A Central Authority May Be Needed in Tokenization

The U.S. Treasury Department’s panel of Wall Street advisors reported that tokenization of U.S. debt and other assets offers significant potential advances. The report mentioned the need for a central authority for the crypto industry.

Cryptocurrencies and the tokenization of US Treasuries were addressed with great seriousness in the digital assets report released yesterday by the Treasury Debt Advisory Committee. Citigroup Inc. and Goldman Sachs Group Inc. The group, made up of private sector finance executives from giant firms such as , was tasked with guiding the department’s debt management and shared its thoughts on tokenization and stablecoins, including a warning about risks from Tether.

The report stated that “Tokenization has the potential to bring the benefits of programmable and interoperable ledgers to the legacy financial asset range” and emphasized that it provides instant and transparent settlement opportunity, especially in order to “reduce the risk of failure in settlements”.

“Even small incremental improvements in a very large market such as the treasury market can be effective at scale,” the report said, and suggested “the development of a privately controlled blockchain managed by one or more trusted private or public authorities.”

It also touched on the rise of stablecoins, which “increasingly choose to hold short-term US Treasury collateral,” and included concerns about the danger to stability of tokens like Tether (USDT).

“The collapse of a major stablecoin like Tether could result in a ‘sale at a loss’ of US Treasury assets. Given history, stablecoins would need to be regulated like banks or money market funds to prevent stress in stablecoin markets from spreading to broader financial markets and the Treasury market.” .”

Regarding stablecoins that support tokenized transactions, the consultants suggested that “central bank digital currencies (CBDC) will need to replace stablecoins.”

Fed officials explained that any potential CBDC issued by the Federal Reserve would be managed by private sector banks represented on the advisory group. However, CBDCs, which are strongly opposed by Republican lawmakers, remain risky in the near term.