Fred Ehrsam on Warpcast

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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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The question: Will stablecoins become the largest holders of US debt?

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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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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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Honorable mention: @paulx https://warpcast.com/paulx/0x0645138f

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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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Now on to the question: Will crypto stablecoins become the largest holders of US debt?

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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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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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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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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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- 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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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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- 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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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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Connor McCormick ☀️

Why does the Fed hold so much debt?

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