JP Morgan: Tokenised Treasuries Will Challenge Stablecoin, But Won't Replace It Completely

Oct. 25 (Bloomberg) -- The market for tokenised treasuries has expanded rapidly over the past year, approaching $2.4 billion, JPMorgan analysts reportedly said in a report on Thursday. While this size is still well below the $180 billion stablecoin market, it highlights a potential challenge to stablecoin's dominance and also suggests that tokenised treasuries may only partially replace stablecoin.

According to the report, major stablecoin issuers like Tether and Circle do not share reserve earnings with their users, a practice that could not only reduce their revenues but also classify stablecoins as securities. Such a classification would subject them to strict regulatory oversight, which could limit their use as collateral in the cryptocurrency market. While stablecoin users have sought a variety of strategies to generate revenue, including borrowing, these methods come with risks and often require surrendering control of the asset. In contrast, tokenised treasuries offer returns without the risks associated with complex trading or lending strategies, allowing users to maintain control of their funds.

However, analysts note that regulatory hurdles remain a challenge for tokenised treasuries. They are restricted to qualified investors under securities law classifications, which limits wider market adoption. However, tokenised treasuries are expected to grow further and may partially replace traditional stablecoins as collateral in areas such as crypto derivatives trading. Analysts point to recent reports that BlackRock's BUIDL can be used as collateral on multiple crypto exchanges, highlighting the potential demand for tokenised treasuries. In addition, analysts said tokenised treasuries could also potentially replace non-yielding stablecoins held by de-DAO vaults, liquidity pools and crypto venture capital funds.