Tether Stablecoin To The Rescue Of US Treasury

Authored by Brian Darling via RealClearPolicy.com,

I always counsel to go in with eyes open when investing in cryptocurrencies (as somebody who has made some good and some terrible investments). With that caveat, it is important to recognize that cryptocurrencies are an amazing advance in the way people conduct commerce and should be embraced by all Americans, the business community and government.

One politician who is a skeptic of crypto is Sen. Elizabeth Warren (D-MA). She recently presented a list of questions to Treasury Secretary-Designate Scott Bessent this week in advance of his Jan. 16 confirmation hearing before the Senate Finance Committee. Sen. Warren seems to believe that a federal government holding $36 trillion in national debt should shy away from a type of cryptocurrency called “stablecoin” because of risk. The question is a great opportunity for an education of the American people into the cryptocurrency markets to better understand why they are so popular with both average Americans and investment giants.

Stablecoins are a category of cryptocurrency that bridges the gap between innovation and security.

The “stable” in the term refers to the fact that these cryptocurrencies have a unchanging value against the U.S. dollar.

These stablecoins are backed by reserves of fiat currency, like the U.S. dollar, and with an array of other cryptocurrencies used as collateral.

One question Sen. Warren has is whether Secretary-Designate Bessent believes that if stablecoin company Tether becomes a “significant holder of U.S. Treasuries,” could it “present risks to the stability of the Treasury market if [Tether] experiences a run?”

Warren’s questions create a good opportunity for education around USDT, Tether’s stablecoin, and the benefits it drives for the hegemony of the U.S. dollar, maintaining the U.S. dollar as the world’s reserve currency, and creating demand for U.S. debt instruments – all good news for the global U.S. Treasury market.

The senator’s questions also invite additional conversation around the incoming Trump administration’s need to work with Congress to create meaningful regulatory frameworks for stablecoins and other blockchain technologies for the benefit of the American public. Any regulatory framework should be crafted so as not to be putative and to aid an expansion that encourages good actors in the space to innovate and expand.

Tether’s positive role in the modern financial landscape for citizens and nation-states is significant. Because of the way USDT is structured and operates, it is arguably the only blockchain-based solution that promotes the future of the U.S. dollar as the primary global reserve currency. This serves as a national security interest in keeping the U.S. government solvent and is a way to stop many countries from ditching the U.S. dollar as a reserve currency.

In terms of the U.S. debt market, Tether is already a significant holder of U.S. Treasurys – the 18th largest, in fact, at more than $102 billion. Far from posing a threat to the Treasury market, this long position demonstrates Tether’s critical role as a liquidity provider and allows broader expansion of and participation in the American economy. 

And in terms of deposit risk – what Sen. Warren appears worried about – Tether, unlike most U.S. banks, is overcollaterized. The total dollar value of Tether’s reserve assets exceeds the global U.S. dollar-denominated amount of USDT stablecoins issued. This ensures that anyone wishing to “cash in” their USDT has reserves available to support the transaction – always. The same can’t be said of your local bank.

Furthermore, more than 400 million people now use USDT around the world. This reduces the concentration risk that comes from having very few but highly concentrated holders of U.S. debt (like, say, China), which minimizes the risk of large sell-off events. Holding USDT diffuses risk to U.S. debt markets globally, because for every Argentinian, Turk, or Brazilian holding USDT, Tether buys the equivalent in U.S. debt.

Tether serves to reinforcing the U.S. dollar’s dominance in world markets. Despite persistent global speculation about the longevity of the dollar as the world’s reserve currency – driven in large part by the emergence of geopolitical conflicts, diverging economic interests, and the freezing of dollar-denominated assets – Tether has appeared committed to supporting the dollar’s impact and relevance in the global economy. 

Tether has demonstrated that it is not a threat, but rather a crucial partner in reinforcing the U.S. dollar’s continuing dominance for the benefit of both the American public and the global financial system. Further cementing this important role is Tether’s demonstrated willingness to voluntarily work with U.S. and international law enforcement agencies to stop the commission of crimes by known criminals and suspected bad actors.

Once confirmed, Secretary Bessent should use this understanding to work with skeptics like Sen. Warren and members on both sides of the aisle.

Together, they can create needed regulatory and policy solutions for emerging technologies that will benefit the American people and preserve American dollar dominance into the future.