With US debt above $37 trillion and climbing, the US Treasury market is eyeing stablecoin issuers like Tether and Circle (CRCL) as key buyers.
Wall Street’s explosive adoption of digital tokens pegged to the US dollar has been fueled by the recently signed GENIUS Act, which established guidelines and a landmark framework for the industry.
“In terms of US President Trump’s aim to make the US the crypto capital of the planet, a well-regulated stablecoin market could cement the US dollar dominance in the world of digital finance,” said HSBC analysts earlier this week.
Under the new law, stablecoin issuers are required to back tokens one-to-one with US currency, or other high-quality liquid assets, effectively positioning short-term T-bills as the collateral of choice.
“Stablecoins will expand dollar access for billions across the globe and lead to a surge in demand for U.S. Treasuries, which back stablecoins,” wrote Bessent earlier this week on X as he touted the benefits of the GENIUS Act. He added, “It’s a win-win-win for everyone involved: stablecoin users, stablecoin issuers, and the U.S. Treasury Department.”
Tether and Circle, which went public during a blockbuster IPO, dominate the $250 billion stablecoin market, which is up 22% in 2025. Morgan Stanley analysis shows Tether (USDT-USD) holds about 65% of the total stablecoin capitalization, and Circle’s USD Coin (USDC-USD) another 25%, giving the pair a combined 90% share.
On Tuesday, Tether, heavily used abroad, announced the hiring of former White House crypto policy executive Bo Hines as a strategic adviser to help steer its expansion in the United States.
While much of issuers’ reserves are in the form of short-term US debt, the industry is not yet considered a major part of the Treasury bill market.
The Federal Reserve Bank of Kansas City issuers hold around $125 billion in Treasury bills — less than 2% of the $6 trillion in outstanding Treasury bills.
By comparison, insurance companies hold about five times more, and mutual funds, the largest private buyers, hold $4.5 trillion, or 36 times as much.
“Although the stablecoin market is currently too small to have a large effect on Treasury demand, the market is expected to grow substantially over the next several years,” wrote Stefan Jacewitz, economist at the Federal Reserve Bank of Kansas City.
That’s exactly what Wall Street is betting on.
JPMorgan forecasts the market will double to $500 billion by 2028, and Standard Chartered sees $2 trillion during the same timeframe. Bernstein projects as much as $4 trillion by 2035.
Stablecoin demand is rising just as the US Treasury leans more heavily on short-term T-bill issuance, while traditional buyers like China, Japan, and Canada have been scaling back.
Ark Invest analysis shows the share of Treasury held by the largest foreign creditors has fallen from 23% to just over 6% in the past 13 years. That trend is expected to continue under President Trump’s tariff policies and a broader shift by foreign central banks to reduce bond holdings.
Meanwhile, the Federal Reserve has been tapering its own purchases as it winds down quantitative easing.
In 2024, Tether was the seventh largest buyer of US Treasurys behind the UK and Singapore, while the largest sellers were China and Japan.
“Clearly, Tether, Circle, and the broader stablecoin industry could create one of the largest sources of demand for US Treasuries in the coming years, potentially replacing China and Japan as the top holders by 2030,” wrote Ark Invest’s Lorenzo Valente in June. “If so, then the stablecoin industry could contribute importantly to the goal of lowering long term interest rates in the US.”
Digital tokens backed by the dollar may be moving the needle on short-term yields, according to the Bank for International Settlements, whose data shows that five-day stablecoin inflows of $3.5 billion lower three-month T-bill yields by about 2-2.5 basis points within 10 days.
“If industry projections are remotely accurate, and stablecoin demand balloons north of $1 trillion in the next few years, then not only will stablecoins continue to move short-term yields, they will necessarily become a material factor considered when the Treasury determines its debt issuance schedule,” Christopher Vecchio, global co-head of macro at futures and options trading network tastylive, told Yahoo Finance.
Industry observers warn that as money shifts into stablecoins, it will likely come out of bank deposits, therefore reducing balances and lowering banks’ reserve requirements.
“This potential flow of funds from bank deposits into stablecoins could increase Treasury demand but also reduce the supply of loans in the economy,” wrote Jacewitz of the Kansas City Fed.
Still, industry participants see the net effect as positive.
“Stablecoins will be a meaningful accelerant to economic growth, both in the US and abroad,” Will Beeson, founder of Uniform Labs, a fintech infrastructure company, told Yahoo Finance.
Ines Ferre is a Senior Business Reporter for Yahoo Finance. Follow her on X at @ines_ferre.
Click here for the latest cryptocurrency news, prices, updates, and more
Read the latest financial and business news from Yahoo Finance
