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US Treasury says tokenization, stablecoins will reshape financial landscape but urges caution

A recent report from the US Treasury Department suggests that tokenization and stablecoins have the potential to transform the Treasury market. Tokenization, which represents assets digitally on a blockchain, could bring efficiency, expanded access, and enhanced transparency to the market. It could also allow for faster and more efficient settlements, which would be valuable during times of market volatility. Furthermore, tokenization could democratize access to Treasuries by enabling fractional ownership, benefiting retail investors and international participants. On the other hand, stablecoins, which are digital tokens pegged to a stable asset like the US dollar, offer liquidity and accessibility but also pose risks if not regulated closely. The report warns about "de-pegging" risks that stablecoins face if the crypto market experiences fluctuations, potentially causing destabilization in the Treasury market. The report recommends regulating stablecoins similar to narrow banks or money market funds to avoid liquidity strains and disruptions.

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