US Treasury: Blockchain can improve financial system

Blockchain technology promises to create a “new financial market infrastructure” with “enhanced operational and economic efficiencies,” according to the United States Department of the Treasury’s Q4 2024 report.

To unlock these benefits, the legal and “regulatory landscape will need to evolve alongside advances in tokenization of legacy assets,” according to the report.

In an Oct. 29 meeting, the US Treasury’s Borrowing Advisory Committee weighed the benefits of stablecoin adoption and Treasury bill tokenization.

“Tokenization can potentially improve liquidity in the trading of Treasuries by reducing operational and settlement frictions,” the Treasury said in the report.

Source: US Treasury

The committee said distributed ledger technology (DLT) and smart contracts can be particularly beneficial.

“Immutable ledgers could allow for greater transparency in Treasury market operations, reducing opacity, and providing regulators, issuers, and investors with more real-time insight into trading activities,” according to the report.

Meanwhile, “[s]mart contracts programmed directly into the tokenized Treasury [can] allow for more efficient collateral management, including pre-programmed collateral transfers,” the Treasury said.

The committee noted that stablecoins seem to be increasing demand for short-term United States government bonds known as Treasury bills (T-Bills), according to meeting minutes published Oct. 30.

“To date, growth in digital assets has created marginal incremental demand for short-dated Treasuries,” the Treasury said. “This has so far come primarily through increased use and prevalence of stablecoins.”

According to the minutes, one committee member suggested the US create a permissioned blockchain for tokenizing short-dated T-Bills.

“The way forward should involve a cautious approach spearheaded by a trusted central authority, with widespread buy-in from private sector participants,” according to the report.

Source: US Treasury

Stablecoins — tokens pegged to the US dollar or other fiat currencies — are emerging as the core infrastructure for trading and payments.

Total stablecoin market capitalization hit record highs in 2024 and now approaches $180 million, according to CoinMarketCap.

Tether (USDT) dominates among stablecoins with a market capitalization of $120 billion.

Circle’s USD Coin (USDC) is a distant second, with a market capitalization of approximately $35 billion, according to CoinMarketCap.

Meanwhile, tokenized real-world assets (RWAs) — from Treasury securities to artworks — represent a $30-trillion market opportunity globally, Colin Butler, Polygon’s global head of institutional capital, told Cointelegraph in August.

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