Research Paper: “Should SWFs Consider Issuing Stablecoins?”

Executive Summary: US Treasury Secretary Scott Bessent has made several notable statements regarding stablecoins, emphasizing their potential to strengthen the US dollar's global dominance and their role in the future of digital finance. He has also highlighted the projected growth of the stablecoin market, potentially exceeding $2 trillion by 2028.    

This is an opportunity for Sovereign Wealth Funds to earn additional returns from stablecoin issuance and potentially provide a safe asset to protect their home economies from capital flight.

The two largest stablecoin issuers, Tether and Circle, collectively hold over $140 billion in U.S. Treasuries and earned more than $13 billion in profits in 2024 on their two stablecoins (USDT and USDC) with $216 billion in outstanding. This makes them a force in financial markets, and a potential risk, as their holdings of US Treasury bonds are amongst the 20 largest globally - a “run” on these stablecoins would be a potential liquidity crisis event.

Stablecoins are a welcomed innovation, as they offer opportunities to investors around the world and connects the traditional assets to the crypto ecosystem. A few large players obtain networking effects in the process of democratizing finance and innovating digital assets on the blockchain. We study stablecoins from a positive point of view, but asks:  

Why leave such a market opportunity to private-sector issuers, when reputable institutional investors, like Sovereign Wealth Funds, could also reap the benefit?

We study the case for and against SWFs issuing stablecoins and find a very solid business case, If SWFs can navigate the legal requirements and overcome the technical issues in using stablecoins as part of its funding structure.