Treasury Department recognizes that stablecoins promote redollarization

The United States Department of the Treasury published a report this week in which it points out that stablecoins are increasingly choosing to maintain important short-term US Treasury guarantees. The document expects that regulatory efforts in the coming years will encourage this redollarization trend.

For the Treasury, stablecoins based on fiat currencies, such as the US dollar, play an integral role in cross-cryptocurrency transactions. Besides, highlights that the use of stablecoins has grown rapidly in recent years “as the digital asset market matures.”

This growth includes increased demand for cryptoassets with stable cash-like characteristicshighlights the entity, which adds that stablecoins have gained popularity especially as collateral for lending in decentralized finance (DeFi) networks.

According to Treasury report, fiat-backed stablecoins have shown the most significant growthplaying an integral role in brokering transactions in digital asset markets. In fact, they say, “more than 80% of all cryptocurrency transactions now use a stablecoin as one of the parties to the transaction.”

In that order, they highlighted that the most prevalent stablecoins in the market are those based on fiat currencies, such as the US dollar. The examples include USDT and USDCissued by Tether Limited and Circle, respectively.

Billions of dollars invested

Treasury estimates approximately $120 billion in total stablecoin collateral are invested directly in short-term Treasury bondsanticipating continued growth in the stablecoin markets along with the overall size of the digital asset market.

These estimates coincide with the comments of Paul Ryan, the former speaker of the United States House of Representatives, who a few months ago emphasized that dollar stablecoins “are becoming a major net buyer of US government debt,” which which is positive for the US economy and dollarization, in his opinion.

“Stablecoins could become one of the largest buyers of US government debt and a reliable source of new demand,” Ryan said at the time, as reported by CriptoNoticias.

The US Treasury report also warns about the regulatory future of stablecoins, indicating that medium-term regulatory and policy decisions will determine the fate of these “private currencies.”

“History shows that ‘private currency’ that does not meet the requirements of the New Financial Activities Ordinance (NQA) can lead to financial instability, being considered highly undesirable,” the agency warns.

Despite the growth prospects, there are opposing opinions regarding the safety of stablecoins. The European Central Bank, for example, has questioned its role as a safe haven in times of financial crisis, as reported in CriptoNoticias.

“Limited” cryptocurrency adoption

On a more open level, the US Treasury specifies that, to date, the adoption of cryptocurrencies by households and industry has been limited to holding digital assets for investment purposes.

They highlight that the market capitalization of digital assets remains low compared to other financial and real assets, “and the growth so far does not appear to have cannibalized the demand for Treasury bonds,” he notes.

The Treasury also highlighted that use cases for digital assets continue to evolve, but interest has followed two main paths. The first, that bitcoin appears to be a store of value or “digital gold” in the world of DeFi. The second, that the speculative interest has played a prominent role in the growth of other digital tokens.

This article was created using artificial intelligence and edited by a human Editor.