US Treasury Highlights Blockchain's Potential In Financial Market Infrastructure

According to Cointelegraph, the United States Department of the Treasury's Q4 2024 report emphasizes the potential of blockchain technology to create a new financial market infrastructure with enhanced operational and economic efficiencies. The report suggests that to realize these benefits, the legal and regulatory landscape must evolve alongside advances in the tokenization of legacy assets. In an October 29 meeting, the US Treasury's Borrowing Advisory Committee discussed the advantages of stablecoin adoption and Treasury bill tokenization. The report indicates that tokenization could improve liquidity in Treasury trading by reducing operational and settlement frictions. The committee also highlighted the benefits of distributed ledger technology (DLT) and smart contracts, noting that immutable ledgers could provide greater transparency in Treasury market operations, reducing opacity and offering regulators, issuers, and investors more real-time insight into trading activities. Additionally, smart contracts programmed into tokenized Treasuries could allow for more efficient collateral management, including pre-programmed collateral transfers. The committee observed that stablecoins are increasing demand for short-term United States government bonds, known as Treasury bills (T-Bills). The report states that the growth in digital assets has created marginal incremental demand for short-dated Treasuries, primarily through the increased use and prevalence of stablecoins. One committee member suggested that the US should create a permissioned blockchain for tokenizing short-dated T-Bills, advocating for a cautious approach led by a trusted central authority with widespread private sector participation. Stablecoins, which are tokens pegged to the US dollar or other fiat currencies, are emerging as core infrastructure for trading and payments. The total stablecoin market capitalization reached record highs in 2024, approaching $180 million, with Tether (USDT) dominating the market at $120 billion and Circle's USD Coin (USDC) following at approximately $35 billion. Tokenized real-world assets (RWAs), ranging from Treasury securities to artworks, represent a $30-trillion market opportunity globally, as noted by Colin Butler, Polygon's global head of institutional capital.