Stablecoins

Paul Ryan Says 'Stablecoin Legislation Would Be A Good Step' To Strengthen US Treasuries​

One of the few pieces of legislation that could actually pass through Congress into law poses an existential risk to bankers, experts said.

Lawmakers in both the House and the Senate — and on both sides of the aisle — have spent the last several years negotiating legislation that's meant to set up a regulatory framework for stablecoins.

Although multiple proposals are floating around Capitol Hill, the most prominent candidate is the yet-unreleased bill from Reps. Patrick McHenry, R-N.C., and Maxine Waters, D-Calif., respectively the chairman and the ranking member of the House Financial Services Committee.

The chances of this advancing beyond the House committee stage got an additional boost earlier this month as Sen. Sherrod Brown, D-Ohio, chairman of the Senate Banking Committee and a longtime skeptic of crypto legislation, signaled some willingness to consider a stablecoin bill if it was packaged together with a cannabis banking bill.

There's multiple avenues for that package to be considered, including an upcoming must-pass defense spending bill, according to three committee sources familiar with discussions. Other crypto legislation is scheduled to receive a vote in the House this week.
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Tether, the issuer of the USDT stablecoin and a leading player in the digital asset industry, has made a strategic investment of $18.75M in XREX Group, a fully regulated, blockchain-enabled financial institution. The investment aims to drive innovation in the digital asset industry and facilitate USDT-based cross-border payments in emerging markets. XREX will use the funding to offer businesses greater ease, efficiency, and potentially lower costs in financial transactions. In collaboration with the Unitas Foundation, XREX will also launch XAU1, a USD-pegged unitized stablecoin over-reserved with Tether Gold (XAUT), providing customers with a stable alternative and a hedge against inflation. This partnership will also enhance solutions to detect and prevent illicit use of stablecoins.

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The former speaker of the House, Paul Ryan, published an op-ed in the Wall Street Journal last week claiming that stablecoins could be a magic bullet to address the country’s looming fiscal train wreck. I normally don’t pay these sort of pieces much attention since they typically involve—as is the case here—a former politician shilling for whatever industry is paying them these days. This one, though, deserves more consideration than most.
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As Ryan notes, longtime buyers of U.S. debt like China and Saudi Arabia have already started to pull back, threatening the long-term status of the dollar as the world’s reserve currency—a status that makes it cheap for America to borrow and lets it flex enormous economic influence overseas. What to do about this? The obvious answer is to reform runaway Social Security and Medicare spending. But neither Trump nor Biden dares to touch that. And so we have Ryan’s plan B: stablecoins.

Ryan observes that, if fiat-backed dollar stablecoin issuers (think Tether, USDC, and PayPal) were a country, its U.S. debt holdings would exceed those of Saudi Arabia. Meanwhile, he makes the point: “If other countries are successful at bolstering their currencies’ influence while dumping Treasury debt, the U.S. will need to find new ways to make the dollar more attractive. Dollar-backed stablecoins are one answer.”

It’s not a crazy idea. Stablecoins are taking off in countries like Nigeria and Argentina, where lousy rulers have made citizens reluctant to hold the local currency. They are also cheap and easy to move around and, as Ryan points out, “permissionless blockchains come packaged with the deeply American values of freedom and openness.” The more widely stablecoins spread, the more people there will be with a vested interest in the success of the U.S. economy.
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Wyoming is pushing crypto payments and trying to beat the Fed to a digital dollar​

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In this study, we investigate stablecoin usage in five emerging markets, where gaining access to dollars is challenging or impossible. Anecdotally, we know that stablecoins are crossing the chasm into being used as digital dollar equivalents, used for remittances, cross border payments, international trade settlement, and treated as savings instruments for regular folks. But proof has been hard to come by. So we undertook a survey of 2541 crypto users in Brazil, India, Indonesia, Nigeria, and Turkey, to better understand how these individuals engage with stablecoins in their everyday lives.
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Why Wyoming is developing its own stablecoin​

Stripe Inc. said individuals from more than 70 countries have used stablecoins for online transactions during the first 24 hours after allowing merchants using its platform to accept crypto payments again.

Stripe merchants in the US were authorized as of Oct. 9 to receive the Circle-issued stablecoin USDC through their online checkout pages. ...

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Stablecoins, especially Tether, have become a main actor in the dollar exchange markets in Latam countries. Venezuelans are harnessing Tether, which commands a market cap of nearly $120 billion, given the large gap between the government’s official dollar exchange, dictated by the volume negotiated in banks, and the black market dollar price, handled in peer-to-peer markets.

The difference between these rates, which in the last month has reached over 20%, has created disruptions in the Venezuelan economy and ramped up the stablecoins adoption as a savings tool, but diminished the use of dollars as a medium of exchange. This is because, in stores and businesses, each dollar can be only received at the official dollar rate, causing potential losses to its users.

While the government injected over $190 million in August to provide liquidity and contain the exchange rate, positioning over $4 billion until October 15, but it has just slowed its rise. This trend has proven to be a burden for the ailing Venezuelan government, which has to spend a significant part of its income to artificially maintain low exchange rates to keep the stability of the national economy.

Tether has been a key player in the Venezuelan exchange rate for some time, given the scarcity of physical dollars in the country. Kevin Hernandez, a local cryptocurrency market analyst, estimates that 76% of the crypto transactions in the country involve USDT. He detailed that the P2P markets manage almost $28 million in USDT each month, showing the strength of the stablecoin in the Venezuelan economy.
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Abstract

Using a new series of crypto shocks, we document that money market funds' (MMF) assets under management, and traditional financial market variables more broadly, do not react to crypto shocks, whereas stablecoin market capitalization does. U.S. monetary policy shocks, in contrast, drive developments in both crypto and traditional markets. Crucially, the reaction of MMF assets and stablecoin market capitalization to monetary policy shocks is different: while prime-MMF assets rise after a monetary policy tightening, stablecoin market capitalization declines. In assessing the state of the stablecoin market, the risk-taking environment as dictated by monetary policy is much more consequential than flight-to-quality dynamics observed within stablecoins and MMFs.

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Tether said its investment division financed a $45 million crude oil transaction between a major oil company and commodity trader, part of the USDT issuer's attempt to expand beyond its influential stablecoin roots.

The issuer of USDT, the third-largest cryptocurrency, is seeking to carve out a niche within the $10 trillion trade finance industry — which plays a crucial role in facilitating international trade and commerce by reducing risks associated with cross-border transactions. Tether revealed its plan to enter commodities trade finance last month, and it's also expanding into venture capital, bitcoin (BTC) mining and artificial intelligence.

The October transaction involved 670,000 barrels of Middle East crude oil cargo and took place between "a publicly traded super-major oil company" and "top-tier commodity trader," Tether said.
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pmbug said:

How dumb are these supposedly smart people? Stablecoins are primarily used for jumping into and out of crypto (non-stablecoin) investments. They are not interest bearing investment vehicles like MMFs. "They behave differently!" No shit, Sherlocks!

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This group of cryptocurrencies is starting to make a dent in demand for short-term Treasurys​