U.S. Treasury Advisory Panel Says Tokenization Could Be Big, But May Need Central Control

The
U.S.
Treasury
Department’s
panel
of
Wall
Street
advisers
see
the
tokenization
of
U.S.
debt
and
other
assets
providing
some
significant
potential
advances,
the
group

contended
in
a
new
report
–
while
also
envisioning
an
inevitable
need
for
the
kind
of
heavy
central
hand
that
may
rankle
the
crypto
sector.

Cryptocurrencies
and
the
tokenization
of
U.S.
Treasuries
were
treated
with
increased
seriousness
in
the
digital-assets
views
issued
by
the

Treasury
Borrowing
Advisory
Committee
on
Wednesday.
That
group
of
private-sector
financial
executives
from
big-named
firms
such
as
Citigroup
Inc.
and
Goldman
Sachs
Group
Inc.
is
assigned
with
helping
guide
the
department’s
debt
management,
and
it
shared
thoughts
on
tokenization
and
stablecoins
—
including
a
warning
about
risks
from
Tether.

“Tokenization
has
the
potential
to
unlock
the
benefits
of
programmable,
interoperable
ledgers

to
a
wider
array
of
legacy
financial
assets,”
the
report
suggested,
especially
highlighting
the
possibility
of
instant
and
transparency
settlement
and
clearing,
for
“reducing
the
risk
of
settlement
failure.”

“Even
small
incremental
improvements
in
a
very
large
market
like
the
Treasuries
market
can
be
impactful
at
scale,”
the
report
noted,
though
it
also
suggested
caution
and
the
likely
need
for
the
“development
of
a
privately
controlled
and
permissioned
blockchain
managed
by
one
or
more
trusted
private
or
public
authorities.”

“The
way
forward
should
involve
a
cautious
approach
spearheaded
by
a
trusted
central
authority,
with
widespread
buy-in
from
private
sector
participants,”
it
concluded.

The
report
also
delved
into
the
rise
of
stablecoins,
which
have
“increasingly
elected
to
hold
significant
short-dated
U.S.
Treasury
collateral”
—
a
situation
that
will
probably
be
further
encouraged
by
future
regulations.
It
also
included
a
thought
on
the
stability
hazard
from
tokens
such
as
Tether’s

(USDT).

When
it
comes
to
stablecoins
underpinning
tokenized
transactions,
the
advisers
suggested
that
“central
bank
digital
currencies
(CBDC)
will
likely
need
to
replace
stablecoins
as
the
primary
form
of
digital
currency.”

Any
potential
CBDC
issued
by
the
Federal
Reserve
would
be
managed
by
private-sector
banks,
Fed
officials
have
said,
meaning
some
of
the
institutions
represented
in
the
advisory
group.
However,
the
political
chances
for
U.S.
CBDCs,
which
are
strongly
opposed
by
Republican
lawmakers,
remain
dicey
in
the
near
term.

Overall,
the
voices
of
traditional
finance
behind
the
report
saw
tokenization
in
all
kinds
of
markets
for
real-world
assets
“promises
to
unleash
new
economic
arrangements,”
though
doing
it
for
short-term
Treasuries
could
“potentially
disrupt
the
banking
system,”
according
to
the
committee,
because
it
could
become
a
rival
for
bank
deposits.