The Last Look…
Posted by Colin Lambert. Last updated: September 30, 2025
The US appears to be keen to underwrite a new growth phase in derivatives markets. This is according to a new initiative launched by the CFTC that will see tokenised dollars, aka stablecoins, be deployed as collateral. What could possibly go wrong?
After years of concerns about the size of the US budget deficit, creating two dollars-worth of tradable assets with every Treasury bill to fund, erm, the deficit seems a tad circular. And yet, it’s happening.
Stablecoins have found a new “killer app” beyond payments in the shape of collateral, after the CFTC launched a tokenised collateral initiative that will explore the use of stablecoins for derivatives markets. The initiative adds further fuel to the growth of stablecoins, with market cap standing at just below $300 billion after a 44% increase so far in 2025.
Until now, the driver of demand for these digital tokens has been their market share expansion in payments, where they have offered a modern, digital and efficient alternative to the archaic correspondent banking system with its high fees and lengthy timeframes. Standard Chartered-backed Zodia Markets published a widely-circulated report on payments being the first “killer app” for stablecoins, which predicted that the market cap for these digital tokens would hit $2 trillion by 2030, a figure that even the US Treasury Department took as a credible prediction.
The CFTC’s latest announcement gives further credence to this. Using tokenised dollars, aka stablecoins, as collateral for derivatives could certainly turbo charge expansion in the stablecoin universe. In the pre-Trump world, when crypto was frowned upon by regulators and the CFTC spent half of its budget on enforcement action around digital assets (despite the fact that they had no official allocated budget for crypto at all), crypto companies struggled to get bank accounts and as a result they couldn’t settle balances with each other in dollars – access to the greenback was in chronic shortage, particularly after the collapse of Silvergate and Signature banks, two institutions that most crypto-native firms used.
Those of you who might have created businesses based on the idea that a shortage of top-quality assets will result in a collateral shortage, might want to look away now
In this world where access to dollars came at a premium, tokenised alternatives in the form of stablecoins filled this role – both as a settlement asset and as a form of liquidity asset that can be used as collateral on exchanges to margin trades. Acting CFTC commissioner Caroline Pham is now proposing to roll-out this model on a wider scale.
“Since January, the CFTC has taken clear action to usher in America’s golden age of crypto,” she said recently. “At our historic Crypto CEO Forum, we discussed how innovation and blockchain technology will drive progress in derivatives markets, especially for modernisation of collateral management and greater capital efficiency. These market improvements will unleash US economic growth because market participants can put their dollars to work smarter and go further.
“The public has spoken: tokenised markets are here, and they are the future,” she continued. “For years I have said that collateral management is the ‘killer app’ for stablecoins in markets. Today, we are finally moving forward on the work of the CFTC’s Global Markets Advisory Committee from last year. I’m excited to announce the launch of this initiative to work closely with stakeholders to enable the use of tokenised collateral including stablecoins. The CFTC continues to move full speed ahead at the cutting edge of responsible innovation.”
What this means in practice is that stablecoins licensed under President Trump’s Genius Act will get the official nod as a dollar equivalent asset. Those of you who might have created businesses based on the idea that a shortage of top-quality assets will result in a collateral shortage, might want to look away now: it looks like there will be an abundance of digital dollars acting as a real thing as far as derivatives markets are concerned.
We are living in a brave new world where stablecoins are no longer a threat to financial stability, but a crucial stabilising pillar…for now
For the US Treasury, this is jolly super news: once dollar-pegged stablecoins (99% of the space) find new use cases, stablecoin operators will have to get busy buying US government debt, particularly at the short end. This is now a quasi-official strategy for dealing with the enormous US deficit, which macroeconomists have been forecasting to be the end of the dollar’s strength for a good number of years.
The new game plan is that the reserves needed for backing these digital tokens will plug out the budgetary hole, instead. This is a nice plan, albeit one that has many sceptics. Meanwhile, the collateralisation of derivatives markets with assets that in 2022 the same regulator described as a danger to financial stability, might seem like a questionable idea. Regardless, it is set to happen. For FX markets this is bound to be positive news: more dollars, whether digital or not, will likely translate into more trading; after all, for every T-bill there will now be two available for trading and collateral.
The CFTC’s move also confirms the implications of Trump’s executive order he signed in January that bans all efforts related to developing a central bank digital currency in the US, which puts the US and the rest of the world on a collision course but not necessarily one that’s unworkable.
Stablecoins and CBDCs will have to interact and there are already ways emerging that this can happen. Fnality, the DLT wholesale payments group has already come up with ways of tokenising funds held at central bank accounts for settling transactions instantly – this could be a model for future interactions too.
What the bank lobby will have to say about all this has yet to transpire, as this cohort has a strong preference for tokenised deposits due to these not disrupting the current fractional banking model. The ball is very much in their court.
In the meantime, we are living in a brave new world where stablecoins are no longer a threat to financial stability, but a crucial stabilising pillar. For now.
