Key Takeaways:
- The demand for stablecoins targeting Treasuries could range between $25 billion and $75 billion within the next year; however, Bank of America anticipates that this demand will not disrupt Treasury bill dynamics but will challenge money market funds.
- The bank noted that money market funds (MMFs) have limited time left to adapt, with certain clients considering tokenization as a defensive strategy as stablecoins begin to explore opportunities for yielding profits.
- The report highlights that BNY Mellon and Goldman Sachs have recently introduced tokenized MMF shares.
Bank of America’s rates strategy division shared insights on the changing landscape of the U.S. Treasury market, now increasingly influenced by the intersecting demands of stablecoin investments in T-bills and the tokenization of government debt assets. They assert that while stablecoins pose a potential shift, it is money market mutual funds (MMFs) that face a more significant competitive challenge due to the appealing yield prospects offered by stablecoins.
The analysts predict a gradual rise in stablecoin demand for Treasury bills over the next 12 months, signaling a potential increase anywhere from $25 billion to $75 billion, yet insufficient to instigate profound shifts in market dynamics.
Stablecoins, which are digital currencies pegged to traditional assets like the U.S. dollar or gold, play a vital role in the crypto economy, facilitating payment processes and international transfers.
Furthermore, BofA indicates heightened interest among some MMF clients in adopting tokenization, aiming to fortify their positions against the financial reach of stablecoins. The exploration began in July when BNY Mellon (BK) and Goldman Sachs (GS) initiated blockchain-based technology to manage ownership records in selected MMF shares, marking a historic transition to tokenized MMF shares.
Time is of the essence for MMFs as they tokenize to stay competitive, especially with looming regulatory changes challenging the advantages of stablecoins, which currently lack the capacity to produce yield.
Read more: Stablecoin Supply to Grow as Much as $75B Following Passage of GENIUS Act, BofA Says
