TD Securities published, "The Impact of Stablecoins and Digital Assets in the U.S." Written by Jan Nevruzi and Gennadiy Goldberg, the piece tells us, "Digital assets are quickly moving from the periphery of financial markets into the mainstream. Cryptocurrencies remain volatile and largely speculative, but other digital assets have found rapid institutionalization and are reshaping the liquidity, settlement and collateral landscape. These assets are increasingly designed to replicate money-like claims with added features that come with the blockchain rails (the underlying network that communicates the information about the transactions). The growth in these asset classes has made them an important participant in fixed income markets, most notably in the U.S. Treasury market."
It says, "The integration of digital assets into traditional markets has important implications for both the demand outlook for fixed income securities and policy design choices by officials. Banks are also exploring their own initiatives in response to the competitive pressures from digital assets that pose a challenge to their traditional payment and depository frameworks."
TD writes, "Digital assets are an extremely broad category, and new branches appear almost daily. For the purposes of this article, we will focus on Stablecoins, Tokenized Real-World Assets and Central Bank Digital Currencies -- splitting the last into two broad categories, coins and tokens. The main distinction between the two is that coins (e.g., Bitcoin) are native to their own blockchain and function as a payment form within that system, while tokens (e.g., stablecoins) are created on top of an existing blockchain, usually via smart contracts."
They explain, "Stablecoins are a type of virtual currency designed to maintain a stable peg against another asset or currency. The largest stablecoins are pegged against the U.S. Dollar and aim to keep their value at US$1.00 (fiat-pegged), but other stablecoins are slowly gaining popularity and are backed by commodities (e.g., Pax Gold (PAXG)) or other cryptocurrencies (e.g., Wrapped Bitcoin (WBTC) with Bitcoin (BTC))."
The piece continues, "There are several notable themes in stablecoin volumes and assets: Assets invested in stablecoins have also increased: Total stablecoin supply now sits at US$250 billion versus US$159 billion in August 2024. The majority of stablecoin supply is allocated between the two largest stablecoins -- Tether (USDT) and Circle (USDC). Flows into stablecoins have historically been cyclical and highly correlated with trends in crypto markets. However, the industry is now much more mature, and growing real-world use cases are likely to create increased resilience in the asset base during volatile periods."
It comments, "Most of the assets that stablecoins control are in fiat-pegged coins, with two stablecoins controlling the majority share -- Tether (USDT) and Circle (USDC). The most common blockchain for stablecoins is the Ethereum network (ERC-20 standard), but other networks are also used for lower fees and efficiency purposes."
The article discusses, "Tether (USDT): Tether is the oldest stablecoin with the largest market cap (US$168 billion). Tether publishes quarterly attestations about its reserves, with these attestations moving to a monthly basis once the stablecoin becomes compliant with the GENIUS Act. Tether supports various blockchains, but by far the most commonly used protocols are Ethereum (ERC-20) and Tron (TRC-20), split roughly equally."
It says, "Circle (USDC): Circle is the second-largest stablecoin with US$70 billion in assets. Combined with Tether, they make up ~85% of the fiat-pegged stablecoin industry's assets. USDC is the largest onshore stablecoin since USDT is offshore. USDC is mainly operated as an Ethereum token (ERC-20 standard), but can be traded on various other chains, with Solana the second-largest protocol."
Discussing "The Role of Tokenized Treasuries and Money Market Funds," the authors explain, "Tokenized treasuries and money market funds are very similar to stablecoins in that the transactions are recorded on a digital ledger, they have similar minting/burning mechanics, and they can be traded on secondary markets like crypto exchanges. However, unlike stablecoins, tokenized assets provide the owner with a direct ownership stake in a specific asset (e.g., an exact CUSIP), provide an economic benefit (e.g., voting rights or yield), and are bound by different securities regulations."
They tell us, "Tokenized assets are not a new legal category of securities but are digital representations of traditional financial instruments. Therefore, the regulatory framework that applies to the underlying security also applies to the token. The growth in assets allocated to stablecoins will have an impact on the Treasury market -- particularly on shorter-dated securities. If the inflows into digital assets continue at the current breakneck pace, the amount of money that those vehicles have to invest will soon be material even in the context of the Treasury market."
Finally, the piece adds, "This may influence Treasury's debt management decisions, leading to a shorter weighted average maturity of issuance. Treasury is already paying close attention to this and has been asking primary dealers to comment on the topic. Dollar-denominated stablecoins, which at this stage make up nearly the entire fiat-backed stablecoin universe, are forced to back their tokens 1:1 with assets. The GENIUS Act imposed stricter guidelines on what those reserves can look like, but the main allocations will likely be to Treasury bills and coupons with less than 3 months of maturity and overnight repo (a close substitute to bills)."
