Minsheng Securities: Stablecoins Are Not the Answer to U.S. Debt

BlockBeats News, June 29 — Minsheng Securities released a research report stating that stablecoins are still not the answer to U.S. debt. The U.S. Senate has passed the “GENIUS” Act regarding stablecoins, attempting to reverse-bind the U.S. dollar and U.S. Treasuries to one of the biggest rivals of fiat currency in the current era—decentralized digital currencies. This move carries a sense of “if you can’t beat them, join them”: the logic chain of “excessive expansion of U.S. dollar credit—rise of digital currencies—increased demand for stablecoins—increased demand for the U.S. dollar and U.S. Treasuries” seems to follow naturally. The growth in stablecoin market capitalization will mainly come from two areas: first, the demand for speculation, investment, or value preservation in digital assets; second, new demand for using stablecoins in international trade settlements. Recently in the U.S., multinational retail giants such as Walmart and Amazon have begun considering issuing their own stablecoins, which would not only facilitate transactions but also save billions of dollars annually in banking service costs.

From two perspectives, stablecoins are still not the answer to U.S. debt. The first perspective is to see whether the native demand for stablecoins unrelated to international payments can significantly boost the amount of U.S. Treasuries they purchase. The second perspective is to try to estimate the substitution effect of stablecoins for fiat currencies in international settlements. The underlying assets of stablecoins are cash and short-term bonds, while what the current U.S. Treasury market lacks most is demand for medium- and long-term maturities. There are only two possible solutions: first, if the U.S. Treasury mainly issues short-term bonds in the future, the massive annual rollover volume would be unbearable for both the U.S. and the market; second, if medium- and long-term bonds are forcibly included as the underlying assets of stablecoins, this would make stablecoins no longer stable, and in the case of duration mismatch, stablecoins could easily face redemption problems.