Long-Term Effect of Stablecoins Purchasing U.S. Treasuries

[Spooky]

30 minutes ago, TwoCitiesCapital said:

I think they probably operate more like a Fairfax. Keeping most of the regulatory required capital in liquid fixed income and take the equity bets with their equity/book value. But I don't trust that enough to want my money with them given their refusal for transparency so only use USDC when I need a stablecoin. 

 

What regulatory required capital? They are headquartered in El Salvador!

 

Seems like they also don't like to redeem people's coins - you need to sell them on the secondary market.

 

Doesn't pass the smell test to me.

Edited December 19, 2025 by Spooky

[TwoCitiesCapital]

50 minutes ago, Spooky said:

 

What regulatory required capital? They are headquartered in El Salvador!

 

Seems like they also don't like to redeem people's coins - you need to sell them on the secondary market.

 

Doesn't pass the smell test to me.

 

Was more of a comment related to Fairfax as an insurance company, but would extend to the 1:1 dollar/Treasury backing of the stable coins, or close to it. 

 

You can't redeem your ETF shares for their backing. You also just have to sell it. Are ETFs also a fraud? Just like only authorized participants can redeem ETFs for shares, only verified entities transacting above a certain amount can redeem directly from Tether. 

 

Look - I get that the company is shady. That's why I don't use them. But anyone alleging fraud needs to come with some more concrete than just their feelings on the matter and has to have some hypothesis for how a company like this survives multiple 80% drawdowns without drawing panic/scrutiny to their underlying ability to make good on the claims against their token. 

Edited December 19, 2025 by TwoCitiesCapital

[Spooky]

4 hours ago, TwoCitiesCapital said:

 

Was more of a comment related to Fairfax as an insurance company, but would extend to the 1:1 dollar/Treasury backing of the stable coins, or close to it. 

 

You can't redeem your ETF shares for their backing. You also just have to sell it. Are ETFs also a fraud? Just like only authorized participants can redeem ETFs for shares, only verified entities transacting above a certain amount can redeem directly from Tether. 

 

Look - I get that the company is shady. That's why I don't use them. But anyone alleging fraud needs to come with some more concrete than just their feelings on the matter and has to have some hypothesis for how a company like this survives multiple 80% drawdowns without drawing panic/scrutiny to their underlying ability to make good on the claims against their token. 

 

Alright man.... you can't compare this to Fairfax, a Canadian listed public company subject to regulatory oversight from the Ontario Securities Commission and insurance regulators. Or an ETF listed on a public market....

[TwoCitiesCapital]

37 minutes ago, Spooky said:

 

Alright man.... you can't compare this to Fairfax, a Canadian listed public company subject to regulatory oversight from the Ontario Securities Commission and insurance regulators. Or an ETF listed on a public market....

 

You're missing the entire point of the comparison....

 

Fairfax holds bonds against its insurance liabilities. They invest in stocks/businesses with their with equity capital. 

 

Tether can also invest in t-bills/bonds against their liabilities and invest tens of billions of equity capital into Bitcoin, Gold, soccer teams, etc every without anything being shady. They make billions of RoE every year for the last several years.

 

So you either have to point out how their investments are sized in such a way to where there is no way they're doing it WITHOUT dipping into liability reserves or just accept they make a lot of money and invest it. 

Edited December 19, 2025 by TwoCitiesCapital

[nsx5200]

Here's the original 2025 Nov. S&P500 article on their assessment of Tether:

https://www.spglobal.com/ratings/en/regulatory/delegate/getPDF?articleId=3486415&type=COMMENTS&defaultFormat=PDF

S&P Global Ratings has reassessed the ability of Tether (USDT) to maintain its peg to the
U.S. dollar to 5 (weak) from 4 (constrained)."

 

Apparently, it's lost the peg for a short period in in 2022:

https://www.ft.com/content/5887ef43-d43a-4608-a1ac-aacc99f076b9

"Tether tumbled as low as 95.11 cents in European trading, far below the $1 peg that it seeks to maintain as it faced an intense bout of selling pressure."

"But in an interview with the Financial Times, he[Paolo Ardoino, CTO back then, CEO now] declined to give details about its $40bn hoard of US government bonds because he did not “want to give our secret sauce”."

 

It doesn't smell like a fully trustworthy company.

[TwoCitiesCapital]

1 hour ago, nsx5200 said:

Here's the original 2025 Nov. S&P500 article on their assessment of Tether:

https://www.spglobal.com/ratings/en/regulatory/delegate/getPDF?articleId=3486415&type=COMMENTS&defaultFormat=PDF

S&P Global Ratings has reassessed the ability of Tether (USDT) to maintain its peg to the
U.S. dollar to 5 (weak) from 4 (constrained)."

 

Apparently, it's lost the peg for a short period in in 2022:

https://www.ft.com/content/5887ef43-d43a-4608-a1ac-aacc99f076b9

"Tether tumbled as low as 95.11 cents in European trading, far below the $1 peg that it seeks to maintain as it faced an intense bout of selling pressure."

"But in an interview with the Financial Times, he[Paolo Ardoino, CTO back then, CEO now] declined to give details about its $40bn hoard of US government bonds because he did not “want to give our secret sauce”."

 

It doesn't smell like a fully trustworthy company.

 

Sure. Am guessing S&P doesn't know much more than us, which is probably the reason for the rating. The lack of transparency keeps people on edge - but it's still the largest stable coin issues. Seems enough people trust it. 

 

But just to be clear - there is a difference in someone selling for less than $1 and then not being able to redeem for a $1. Just like in market panics ETFs deviate from NAV (sometimes substantially).

 

Trading price doesn't imply investors couldn't redeem from Tether for $1, but rather they were dumping in the open market out for fear. For every person selling at $0.95 was a buyer at 0.95 hoping for a dollar or redeeming in quantity from Tether for $1 which is why circulating supply dropped during that period - they made good on the redemptions despite BTC being down 80%, stocks and bonds being down double digits, and gold largely being flat in 2022. That's impressive if it is, in fact, a fraud/ponzi. 

Edited December 20, 2025 by TwoCitiesCapital

[scorpioncapital]

So let's say people don't use Tether as much in favour of another US backed stablecoin - or even another currency's stablecoin, do they still make the same amount of money every year even if nobody is using it much? Are people slowly going to ask for redemptions or is it just going to float around and as long as interest rates are not 0.00%, they are going to make a bundle forever just for having started early? Seems a great deal if you had the foresight to do that. The only way to stop that would be if the US literally made USDT illegal or not allow it to be backed by US dollars? Or perhaps USDT offshore cannot be used 'onshore' and everyone has to convert it to USDC? 

[TwoCitiesCapital]

10 minutes ago, scorpioncapital said:

So let's say people don't use Tether as much in favour of another US backed stablecoin - or even another currency's stablecoin, do they still make the same amount of money every year even if nobody is using it much?

 

Not sure what you mean by "use". If you just mean no one is transferring it, using it for payments, etc it doesn't matter. Someone is still holding Tether which means Tether still holds the capital in treasuries/investments and keeps the return. 

 

10 minutes ago, scorpioncapital said:

Are people slowly going to ask for redemptions or is it just going to float around and as long as interest rates are not 0.00%, they are going to make a bundle forever just for having started early?

 

I'm surprised more people haven't redeemed myself. So I can't really say going forward. But yes, as long as interest rates remain non-zero and the balance of TetherUSD remains stable-to-growing, they're gonna make a boatload of money every year. It's like free float from insurance with no catastrophes/liabilities against it - just liquidity risk to manage. 

 

10 minutes ago, scorpioncapital said:

 

Seems a great deal if you had the foresight to do that. The only way to stop that would be if the US literally made USDT illegal or not allow it to be backed by US dollars? Or perhaps USDT offshore cannot be used 'onshore' and everyone has to convert it to USDC? 

 

Yes, the biggest threats are regulatory....or that they're mismanaging the reserves. 

Edited December 21, 2025 by TwoCitiesCapital

[Fly]

Tether may be or might have been a scam at some point, but now they are a big buyer of govt debt. 

 

https://www.visualcapitalist.com/sp/pla02-ranked-the-biggest-buyers-of-u-s-debt/

 

The USGov needs buyers, so they will bring players like Tether into the fold and get them on track to grow and do more of what they do (buy more Treasuries). That's what Cantor/Lutnick did before Trump got into office, and now with the Stablecoin bills being passed it solidifies Tether as a big boy who will soon be "too big to fail."

[Spooky]

13 hours ago, Fly said:

Tether may be or might have been a scam at some point, but now they are a big buyer of govt debt. 

 

https://www.visualcapitalist.com/sp/pla02-ranked-the-biggest-buyers-of-u-s-debt/

 

The USGov needs buyers, so they will bring players like Tether into the fold and get them on track to grow and do more of what they do (buy more Treasuries). That's what Cantor/Lutnick did before Trump got into office, and now with the Stablecoin bills being passed it solidifies Tether as a big boy who will soon be "too big to fail."

 

This is the big risk I see as well. Stablecoin companies operate essentially like banks, they take customer deposits which are supposed to be backed by enough short term US treasuries to maintain the peg to the USD so depositors can redeem the coin for an equivalent amount of USD. Thether Usdt is the 3rd largest crypto coin with about $186B market cap. If there is a run on the company and all the depositors want out then they will be forced to liquidate large amounts of government debt (and as far as I understand they have been buying illiquid assets as well like farmland / physical gold which will be hard to liquidate quickly). Depending on how large this stablecoin gets it could pose some form of systematic risk. They need to be regulated like a bank.

[nsx5200]

8 hours ago, Spooky said:

This is the big risk I see as well. Stablecoin companies operate essentially like banks, they take customer deposits which are supposed to be backed by enough short term US treasuries to maintain the peg to the USD so depositors can redeem the coin for an equivalent amount of USD. Thether Usdt is the 3rd largest crypto coin with about $186B market cap. If there is a run on the company and all the depositors want out then they will be forced to liquidate large amounts of government debt (and as far as I understand they have been buying illiquid assets as well like farmland / physical gold which will be hard to liquidate quickly). Depending on how large this stablecoin gets it could pose some form of systematic risk. They need to be regulated like a bank.

Currently, the t-bill market is around $6T, so $180B is not significant to cause systemic failure yet.  There's a built-in incentive for people to use dollar instead of stablecoin (opportunity cost in potential dividend/interest), and the people seem to be using stablecoin to ease crypto transactions, similar to a Treasury Zero CI.  I suspect in a panic, the Fed can step in to purchase just the Treasuries to prevent spillover into the traditional finance world while letting the cryptos runs its course.

[Fly]

1 hour ago, nsx5200 said:

Currently, the t-bill market is around $6T, so $180B is not significant to cause systemic failure yet.  There's a built-in incentive for people to use dollar instead of stablecoin (opportunity cost in potential dividend/interest), and the people seem to be using stablecoin to ease crypto transactions, similar to a Treasury Zero CI.  I suspect in a panic, the Fed can step in to purchase just the Treasuries to prevent spillover into the traditional finance world while letting the cryptos runs its course.

 

The interesting scenario is what happens if/when stablecoin payments are available on payment rails around the world for regular transactions like buying groceries. Will the US Dollar (via stablecoins) start to displace smaller local currencies in weak economies? 

 

https://wise.com/gb/blog/weakest-currencies-in-the-world

 

Or perhaps even taking a small % of transactions in other developed nations...?

Edited December 23, 2025 by Fly

[Red Lion]

11 minutes ago, Fly said:

Will the US Dollar (via stablecoins) start to displace smaller local currencies in weak economies? 

 

This seems like a highly probable scenario.

[Spooky]

17 hours ago, nsx5200 said:

Currently, the t-bill market is around $6T, so $180B is not significant to cause systemic failure yet.  There's a built-in incentive for people to use dollar instead of stablecoin (opportunity cost in potential dividend/interest), and the people seem to be using stablecoin to ease crypto transactions, similar to a Treasury Zero CI.  I suspect in a panic, the Fed can step in to purchase just the Treasuries to prevent spillover into the traditional finance world while letting the cryptos runs its course.

 

Agree. Right now it is not a huge risk. Holders of Usdt could get screwed over. Just depends on how big / integrated stablecoins become into the traditional finance sector in the future.