Executive Summary 

• With the passage of the GENIUS Act, which sets a framework for future stablecoin legislation, the growing stablecoin market raises concerns over its impact on U.S. Treasury yields. 

• Studies show that increased demand from stablecoin issuers for short-dated Treasury bills may have a similar influence on yields as a rate cut from the Federal Reserve. 

• The fast-growing stablecoin market and corresponding demand for reserves in a fiat currency poses risks to the financial stability of U.S. Treasuries and may have a yet-to-be-seen impact on the dollar’s role in global trade.  

Introduction 

Congress’ recent passage of the GENIUS Act, the first significant regulatory framework for stablecoins, opens the door for increased crossover between traditional finance and cryptocurrency, or decentralized finance. The law sets a framework for future stablecoin regulation and prohibits interest-bearing stablecoins and prevents big tech and retail firms from issuing stablecoins without special permission. Because it paves the way for future regulation, its passage crucially allows use to stablecoins to become more mainstream. Studies show that increased capital inflows into stablecoins could significantly impact short-term Treasury yields. If stablecoins were to hold a more concentrated position in U.S. Treasuries, this also raises concerns for fire sales of T-bills, as stablecoin markets are built on trust. A loss of investor confidence in the market could cause a run on stablecoins, similar to runs on traditional banks. 

Growing Popularity of Stablecoins Increases Demand for Treasuries 

Stablecoins are rapidly growing in popularity, attracting cryptocurrency investors with their peg to the dollar. To maintain this peg, stablecoin issuers are required to hold reserve assets such as U.S. Treasuries. When an institutional investor buys stablecoin, they exchange dollars for newly minted stablecoins at a 1:1 rate. The stablecoin issuer, then invests those dollars into highly liquid securities such as T-bills, reverse repurchase agreements, or cash deposits, to earn interest. Traditional bank J.P. Morgan has changed its position from threatening to fire any employee who traded cryptocurrencies to considering lending against them, as well as issuing its own stablecoin, JPM Coin.  

Currently, around 80 percent of stablecoin reserves are held in U.S. Treasury bills (T-bills), which mature in less than a year, or repurchase agreements. Dollar-backed stablecoin issuers hold a little under $200 billion of T-bills, or around 3 percent of total Treasury bills outstanding. According to data from the US Treasury TIC, OFR, CoinMarketCap, and USDT and USDC reserve reports, stablecoin issuers were the tenth-largest holder of T-bills in 2024. This proportion is rapidly rising, as issuers made the third-most purchases of T-bills last year, behind J.P. Morgan’s money market fund and China.  

Cryptocurrency supporters argue that the Treasury Department and stablecoin market have a symbiotic relationship, as increased demand from stablecoin issuers allows the federal government to issue more T-bills and borrow more without the threat of supply outpacing demand. As the Treasury Department expects to issue $1.1 trillion of debt in the second half of 2025, they require an incremental buyer for newly-issued debt. The stablecoin market is poised to fill this role. Stablecoins also facilitate the shift from issuing long-dated government debt to short-dated T-bills.  

While some investors may pivot from U.S. Treasuries to stablecoins, this substitution effect will still be outweighed by a net increase in demand for T-bills from stablecoin issuers. This is because investors have a variety of reasons to demand stablecoins, such as using stablecoins to facilitate trade of bitcoin.  

Significant Impacts on Treasury Yields 

The increasing popularity of stablecoins has already begun to impact traditional financial markets. As stablecoins increase demand for T-bills, they boost yields on shorter-dated Treasuries. Stablecoin markets also influence yields by acting as a signal for institutional risk appetite, which investors price into markets.  

As the United States seeks to borrow more and requires purchasers of its debt, demand for stablecoins may act as a stabilizing force on Treasury yields. The estimated effect on Treasury yields may also be offset by increased issuance of shorter-dated Treasuries as the federal government borrows more.  

A working paper written by Rashad Ahmed of the Andersen Institute for Finance and Economics and Inaki Aldasoro of the Bank for International Settlements uses a regression model to estimate the impact of capital inflows to stablecoin on 3-month Treasury yields. They find that stablecoin inflows of $3.5B lower yields by about 2-2.5 basis points (bps). They estimate that if the stablecoin sector follows the Treasury Borrowing Advisory Committee’s prediction and grows to $2 trillion by 2028, a 2-standard deviation inflow into stablecoins would have an estimated impact of -6.28 to -7.85 bps on T-bill yields. The effect is a similar level of influence on short-term rates as a rate cut from the Federal Reserve.  

Capital outflows from stablecoins have an asymmetrical impact on short-dated Treasury yields, because stressed market conditions do not allow stablecoin issuers to time their sales of reserves. The relationship between stablecoins and the Treasury poses risks to financial stability, as a run on stablecoins could cause fire sales of U.S. Treasuries. A study from the Federal Reserve Bank of New York concludes that investors consider a stablecoin “de-pegged” if its price drops below a dollar, causing its daily outflow rate to jump by 34bps. There have been multiple historical instances of stablecoin runs, such as the collapse of TerraUSD and consequent de-pegging of Tether’s USDT in 2022, as well as the de-pegging of Circle’s USDC following the collapse of the Silicon Valley Bank in 2023. Tether and Circle have the largest average influence on Treasury yields, with USDT flows contributing around 70 percent of the estimated yield impact and USDC flows contributing around 19 percent.  If their concentration of T-bill holdings grows, a run on these stablecoins could translate into a fire sale of T-bills and a significant jump in their yields. 

Possible Effects on the Dollar 

As the stablecoin market grows, policymakers should monitor its effects on the dollar and other global currencies. In the short-term, stablecoin popularity may boost the dollar, as issuers hold reserves predominantly in U.S. dollars or T-bills. This may change if other countries pass legislation more favorable to cryptocurrencies backed by their own fiat currencies. The GENIUS Act outlaws interest-bearing stablecoins in the United States, fearing disruptions to the traditional banking system. If countries such as China were to allow interest-bearing stablecoins, growth of Chinese stablecoins could support cross-border payments denominated in renminbi rather than the dollar, thereby weakening the role of the dollar in global trade. Though China has prohibited trading, mining, and private ownership of cryptocurrencies since 2021, Hong Kong is allowing companies, included Chinese state-backed banks, to apply for licenses to issue a yuan-backed stablecoin. The goal is to compete with dollar-backed stablecoins USDT and USDC, but progress has been slow as governments seek to move with caution. 

Conclusion 

As the stablecoin market grows rapidly, increasing demand for dollar reserves poses risks to the financial stability of Treasuries and may impact the dollar’s role in global trade. When regulating the market and considering questions such as whether to allow interest-bearing stablecoins, policymakers should consider possible impacts on the stability of Treasuries and the dollar.