The report by the BlackRock Investment Institute released on 28 July may surprise those who see stablecoins as a shadowy area of the crypto industry.
According to BlackRock, digital tokens pegged to fiat currencies and backed by reserves are "now at the heart of the 'future of finance'." The word "future" is in inverted commas because BlackRock links it directly to the GENIUS Act, which recently became law.
Stablecoins Are The Future Of Finance
The Act provides a federal regulatory framework for payment stablecoins in the United States, officially recognising them as a payment method. Interest on stablecoins is prohibited, and only federally regulated banks, certain registered non-bank corporations, and state chartered companies may issue them.
The report monitors the rapid adoption of stablecoins. The total value of stablecoins has grown rapidly since 2020 and now amounts to about $250 billion, or 7% of the entire crypto market capitalisation.
The BlackRock Institute adds that the new US regulatory regime could strengthen the international role of the dollar by creating a "network for the tokenized dollar to regulate cross-border payments." On the other hand, the group admits that limits on interest on stablecoins could hinder their adoption in the world's major economies, where interest-bearing bank deposits are already highly attractive.
According to the GENIUS Act, issuers must hold mainly repos, money market funds and US Treasury securities with maturities of less than 93 days. The report's authors cite Tether and Circle, "some of the largest issuers of US stablecoins," which together hold at least $120 billion in T-bills - equal to about 2% of the $6 trillion in outstanding securities.
In the future, even if demand for stablecoins were to increase, BlackRock expects their impact on T-bill yields to be "manageable and relatively limited" for two reasons:
- Funds will likely come from similar assets.
- Treasury will continue to increase the supply of securities.
"We see stablecoins as a new component of the future of finance - and new US legislation aims to put the US at the centre of innovation in digital assets," reads the report by BlackRock.
In the meantime, Hong Kong is moving to attract stablecoin assets, and even Europe is developing a project for a digital euro, thinking about financial instruments that are not too risky for traditional banks. If other countries allow interest-bearing stablecoins or focus on digital currencies of central banks, the dollar's share in financing global trade could come under pressure. However, US officials may decide to allow some level of interest on stablecoins in the future to counter this trend.
In conclusion, according to BlackRock, the growth of stablecoins will have a "muted impact" on short-term Treasury yields. Moreover, the institution continues to view Bitcoin as a separate and unique factor.
