Report: Stablecoin Growth Could Increase Volatility of US Treasurys

The rising adoption of stablecoins could reportedly increase the volatility of U.S. Treasury securities with short-term maturities.

Some analysts say that as these dollar-pegged cryptocurrencies grow, their volatility could spread to the bills market, Reuters reported Friday (June 6).

Any disruption in the stablecoin market could trigger liquidations that could drive down Treasury prices, they say, according to the report.

In addition, if money moves from bank deposits to the stablecoin market, there could be less demand for U.S. Treasurys from banks, per the report.

Other analysts counter that an increase in stablecoin activity would increase the number of buyers of T-bills, which are considered to be cash-equivalent securities, around the world, according to the report.

The stablecoin bill that is making its way through Congress would require stablecoins to be backed by liquid assets like T-bills, the report said. Already, two stablecoin issuers — Tether and Circle — hold a collective total of $166 billion in U.S. Treasurys.

U.S. Treasury Secretary Scott Bessent has said that a codification of federal rules for stablecoins could boost demand for U.S. debt, per the report.

There are risks inherent in the construct of stablecoins, PYMNTS reported in May.

The reserves that help maintain the peg of the coin are often a mix of assets that can be exposed to shocks. If there are fluctuations, stablecoin issuers must sell or rebalance those holdings to keep the peg or meet redemptions if and when they are demanded by holders. If an issuer has to sell assets in response to a swell in redemptions, losses may ensue.

Stablecoins have been decoupling themselves from crypto exchanges and positioning themselves as a component of real-world financial infrastructure, PYMNTS reported in March. They are transforming cross-border payments, corporate treasury operations and B2B payments, for example.

The stablecoin bill that is moving through Congress aims to reinforce market trust in stablecoins following high-profile collapses of algorithmic stablecoins and undercollateralized issuers, PYMNTS reported in May.

Its rules include a requirement that issuers submit monthly reserve reports certified by their CEOs and chief financial officers and audited annually by a registered public accounting firm.