Stablecoin issuers investing reserves in treasure bills is a self-serving move because it strengthens the market upon which their products are directly built on.
But what are the secondary impacts? To the broader crypto industry directly?
In January 2020, the USD-stablecoin market was valued $5 billion, today the same market is worth approximately $322 billion.
That's a 64.4x growth in 6 years.
Over this period, stablecoin issuers have turned to T-bills for their reserves where Tether alone holds over $122 billion in treasury bills, representing more than 83% of its total reserves.
Tether is currently a top 20 global holder of U.S. government debt, surpassing countries like Germany and the UAE.
Buy why T-bills?
There's a very simple answer here and that's the often cited "safest yield source" argument and in the case of Tether's position, that's billions is yield yearly, how can they look away?
But let's discuss the risks.
Sanctions
Stablecoins reportedly make up approximately 30% of all crypto on-chain transactions. This percentage grows larger when Bitcoin is removed from the count.
Clearly, this is a critical crypto infrastructure of today.
The problem however is that most of these volumes go through centralized issuers with significant exposure to centralized markets.
This effectively means that a significant number of crypto users (Tether reportedly has 500 million users) are exposed to potential sanctions by simply using a stablecoin.
Coming to this conclusion is simple.
Stablecoins expand exposure to the USD, and when issuers are significant tied to the system, everyone it serves is exposed to the control of the United States government.
The global appetite for USD-backed stablecoins growing, expands the total addressable market for the crypto ecosystem that is built on top of them, which helps the US government attain broader global control and effective room for sanctions enforcement.
Think about what it means for the whole world to run on a one currency system.
These stablecoins are already designed for maximum compliance so the argument is defendable by simply looking on-chain and recent reports.
But, T-bills are not the problem
There are other risks to cite, including the fact that the US holds a pretty bad debt, so much that it is reportedly asking for donations (unverified — seen a Facebook post today), but all investment has base risks and this is just one.
So it is clear, the product itself isn't the problem, it is the system around it so then the real area of focus should be "centralization."
Centralized businesses should not be allowed the room to have such significant market share within crypto.
Decentralized stablecoins need to step up to mitigate the growing risks of stablecoins to the sovereignty of the cryptocurrency market.
A lot of people do not realize that if the stablecoin market collapses, the crypto industry takes a big hit, despite having the not so distant history of just this happening.
More attention needs to be given to stablecoins more than ever.