The Messari Mainnet Conference, which was held last September, was the venue for blockchain companies and experts to share their views and expertise regarding the state of the crypto industry. One of the talks was whether stables or stablecoins serve or subvert US interests. Nic Carter, co-founder of Coinmetrics, and general partner at Castle Island Venture shared his views on the topic
Nic Carter discussed the importance of stables, and how it is being treated in the US. Crypto companies, including stablecoin issuers, have sought friendlier jurisdictions after regulators launched Operation Chokepoint 2.0. The collapse of FTX gave government agencies a reason to implement stricter measures against digital assets companies. However, Carter thinks that crypto, specifically stablecoins, benefits the US. He believes that stablecoins can help the country by buying its debts.
“We need someone to buy the debt”
Nic Carter
What does Carter mean by this? Where do stablecoins figure in the US economy on the macro scale?
What are Stablecoins?
Stablecoins is one of the cornerstones of the crypto industry. Cryptocurrency holders know that their assets are highly volatile. It is not uncommon for Bitcoin and other altcoins to register ten or twenty percent in value overnight. But what if an investor needs to park his assets in something more stable, without converting to fiat? This is where stablecoins come in. It retains its peg to a currency.
Popular stablecoins coins like USDT and USDC are pegged to the US dollar. Each USDT or USDC can be exchanged for the US dollar at any given time since they are backed 1:1. This type is called fiat-collateralized since there are real assets behind each stable.
There are other types of stablecoins like algorithmic, but we’ll discuss that some other time.
Understanding the US Debt Instrument
Most people would think that the government solely relies on taxes to finance its expenditures. But the US government also sells debts to raise money.
If you think about it, taxes can be likened to a regular source of income. But what if the taxes are not enough? Then the government would need to borrow money so it can cover the deficit. Of course, the government cannot just walk over to a lending company to borrow a huge amount. Instead, it will issue Treasury Securities, which are debt instruments that represent the loan to the government.
The treasuries are sold to investors who are willing to loan money to the government. Investors buy Treasury securities because they are considered safe and liquid assets that pay interest and can be easily sold or exchanged. The interest rate that the government pays on these securities is determined by the market demand and supply.
The biggest buyers of US debts are other countries. Japan and China, are the two largest holders of US treasury securities. These two nations hold almost $2 trillion of US debts. However, Japan is decreasing its US debt instrument to support the weakening Yen, while China is moving away to “de-risk”.
Where do Stablecoins Come in?
It might sound complicated, but it is really simple. The US government needs a buyer for its debt instruments. At the moment foreign governments are the biggest holders of Uncle Sam’s IOU. However, some are divesting their US debts due to several reasons.
This is how stablecoins can be an asset to the US. Stablecoin issuers are some of the biggest holders of treasuries. In fact, Tether (USDT) is currently one of the biggest US treasury holders, surpassing countries like Australia and the United Arab Emirates.
Carter said that stablecoins can be compared to countries:
“If you count stablecoins are a sovereign nation, they are actually the 16th largest nation, as far as holding US debt is concerned.”
Nic Carter
Stablecoin issuers hold US treasuries to back each token they mint. A big chunk of stablecoin reserves is composed of US Treasuries, cash, and other highly liquid assets. In short, stablecoins are mostly backed by the full faith and credit of the US government.
If you think about it, stablecoins support the US. They have a mutually beneficial relationship – stablecoins are backed by the US and stablecoins provide the US with money for its expenses. It makes you wonder why some officials want to kill the goose that is laying the golden eggs.
