Vandell Aljarrah, co-founder of Black Swan Capitalist, recently triggered a dicussion on X by proposing the bold idea of XRP-backed government bonds.
Instead of issuing traditional Treasury bonds, Aljarrah suggests that the U.S. government could issue debt instruments denominated in XRP. Investors would purchase XRP from the Treasury, earn a fixed yield, such as 2% annually, paid in either USD or XRP, and redeem the asset at maturity, just like traditional bonds.
In theory, such a system could modernize sovereign debt markets by leveraging blockchain technology, increasing transparency, and enhancing efficiency. However, it also faces significant challenges before becoming a feasible reality.
Challenges to XRP-Backed Government Bonds
The concept of tokenized government debt is not entirely outlandish, especially as global finance experiments with digital assets. However, several major hurdles stand in the way. The chief drawback is the volatility of crypto assets.
Unlike the U.S. dollar or other fiat-backed securities, cryptocurrencies like XRP remain volatile. Its value fluctuations must significantly reduce to serve as a stable debt instrument, possibly requiring mechanisms similar to those of stablecoins.
Another factor is regulatory barriers. Until now, the U.S. SEC has been notoriously cautious about cryptocurrencies. Still, despite its evolving stance on crypto under new leadership, issuing XRP-backed bonds may require new financial regulations and a clear classification of XRP as an acceptable reserve asset.
Notably, efforts are underway to clarify crypto regulation. Even so, the current U.S. administration, as well as several states, only recognize Bitcoin as a qualified reserve asset.
Some states, like New Hampshire, have already passed laws to allocate treasury investments in crypto assets with a $500 billion cap and above. Indeed, Bitcoin is the only asset that meets this requirement.
Another challenge to XRP-backed government bonds is the financial system itself. Aljarrah himself acknowledges that something would have to “fundamentally collapse” in the traditional bond market for governments to consider such a radical alternative seriously. A global debt crisis or a breakdown in confidence in traditional Treasury bonds could prompt the exploration of alternative instruments.
Despite these challenges, the broader concept of blockchain-based sovereign debt is already gaining traction. Countries like El Salvador have explored tokenized bonds, and tokenizing real-world assets (RWAs) is becoming a major trend in crypto finance.
While XRP-backed U.S. government bonds remain speculative, Bitcoin is already seeing serious bond proposals at the institutional level.
Bitcoin in Government Bonds
At the recent Bitcoin For America event, Andrew Hohns, CEO of Newmarket Capital, proposed that the U.S. government issue $2 trillion in bonds, allocating 10% to Bitcoin.
According to Hohns, issuing these bonds at a 1% interest rate, significantly lower than the current 4.5% yield on U.S. Treasuries, could save the government $70 billion annually, or $700 billion over a decade. The plan aims to introduce Bitcoin exposure while reducing the overall cost of debt.
Interestingly, VanEck executive Matthew Sigel has made a similar Bitcoin proposition to help the government refinance $14 trillion in debt.
DisClamier: This content is informational and should not be considered financial advice. The views expressed in this article may include the author's personal opinions and do not reflect The Crypto Basic opinion. Readers are encouraged to do thorough research before making any investment decisions. The Crypto Basic is not responsible for any financial losses.
