The stablecoin market is undergoing a rapid transformation in its role within the U.S. financial system, with expectations that these digital assets will soon become key players in the multi-trillion-dollar U.S. Treasury bond market.
As U.S. national debt surpasses $37 trillion, attention is increasingly turning to stablecoin issuers such as Tether and Circle as new sources of demand for Treasury securities. This shift is being bolstered by new regulatory frameworks, notably the GENIUS Act, which governs U.S. dollar-linked digital assets and mandates that they be backed by high-quality liquid assets — primarily short-term Treasury bonds.
According to analysts at HSBC, a well-regulated stablecoin market could strengthen the dollar’s dominance in the digital economy, aligning with the broader political vision of establishing the United States as a global hub for digital currencies.
Scott Bessent noted that the new legislation would enable billions around the world to access the U.S. dollar, thereby boosting demand for Treasury debt instruments. The U.S. Treasury Secretary described the arrangement as a “win-win” for all parties — stablecoin users, issuers, and the government.
Together, Tether and Circle currently control 90% of the $250 billion stablecoin market, which is expected to grow by 22% in 2025. Notably, Tether has begun expanding its footprint in the U.S. by appointing a former White House crypto policy advisor as a strategic consultant.
Stablecoins and U.S. Treasuries:
Despite rapid growth, stablecoins’ footprint in the bond market remains limited, with issuers currently holding approximately $125 billion in Treasuries — less than 2% of outstanding U.S. government debt.
In comparison, mutual funds hold around $4.5 trillion, and insurance companies own nearly five times the amount held by stablecoin issuers.
However, forecasts indicate significant growth ahead.
Coinbase projects that the stablecoin market cap could reach $1.2 trillion by 2028. Standard Chartered and Bernstein estimate it could exceed $2 to $4 trillion within the next decade.
This transformation comes at a critical time, as major foreign holders like China, Japan, and Canada continue to reduce their exposure to U.S. Treasuries amid shifting trade policies and rising protectionism.
Foreign holdings of Treasuries have declined from 23% to just over 6% over the past 13 years. In contrast, Tether emerged as the seventh-largest buyer of U.S. Treasuries in 2024.
ARK Invest expects stablecoins to become one of the largest sources of demand for U.S. debt by 2030, potentially surpassing China and Japan — a shift that could help lower long-term interest rates.
The Bank for International Settlements has also highlighted the tangible short-term impact of stablecoin flows, showing that $3.5 billion in five-day stablecoin inflows can lower three-month Treasury yields by 2–2.5 basis points within ten days.
Still, this rise is not without risks.
Analysts caution that capital flowing out of bank deposits into stablecoins could reduce banks’ lending capacity by shrinking their deposit base.
Nonetheless, many in the sector see the net impact as positive, arguing that stablecoins are becoming a foundational pillar in the evolving structure of the U.S. financial system.
