Stablecoins are a type of cryptocurrency designed to maintain a stable value by being pegged on a one-to-one basis to a traditional reserve asset, most commonly the US dollar. Almost all (99%) of stablecoins are pegged to the US dollar.
Line chart comparing USDC and USDT values over time, ending on June 30, 2025. The chart shows two lines:
Stablecoins are predominantly issued by private firms, with Tether (USDT) and Circle (USDC) the two largest players in the market (Chart 1). USDT and USDC account for 68% and 28% of total stablecoin supply, respectively.
Following July’s passage of the Guiding and Establishing National Innovation for US Stablecoins Act (GENIUS), stablecoins are expected to play a growing role in global finance as they provide efficient tools for payments, remittances, and as a store of value within the digital asset ecosystem.
The entire US stablecoin supply is forecast to balloon from roughly $285 billion currently to as much as $2 trillion by the end of 2028. US Treasury Secretary Scott Bessent even stressed “I think that two trillion is a very, very reasonable number, and I could see it greatly exceeding that.”
According to the White House, the aim of the GENIUS Act is to ensure continued global dominance of the US dollar as the world’s reserve currency “by driving demand for US Treasuries”, since dollar-backed stablecoins must maintain 100% reserve backing with liquid assets like short-term US Treasuries (with a maturity of 93 days or less).
Bar chart comparing reserve values for Tether and Circle, with the following values:
For instance, as of Q2 2025, Treasury bills accounted for 65% of reserve backing for Tether and 42% for Circle (Chart 2). The rest of the assets in reserves are split between repurchase agreements, cash and bank deposits, Bitcoin, and precious metals.
In our view, the potential growth in stablecoins will not have a meaningful impact on the US dollar or Treasuries for the following reasons:
Firstly, stablecoins capitalization will remain relatively small. Even under the overly optimistic scenario of a $2 trillion market in stablecoins, it is still dwarfed by the $9.6 trillion in daily foreign exchange turnover, nearly $6 trillion in outstanding Treasury bills, and over $28.4 trillion of total supply of Treasury securities. Moreover, the Treasury market will only get bigger as the Congressional Budget Office projects US debt to swell by roughly $23 trillion by 2035 to $52 trillion.
Secondly, stablecoins inflow will likely be recycled money, not fresh capital. Stablecoins are prohibited from paying any interest or yield (whether in cash, tokens, or other consideration) and do not benefit from Federal Deposit Insurance Corporation (FDIC) protection - which insures deposits up to $250,000 per depositor, per ownership category at FDIC-insured banks. As a result, stablecoins offer limited incentives for new investors to move bank deposits or physical cash into them.
Instead, stablecoin inflows will largely be dependent on funds being shifted from existing money market funds given their overlapping characteristics. Like stablecoins, money market funds are not covered by the FDIC and are largely backed by Treasury bills.
Line chart showing values over time, ending on 3/1/2025. The chart displays a primary series that starts at 0 ON 3/1/1984, rises with fluctuations, and ends 3/1/2025. The secondary series remains at or near zero for most of the timeline, with occasional small spikes.
As of Q2 2025, money market funds held over $1.9 trillion in Treasury bills, accounting for 33% of all bills outstanding (Chart 3) – the largest share among Treasury bill holders. Foreigner investors hold the second largest share at 24%.
It is true that money market funds pay interest while stablecoins do not. However, many cryptocurrency exchanges allow users to earn yield or rewards on their stablecoin holdings, eroding money market funds’ edge. The implication is that if the source of stablecoin inflows is funded by outflows from money market funds, then net demand for Treasury bills will remain unchanged.
Thirdly, central bank digital currencies (CBDC) can limit the growth of stablecoins. CBDCs are government-issued digital forms of national currency. This can make them more attractive than privately issued stablecoins, which remain exposed to private credit or liquidity risk. Additionally, CBDCs offer broad integration into the backing and payment systems giving them far broader distribution than stablecoins, which mainly stay within crypto platforms.
US government policies support dollar-backed stablecoins rather than CBDCs. In contrast, most other major economies are rolling out their own CBDCs. This limits the global growth opportunity of US dollar-based stablecoins, as foreign users have little reason to adopt them when their domestic CBDCs meet the same payment and liquidity needs. That should restrict the ability of stablecoins to scale internationally and reduce the incremental demand for Treasury bills that would otherwise come from cross-border stablecoin holdings.
In our view, stablecoins are no silver bullet to reverse the dollar’s declining role as the primary reserve currency. Instead, US protectionist trade policies, political interference with the Fed’s independence, and doubts about the impartiality of key economic data following the sacking of the Bureau of Labor Statistics (BLS) head undermine the dollar’s global role.
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