Paper: arXiv 2505.12413

Authors: Lennart Ante, Aman Saggu, Ingo Fiedler

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.

Complexity vs Empirical Score

  • Math Complexity: 3.5/10
  • Empirical Rigor: 6.5/10
  • Quadrant: Street Traders — practical and empirical, lighter on theory

Why this score: The paper provides a highly timely and empirical examination of Tether’s impact on short-term U.S. Treasury bill yields using semi-log and threshold regressions. While the mathematical complexity is relatively low, focusing on basic linear and threshold econometric models, the empirical analysis is well-motivated, novel, and clearly articulated.

Research Flowchart

  flowchart TD
    A[Research Goal: Assess Tether's Impact on U.S. Treasury Bill Yields] --> B[Data Inputs: Q1 2025 Tether T-Bill Holdings $98.5B & Market Share 1.6%]
    B --> C[Baseline Semi-Log Model]
    B --> D[Threshold Regression Analysis]
    C --> E[Finding: 1% Market Share Increase Reduces 1-Month Yield by 3.8% / 14-16 bps]
    D --> F[Identify Threshold at 0.973% Market Share]
    F --> G[High-Regime Finding: Yields Reduced by 6.3% / ~24 bps]
    G --> H[Outcome: ~$15B Annual Interest Savings for U.S. Government]