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Stable coins will buy USA debt?
276 sats \ 5 comments \ @Bell_curve 16h econ
How does this change the market?
More stability or less? Or more volatility?
Do stable coins buy all the treasury bills and bonds that no one else buys or wants?
Does this mean more spending and fiscal irresponsibility?
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212 sats \ 3 replies \ @freetx 16h
Its has the potential to be really weird. The legacy banking industry just made a last minute bid to get them to change the GENIUS act again to limit stablecoins from paying interest. (I have no idea how that would be constitutional, but regardless it seems like their bid has failed thus far).
I think the legacy retail banks see the writing on the wall.
  • Be Tether
  • Own $150B in US Treasuries (earning ~4.15%)
  • Agree to pay Tether holders 1.5% interest
  • Tether now becomes the highest interest checking account among any retail bank
Obviously Gov loves this because stablecoin issuers buy 50-100x more treasuries than traditional banks.
The whole development is fascinating and I think many are sleeping on whats really going down. In short its the story of: be careful what you wish for.
In this case you see the retail banking lobby has successfully been continuously lobbying to reduce reserve requirements. In 2020, because of covid, they managed to get reserve requirements reduced to 0% - yes the Fed officially changed reserve level to zero.
This was "great" for the retail banks, but now its backfiring. They are no longer a buyer of treasuries, so why does .gov care about them? Answer is, they don't. This is why every politician was so anxious to get GENIUS act passed. They have a new buyer of treasuries lined up to replace to old broke busted buyer....
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11 sats \ 1 reply \ @Undisciplined 13h
That last bit is really interesting. Great applied Public Choice Theory.
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18 sats \ 0 replies \ @Bell_curve OP 11h
Forgive me for asking ChatGPT and showing its response:
Stablecoins are one of the more serious potential sources of disruption to both traditional banking and the U.S. Treasury market. Let me break it down into the key channels of impact:

1. Disruption to Banking

a. Deposit Substitution
  • Stablecoins compete directly with commercial bank deposits. If individuals and corporations shift part of their cash balances into stablecoins (particularly if they are widely accepted for payments), banks could see a meaningful reduction in deposits.
  • Since deposits are the cheapest source of funding for banks, losing them would force banks to rely more on wholesale funding or issuing debt—raising their cost of capital.
b. Credit Creation Constraints
  • Traditional banks use deposits to fund loans (fractional reserve banking). If deposits migrate into stablecoins held in non-bank wallets or custodied by fintechs, the banking system’s ability to extend credit shrinks.
  • This could mean a disintermediation of banks from the payments/credit loop, with stablecoin issuers and DeFi protocols partially replacing them.
c. Systemic Risk Concerns
  • If stablecoins grow large enough, a “run” on a stablecoin could spill over to the broader financial system. For example, mass redemptions forcing liquidation of backing assets could destabilize money markets or banks if they are counterparties.
  • Regulatory frameworks (like those proposed in the U.S. and EU) are partly aimed at mitigating this risk by requiring high-quality reserves.

2. Disruption to the Treasury Market

a. Stablecoins as Major Buyers of Treasuries
  • The largest fiat-backed stablecoins (USDT, USDC) already hold a huge proportion of their reserves in short-term U.S. Treasuries. Tether alone reportedly holds $100B+ in Treasuries, making it one of the largest holders globally.
  • If stablecoin adoption accelerates, demand for Treasuries could rise significantly, lowering yields at the short end and creating a new structural buyer for U.S. government debt.
b. Shift in Liquidity Dynamics
  • Stablecoin issuers essentially act like “shadow central banks”: they issue a synthetic dollar (the stablecoin) backed by Treasuries. When demand rises, they buy more Treasuries; when demand falls (redemptions), they sell.
  • In stress scenarios, sudden large-scale redemptions could trigger destabilizing Treasury sales, amplifying volatility in the most important global safe-asset market.
c. Fed vs Stablecoins
  • Stablecoins are, in effect, competing with the Fed’s Reverse Repo Facility (RRP) as a place to park cash. As the RRP winds down, stablecoins could absorb some of that liquidity, giving them more influence over money-market rates.
  • Over time, this could erode some of the Fed’s control over short-term rates, particularly if stablecoins become a preferred settlement instrument in global trade.

3. Longer-Term Strategic Implications

  • Dollarization Reinforced: Paradoxically, stablecoins may strengthen the U.S. dollar’s global role by making it more accessible outside the U.S. banking system (especially in emerging markets with weak local currencies).
  • Banking Model Pressure: If stablecoins scale, banks might pivot more to fee-based services, lending funded by capital markets, or partnerships with fintechs, rather than relying on cheap deposits.
  • Policy Response: Regulators may impose bank-like oversight on stablecoin issuers or push for CBDCs (central bank digital currencies) to reclaim control of digital money issuance.
✅ Bottom line: Stablecoins are both a complement and a threat. They complement Treasuries by creating new demand, but threaten banks by pulling away deposits. In a few years, if adoption grows unchecked, stablecoins could become a core pillar of the global dollar system—but at the cost of weakening traditional banks’ role and complicating the Fed’s monetary toolkit.
Would you like me to sketch out some scenario timelines (e.g., 2–5 years, 5–10 years) showing how stablecoin disruption could unfold in practice—both gradual and shock-type events?
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18 sats \ 0 replies \ @Bell_curve OP 11h
I asked ChatGPT to summarize the post and discussion of this thread...
Here’s a breakdown of what unfolds in that Stacker.News thread about stablecoins potentially buying U.S. Treasuries—plus fresh insights from recent reputable sources on how stablecoins may be reshaping banking and Treasury markets:

What the Stacker Post Highlights

The thread snapshots a user observing how stablecoins like Tether might become dominant holders of U.S. Treasuries—yielding up to ~4.15%—and offering attractive interest (e.g., 1.5%) to stablecoin holders, thus potentially outcompeting traditional bank checking accounts. It suggests that legacy banks are reacting—lobbying to amend the GENIUS Act to limit stablecoins' ability to pay interest, reflecting fear of deposit loss and fiscal shifts. (Stacker News)

Recent Insights from the Media and Academia

1. Regulatory & Banking Concerns

  • U.S. banks are lobbying to amend the GENIUS Act, arguing that while stablecoins cannot pay interest under current law, crypto exchanges can indirectly provide rewards—creating an uneven playing field and potentially sparking $6.6 trillion in deposit flight that could raise borrowing costs and reduce credit availability. (Financial Times)
  • Moody’s analysts warn that while significant effects on bank profitability (e.g., reduced fee income, higher funding costs) may take time, they are real risks—especially if stablecoins grow to offer routine payment advantages. (MarketWatch)
  • The Wall Street Journal underscores that stablecoin reserve flows may transform insured retail deposits into volatile, uninsured deposits, posing greater systemic risk—particularly for smaller banks. (The Wall Street Journal)

2. Treasury Market Dynamics

  • Treasury Secretary Scott Bessent anticipates stablecoins becoming a key buyer of U.S. Treasuries, potentially significantly boosting demand for short-term government debt. Currently, the stablecoin market stands at ~$250B, but could expand to $2 trillion. (Financial Times)
  • Reuters reports that the GENIUS Act’s requirement for stablecoins to be backed by liquid assets and disclose reserves could catalyze as much as $1 trillion in Treasury Bill demand over 3 years, depending on adoption rates. (Reuters)
  • A study from Barron’s shows major issuers (Circle, Tether) already hold over $168B in Treasuries and repos. This has modestly lowered short-term yield and could challenge the Fed’s control over interest rates as stablecoins scale. (Barron's)

3. Academic Findings

  • A paper in arXiv finds that by Q1 2025, Tether's holdings (~$98.5B in T-bills, ~1.6% of outstanding supply) substantially reduced 1-month Treasury yields—by approximately 24 basis points. This equates to roughly $15 billion in annual interest savings for the government. (arXiv)
  • Another working paper positions stablecoins as central to a “Banking 2.0” transformation—comparing their significance to stablecoins with that of AI—highlighting the structural shift toward a public-private hybrid monetary ecosystem powered by decentralized, digitally native money. (arXiv)

4. Risk and Stability Considerations

  • A letter responding to stablecoin-Treasury enthusiasm argues that without robust infrastructure—regulated custody, ETF-like transparency, real-time reserve reporting, and integration with capital markets—stablecoins risk instability and reputational damage. (Financial Times)
  • Reuters also notes that while stablecoins fuel liquidity, they do not expand credit, and may siphon away deposit-funded lending—their broader macroeconomic implications may remain mostly theoretical unless retail adoption increases. (Reuters)
  • An FT article likens stablecoins to bank deposits in all but name—raising concerns over regulatory clarity, lack of insurance coverage, and exposure to systemic banking shocks. It even suggests that tokenizing traditional deposits on blockchain could be a safer evolution. (Financial Times)

Summary Table: Stablecoin Disruption Landscape

AreaDisruption Insights
Banking SectorDeposit erosion, increased funding costs, pressure on traditional fee income, and risk to small banks.
Treasury MarketsNew structural demand for T-bills, yield compression, and potential stress on Fed control over rates.
Government DebtCould benefit via reduced interest costs (e.g., ~$15B/year from Tether’s demand).
System ResiliencePotential for runs, opacity risks, and lack of comparable infrastructure like traditional banking.
Future OutlookCould become a hybrid public-private money system—if backed by regulation, transparency, and market rigour.

Final Take

The Stacker post raised the right instincts: stablecoins are emerging as powerful players—potentially outsized holders of U.S. Treasuries and formidable competitors to traditional banks for deposit flows and yield offerings.
But what emerges from verifiable sources is a far more nuanced picture: Stablecoins are already influencing Treasury yields, challenging banking deposit models, and prompting legislative and regulatory pushback. Monetary authorities, investors, and banks are reacting—while researchers are warning that without strong infrastructure and transparency, stablecoins could amplify systemic fragilities, particularly in times of stress.
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0 sats \ 0 replies \ @daolin 3h
They're essentially trying to taper the ponzi. If the US government can shill their premined USD tokens overseas, then in theory USD can keep existing for a while longer. It's ultimately up to each individual to decide how long they want to keep lending their time and energy to something that was never designed for their benefit. I'm sure once the BTC price gets crazy enough it will shock people out of their stupor. We get new people every cycle who catch on.
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