Treasury Bond-Backed Stablecoins: What’s the Point?Ryan Tucker
Many investors are still put off by the relative volatility of cryptocurrency markets and of cryptocurrency prices. And while Bitcoin investors are benefiting today from upward price movement, volatility in the other direction is naturally worrisome. That has helped contribute to the development and popularity of so-called stablecoins, cryptocurrency tokens that are fully backed by some supposedly stable asset.
While most stablecoins have been backed by fiat currency such as the US dollar, a new stablecoin is looking to get approval from the Securities Exchange Commission (SEC) for its proposal for an Ethereum-based stablecoin that would be at least 80 percent backed by US Treasury securities. Although Treasury securities are widely regarded by investors as being safe, stable, and secure investments, one has to wonder just how a Treasury bond-backed stablecoin would benefit investors in any meaningful way.
The stablecoin is attempting to target a share price of $1 per share, similar to money market funds. But with dollar-backed stablecoins already at 1:1 backing, why would an investor choose the Treasury-backed stablecoin? Why wouldn’t investors just put their money into short-term Treasury bonds, which are currently yielding nearly 2.5% interest? That would offer investors a return in addition to safety.
Treasury bond-backed stablecoins also run into the same problems as dollar-backed stablecoins in that investors have to trust that the stablecoin’s managers actually own and control the assets that are backing the coin. If those assets are purely digital and/or stolen, or if the managers keep creating more coins while not increasing the amount of asset backing, investors will lose out.
The appeal of stablecoins seems obvious at first glance, but they’re really not a substitute for Bitcoin and its overcoming of the trust problem. As Bitcoin investors have discovered, Bitcoin’s widespread adoption and long-term potential give it the edge over any upstart competitors. And the ability of investors to hold those Bitcoin assets through a Bitcoin IRA, in which they know that their assets are safe and securely stored, far outweighs any theoretical benefits of a stablecoin.