Before We Dive In
The words “securities” and “treasuries” can sound like insider finance talk used only on Wall Street. What does it mean and what does it have to do with crypto? In this guide, we’ll try to explain them in plain English. No jargon, no confusing charts.
What are Securities?
Securities are what is traditionally used to prove you own a financial interest in something. If you own a share of stock, it proves you own part of a company; if you hold a bond it shows you are owed money (by the entity that issued - sold you - the bond). Both are “securities” and both represent a financial right that you have.
What Are Treasuries?
Treasuries are a type of security issued by the U.S. government. When you buy a treasury, you are essentially lending money to the government. In return, the government agrees to pay that money back later, with a bit of extra interest.
There are a few main Treasuries, based on how long the government keeps the money before paying it back:
Treasury Bills (T-Bills): Short-term, usually less than a year.
Treasury Notes (T-Notes): Medium-term, ranging from 2 to 10 years.
Treasury Bonds (T-Bonds): Long-term, stretching out 20 to 30 years.
When you hear “Treasuries” in the news, it’s just a way of talking about government IOUs that come with different timeframes and different interest rates depending on those time periods.
What This Means for Crypto
So, what does all of this have to do with crypto?
First, it’s important to understand that most crypto assets aren’t considered “securities” under U.S. law. That’s because they often don’t meet all parts of the legal standard used to determine whether something is an investment contract (a particular type of security).
Second, treasuries play a major role in stablecoins. Stablecoins are a type of crypto that are designed to maintain a “stable” value and it does that by setting aside reserves that are stable. If I spend one dollar to buy a stablecoin I should be able to sell my stablecoin back to you for a dollar. How does that happen? U.S. stablecoins are backed by assets like U.S. dollars or government treasuries held in separate, protected accounts. In those cases, the issuer takes the dollar you pay and holds an equivalent amount in reserve to maintain stability.
Key Takeaways
Securities and treasuries may sound like heavy financial jargon, but at their core they’re essentially different kinds of financial promises. Securities are the broad category, covering things like ownership in companies or loans made through bonds. Since crypto generally does not make any “financial promises,” they are generally not considered securities.
Treasuries are a specific type of security issued by the U.S. government, and widely used as a tool for both traditional finance and now are being used to help keep stablecoins “stable.”
Understanding these terms gives you a clearer picture of how money moves in both worlds and the confidence to continue your journey into crypto.