Stablecoin issuers such as Tether and Circle currently own $80 billion as of 2022 in short-term US government debt, underlining the growing importance of digital asset players in traditional banking markets.

Stablecoins are taking center stage

According to data compiled by JPMorgan, Tether and its competitors owned 2% of the market for Treasury bills in May, higher than the portion held by Warren Buffett’s financial colossus Berkshire Hathaway. New issuers have “considerable room to grow should stablecoins become a form of digital payment,” JPMorgan added.

When comparing the amount of assets invested in Treasury bills, stablecoin issuers have beaten both offshore and prime market money market funds.

Treasury bills are debt instruments that are often utilized as a cash equivalent on company balance sheets because of their low risk and liquidity requirements. Tether and Circle, the issuers of the two largest asset-backed stablecoins in the world, respectively, have made commitments to purchase U.S. Treasury bills and reduce reliance on commercial paper.

Regulators On High Alert

Since stablecoin issuers have become more prevalent in a market previously dominated by lower-risk investors, monetary authorities across the globe have tightened their scrutiny of the crypto industry as a whole.

Tether’s U.S. dollar peg gave in to selling pressure after the collapse of TerraUSD, a setback for stablecoins that are meant to be constantly backed by reserves of highly liquid traditional financial assets.

Recent occurrences in the cryptocurrency industry have spurred governments to take action. According to Treasury Secretary Janet Yellen, the risks associated with stablecoins are “rapidly growing.”

Stablecoins have witnessed some volatility recently, as have other digital coins, with PYMNTS reporting that the Acala Dollar, or aUSD, fell earlier in August after a hacker was able to mint $1.28 billion of the token. In addition, another popular stablecoin, TerraUSD( formerly UST ), lost its U.S. dollar peg back in May 2022. 

As part of their proposed Responsible Financial Innovation Act, senators Cynthia Lummis and Kirsten Gillibrand have also advocated for stablecoin issuers to be required to disclose their reserves.