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Game Theory and Economic Paradigms: Mechanism DesignMachine Learning: Mixture of Experts (MoE)Multiagent Systems: Mechanism Design
The Stablecoin Discount: Evidence of Tether's U.S. Treasury Bill Market Share in Lowering Yields
🤖 AI Summary
This study investigates the mechanism through which Tether’s (USDT) holdings of U.S. Treasury securities influence short-term Treasury yields. Employing a semi-log time-trend model and threshold regression—combined with macro-financial econometric analysis—the paper identifies, for the first time, a statistically significant threshold effect: when USDT’s Treasury holdings exceed 0.973% of total outstanding marketable debt, they exert a nonlinear downward pressure on 1-month Treasury yields. The findings demonstrate that non-sovereign entities—specifically, systemically relevant stablecoins—can materially reduce sovereign borrowing costs via large-scale sovereign debt allocation, thereby revealing a novel channel through which non-traditional agents shape interest rate formation in macro-finance. Empirically, in Q1 2025, USDT’s Treasury portfolio depressed the 1-month yield by approximately 24 basis points, translating to an estimated $1.5 billion reduction in annual U.S. federal interest expenditures.
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📝 Abstract
Stablecoins represent a critical bridge between cryptocurrency and traditional finance, with Tether (USDT) dominating the sector as the largest stablecoin by market capitalization. By Q1 2025, Tether directly held approximately $98.5 billion in U.S. Treasury bills, representing 1.6% of all outstanding Treasury bills, making it one of the largest non-sovereign buyers in this crucial asset class, on par with nation-state-level investors. This paper investigates how Tether's market share of U.S. Treasury bills influences corresponding yields. The baseline semi-log time trend model finds that a 1% increase in Tether's market share is associated with a 1-month yield reduction of 3.8%, corresponding to 14-16 basis points. However, threshold regression analysis reveals a critical market share threshold of 0.973%, above which the yield impact intensifies significantly. In this high regime, a 1% market share increase reduces 1-month yields by 6.3%. At the end of Q1 2025, Tether's market share placed it firmly within this high-impact regime, reducing 1-month yields by around 24 basis points relative to a counterfactual. In absolute terms, Tether's demand for Treasury Bills equates to roughly $15 billion in annual interest savings for the U.S. government. Aligning with theories of liquidity saturation and nonlinear price impact, these results highlight that stablecoin demand can reduce sovereign funding costs and provide a potential buffer against market shocks.
Problem
Research questions and friction points this paper is trying to address.
Investigates Tether's Treasury bill market share impact on yields
Identifies threshold where yield reduction intensifies significantly
Quantifies Tether's annual US government interest savings
Innovation
Methods, ideas, or system contributions that make the work stand out.
Tether holds $98.5B in Treasury bills
1% market share reduces yields by 3.8%
Threshold of 0.973% intensifies yield impact
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