The stablecoin market capitalization of nearly $180 billion is creating significant demand for short-term U.S. government bonds, driving discussions about tokenizing bonds on the blockchain.
According to the minutes of the U.S. Treasury meeting released on October 30, stablecoins appear to be increasing demand for short-term government bonds, also known as Treasury bills (T-bills). During the meeting on October 29, the Treasury Borrowing Advisory Committee discussed the impact of stablecoins on the T-bill market, as well as the potential and risks of tokenizing this type of asset.
According to the report from the meeting, committee members noted that the majority of assets backing stablecoins come from T-bills or repo transactions secured by T-bills. The strong growth of the stablecoin market, with a market capitalization of nearly $180 billion according to CoinMarketCap, is thus creating a 'modest but significant' demand for these short-term securities. Tether, the largest stablecoin in the market, currently has a market capitalization of $120 billion, followed by Circle's USD Coin with $35 billion.
Source: CoinMarketCap Tokenizing T-bills: Opportunities and Challenges
Tokenizing T-bills, meaning converting them into a digital asset form on the blockchain, is seen as a potential solution to improve operational efficiency and drive innovation in the bond market. However, the committee also noted the potential risks to financial stability. One member proposed developing a government-managed blockchain to support the tokenization of T-bills, ensuring controlled and reliable access. The proposal reflects the growing interest of the U.S. government in integrating blockchain technology into the financial system.
The trend reflects the overall growth of the tokenized asset market in the real world (RWA), ranging from government bonds to works of art. According to Colin Butler, Global Head of Institutional Capital at Polygon, the global RWA market has the potential to reach $30 trillion. The demand for tokenized products from T-bills and other highly liquid assets is increasing sharply, as evidenced by the success of funds such as the BlackRock USD Institutional Digital Liquidity Fund (BUIDL) with $530 million and the Franklin OnChain US Government Money Fund (FOBXX) with $410 million in assets under management.
