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Fred Ehrsam
@fehrsam
2 weeks ago I tried an experiment in bounty based research. Could a $1k @bountycaster bounty successfully solve a research question? TL;DR: Bounty-based research worked pretty well!
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Fred Ehrsam pfp
Fred Ehrsam
@fehrsam
The question: Will stablecoins become the largest holders of US debt?
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Fred Ehrsam pfp
Fred Ehrsam
@fehrsam
First, the bounty winners. I originally posted for a single $1k winner but after seeing the submissions decided to give 3 $1k winner bounties and 1 $250 honorable mention.
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Fred Ehrsam pfp
Fred Ehrsam
@fehrsam
The winners: 1) @jeremybatchelder https://docs.google.com/spreadsheets/d/15sxp6czHBSuJzfP3jcgp89pMo2VmzSr3ypXXkjGCxs8/edit#gid=809946059 2) @lxn https://drive.google.com/drive/folders/1UFYVzkU1UaF1pwBxS23WcDjldT0OILOs 3) @michaellwy https://docs.google.com/document/d/1xdnsVk-Q0h2Vrc_Ggaisqozr9vB1yMB8/edit
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Fred Ehrsam pfp
Fred Ehrsam
@fehrsam
Honorable mention: @paulx https://warpcast.com/paulx/0x0645138f
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Fred Ehrsam pfp
Fred Ehrsam
@fehrsam
It turns out $1k brings quality answers to make it worthwhile, especially for questions that are open ended logically and in supporting data. It did require work: reading submissions and stitching them together. But I'd try it again for an open-ended question that ChatGPT (at least currently) would struggle with.
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Fred Ehrsam pfp
Fred Ehrsam
@fehrsam
Now on to the question: Will crypto stablecoins become the largest holders of US debt?
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Fred Ehrsam pfp
Fred Ehrsam
@fehrsam
The analysis revealed: - Stablecoins are on track to be in the 10 largest holders of US debt within 10 years - A simple extrapolation of the last 3 years would make stablecoins the largest holders of US debt in the world
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Fred Ehrsam
@fehrsam
Zooming out further, on their current trajectory, this analysis of stablecoins solidified 2 things for me: 1) Stablecoins will be one of the largest sinks for US debt over the next 10 years 2) Stablecoins will become "systemically important" to the US and global financial systems
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Fred Ehrsam pfp
Fred Ehrsam
@fehrsam
For detailed scenario analysis, check out this sheet from @jeremybatchelder https://docs.google.com/spreadsheets/d/15sxp6czHBSuJzfP3jcgp89pMo2VmzSr3ypXXkjGCxs8/edit#gid=2110422470 or Part 1 Section 3 of this analysis from @lxn: https://drive.google.com/drive/folders/1UFYVzkU1UaF1pwBxS23WcDjldT0OILOs
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Fred Ehrsam pfp
Fred Ehrsam
@fehrsam
A few other interesting learnings: - Money market funds are up there with the largest sovereigns as holders of US debt (h/t @niccarter who has done amazing work on stablecoins).
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Fred Ehrsam
@fehrsam
- Fidelity is the largest MMF holding US Treasuries at $1.3T and growing, followed by JPM ($700b) and Vanguard ($600b). The largest sovereign holders are China ($1.1T) and Japan ($1T), both shrinking.
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Fred Ehrsam
@fehrsam
A good full breakout of US debt holders can be seen here: https://www.pgpf.org/blog/2023/05/the-federal-government-has-borrowed-trillions-but-who-owns-all-that-debt
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Fred Ehrsam pfp
Fred Ehrsam
@fehrsam
- I hadn't realized (or willfully forgot) how large the Federal Reserve's holdings of US debt is. They are the largest holder of US debt, roughly $6 trillion of the $31 trillion, almost all accumulated in the last 15 years.
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Fred Ehrsam
@fehrsam
To caveat the findings, they are very sensitive to a few key variables: - The growth of stablecoins - Changes in foreign entity holdings (Japan and China are cutting rn) - How buckets of holders are defined - Potential diversification of stablecoin holdings into other assets
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Fred Ehrsam pfp
Fred Ehrsam
@fehrsam
TL;DR: Stablecoins are already a big deal and are on track to be one of the most important parts of the global financial system. Thanks to all the submitters for the mental cycles and hard work!
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