U.S. Treasury Panel Highlights Potential And Risks Of Tokenization And Stablecoins

According to CoinDesk, the U.S. Treasury Department's advisory committee, comprising Wall Street executives, has identified significant potential in the tokenization of U.S. debt and other assets. The committee's report also highlighted the need for a central authority to manage this transition, which may not sit well with the crypto sector. The Treasury Borrowing Advisory Committee, which includes executives from major firms like Citigroup Inc. and Goldman Sachs Group Inc., emphasized the benefits of tokenization, such as instant settlement and transparency, which could reduce the risk of settlement failure in the large Treasuries market. However, the report also called for a cautious approach, suggesting the development of a privately controlled and permissioned blockchain managed by trusted authorities. The committee also examined the rise of stablecoins, noting their increasing use of short-dated U.S. Treasury collateral. The report warned of the potential risks posed by stablecoins like Tether's USDT, suggesting that a collapse of a major stablecoin could lead to a 'fire-sale' of their U.S. Treasuries holdings. To prevent such risks, the report recommended regulating stablecoins like narrow banks or money market funds. The advisory group also suggested that central bank digital currencies (CBDCs) might need to replace stablecoins as the primary form of digital currency for tokenized transactions. Any potential CBDC issued by the Federal Reserve would be managed by private-sector banks, though the political feasibility of U.S. CBDCs remains uncertain due to opposition from Republican lawmakers. Overall, the committee saw tokenization as a promising development for various markets, but cautioned that it could disrupt the banking system if applied to short-term Treasuries, potentially becoming a rival for bank deposits.