stablecoins, and potential effects for insured depository institutions.
TBAC also asked considered whether tokenized money funds present a risk and be allowed to compete with other payment or settlement instruments.
Key points:
- Stablecoins could grow to ~$2tn by 2030 in response to continued market and regulatory breakthroughs
- The stablecoin market is primarily comprised of USD-pegged stablecoins, driving near-term focus on potential US regulatory frameworks and the accelerated impact legislation could have on stablecoin growth
- Stablecoins could disrupt traditional banks by drawing away deposits. However, they also present chances for banks and financial institutions to create innovative services and to benefit from the use of blockchain technology.
- The ultimate design and adoption of stablecoins will drive the magnitude of impact that stablecoins have to the traditional banking system, as well as the demand for US Treasuries