By 2028, U.S. Department of the Treasury projected U.S. dollar-backed stablecoins will be as much as $2 trillion’s worth or 10x their current $230 billion size. It showcases the ever increasing importance and rise of stablecoins in the world’s overall financial system, and the pure ‘cash on chain’ (virtual currency for payments and settlements and financial transactions on the blockchain).
Stablecoins are used mostly due to price stability and exclusively in cryptocurrency trading, decentralized finance (DeFi) and cross border payments as they follow a minimal cap. One of them, which has close to 66 percent of the market and contains ca. $150 billion, is Tether’s USDT. The USDC that’s reminiscent that of Circle’s with a circulation of $60 billion:
When the Treasury notes are more stablecoins, they will more likely be interested in U.S. Treasury bills. Stablecoins are more or less correlated to public debt markets, which is why that is the reason that the stable token issuers that are also regulated back their tokens to short dated U.S. government securities. This mechanism is intended to assure value stability to the stablecoins and provide U.S. financial institutions with a potential benefit.
The tokenized money market fund also provides a different stablecoin option to others that compete at the same time. This feature of the tokenized funds has motives behind it — to make the users and the investors earn in the digital space while they are just existing there. The digital interest bearing alternatives will also be more available. Stablecoins and tokenized assets present themselves as assets and the larger they get and the faster it becomes easier for customers to have these assets, traditional retail banks are at risk of losing customer deposits to customers who would rather take higher interest rates in these assets than keeping their money in the traditional bank.
It also connotes moving the direction of monetary policy dynamics. However, big sums likely to flow into the blockchain based financial systems will necessitate central banks and regulators to keep up with the pace of innovation vis a vis economic stability and regulatory compliance.
The report, however, notes that with this understanding, the benefits are now better understood on how stablecoins have had a role in the digital payment space but also in the transfer of that value as well, if not as a means of paying via stablecoins, then as a means of digital value storage and its transfer. The global finance yet to come will rely on how the agreement between the innovation, the financial stabilit on the consumer protection will be drawn as adoption ramps up.
