Why Stablecoin Issuers Could Displace Japan And China As The Biggest Buyers Of U.S. Treasury Securities

As the Trump administration fast-tracks stablecoin regulation, analysts are beginning to predict surging demand for U.S. Treasurys.
Brian Moynihan, the chief executive officer of $2.6 trillion (assets) Bank of America, doesn’t usually make headlines for his crypto opinions. But in February, he did just that: “If they make that legal, we’ll go into that business.” He was talking about stablecoins—blockchain-based tokens typically pegged to the U.S. dollar and, increasingly, the plumbing of global payments. “They” are Congress, which is now racing to lay down the rules of the road for these crypto creations.
The STABLE Act in the House and the GENIUS Act in the Senate are dueling bills with a common goal: to bring stablecoin issuers into the regulatory fold, spelling out exactly how much capital, liquidity and risk management is enough. They also aim to clarify which federal or state agencies get to play referee. But there’s another, less flashy subplot: how will widespread acceptance of stablecoins among traditional institutions globally affect the $28 trillion United States Treasury market?
Here’s the thing: Treasurys are the backbone of stablecoin reserves because not much else comes close in terms of safety and liquidity. If you’re offering a digital dollar, you need to back it with assets that are as close to risk-free as possible. This sounds a lot like hundreds of money market mutual funds, which are issued by giants like BlackRock, Fidelity and Vanguard and hold over $6 trillion in assets, mostly in U.S. Treasury bills. The big difference is that unlike a money market fund, say, from Fidelity, which might pay you an annual yield of 4%, most stablecoin issuers have so far resisted offering any kind of yield or income to their holders. That’s one reason why Tether, the largest of them, has extremely high margins and reported over $1 billion in operating profit in the first quarter of 2025.
Right now, the dozens of stablecoin issuers that exist—though mostly Tether, based in El Salvador, and Circle, headquartered in New York—hold an estimated $150 billion in U.S. government debt, primarily short-term T-bills. That’s a rounding error in the $28 trillion Treasury securities market and a fairly insignificant portion of the $6 trillion in Treasury bills outstanding. Most Treasurys are still held by the U.S. government itself, think Social Security and federal pension funds. U.S. mutual funds, banks and insurance companies are the next biggest holders, with foreign investors accounting for about 30% (roughly $8.8 trillion), led by Japan and China.
But Britain’s Standard Chartered Bank, an $874 billion (assets) institution that offers custody for cryptocurrencies, projects that the global stablecoin market could jump from $240 billion to $2 trillion in just three years. Both current drafts of the stablecoin bills explicitly identify Treasury securities with maturities of 93 days or less as one of the few acceptable reserves. That could mean an extra $1 trillion in demand for T-bills in the near term, according to an April 30 presentation by the Treasury Borrowing Advisory Committee (TBAC), a group of senior bankers, asset managers and hedge fund representatives that advises Treasury officials each quarter. Citi’s research team goes further, suggesting that by 2030 stablecoin issuers could surpass any single foreign country as holders of U.S. government debt. Despite its controversial history, Tether, with $120 billion invested in U.S. Treasurys already, could become the largest holder if it falls into compliance with new regulations.
This market upheaval could unfold as the U.S. national debt climbs past $36 trillion, swelling by another trillion roughly every 176 days. Meanwhile, creditors like China and Saudi Arabia are quietly trimming their Treasury holdings. China’s dropped to $761 billion earlier this year, its lowest since 2009, while Saudi Arabia’s have fallen to a year-and-a-half low of $126 billion, reflecting a global rebalancing of reserves and rising skepticism about U.S. sovereign debt. Enter crypto users around the world, in places like Buenos Aires and Nairobi, using stablecoins for everything from paying their rent to hedging against local currency volatility and simultaneously stepping up as a new, eager class of lenders to Uncle Sam.
The Trump administration has already made its stance on stablecoins clear. Crypto and AI Czar David Sacks has argued that they could help secure the dollar’s global dominance, and President Trump has pressed Congress to get a bill to his desk before the August recess.
“Stablecoins have the potential to ensure American dollar dominance internationally to increase the usage of the U.S. dollar digitally as the world’s reserve currency, and in the process create potentially trillions of dollars of demand for U.S. Treasuries, which could lower long-term interest rates,” said Sacks during his first press conference in February.
Additionally, the Trump family’s crypto venture, World Liberty Financial, announced plans for its own stablecoin, which is now apparently complicating the fate of pending regulation. On May 1, World Liberty announced that the token would be used by MGX, an Abu Dhabi government-backed firm, to invest $2 billion into Binance, the crypto exchange whose founder is reportedly seeking a presidential pardon. A couple of days later, nine Senate Democrats, including four who previously backed the stablecoin “GENIUS” bill, issued a statement saying they would oppose the legislation in its current form, Politico reported.
But lawmakers had been promoting the idea of stablecoin issuers as ultimate Treasurys buyers even before Trump took office. Congressman Ritchie Torres of New York wrote last fall that more stablecoin adoption means higher demand for Treasurys and, in turn, lower U.S. borrowing costs. Earlier, former House Speaker Paul Ryan floated stablecoins as a buffer against a future wave of foreign selling: if traditional buyers retreat, dollar-backed token issuers could fill the gap.
Christopher Perkins, president of crypto-focused investment firm CoinFund, puts it bluntly: “You couldn’t invent a better innovation for the U.S. dollar than a stablecoin. It makes the dollar more available globally. It reinforces it as the global reserve currency. If it gets into the wrong hands, there's due process by which the government can freeze and seize assets. It checks so many boxes: creates buyers for your debt, brings your interest rates lower.”
Yesha Yadav, a professor at Vanderbilt University whose research focuses on the Treasury market, is decidedly less enthusiastic about a crypto takeover of the government securities market. She believes that embedding stablecoins into it creates new vulnerabilities. “If the U.S. Treasury market becomes, for whatever reason, stressed, if there are doubts about the U.S.’s ability to make good on its payments, then for stablecoin issuers, it's no longer a safe asset that can substitute as a money claim,” she explains.
And if a major stablecoin issuer collapses, it could be forced to dump Treasurys en masse, destabilizing the market. Unlike foreign central banks, stablecoin issuers face genuine run risk: panicked customers can pull funds instantly, triggering immediate selling pressure. Of course, this risk applies to money market funds as well. In 2008, after Lehman Brothers collapsed, the $65 billion Reserve Primary Fund, which held less than 2% of Lehman’s commercial paper, experienced a run and “broke the buck”, forcing it to liquidate its assets.
“For the first time, the Treasury market is supporting the moneyness of a payment system by becoming a backstop of an entirely new monetary claim,” Yadav notes. If a crisis hits, will the government have to bail out stablecoin issuers to honor the dollar claims they’ve issued? Policymakers haven’t fully grappled with these questions, and they should, she says.
Arthur Wilmarth, a law professor at the George Washington University, raises another concern: “The creation of major new demands for Treasury bills and Treasury-backed repos and reverse repos by stablecoin issuers could cause dangerous shortages of available Treasury bills, particularly during periods of financial stress.” He points to past disruptions like the repo market crisis of September 2019 and the “dash for cash” in March 2020 as cautionary tales.
For now, another trillion dollars in Treasury demand from stablecoin issuers might seem manageable. But the landscape is shifting fast. Major financial institutions like Bank of America and Fidelity, which manage trillions in assets, are eyeing stablecoin launches. Visa and Stripe-acquired Bridge just rolled out stablecoin-linked cards across Latin America, and Mastercard unveiled a new platform through which users will be able to pay for purchases with stablecoins and withdraw them directly into their bank accounts.
Still, Yadav cautions anyone thinking that stablecoins will become a reliable backstop for the U.S. dollar or the Treasury market: “The presumption that stablecoin issuers will simply fill the gap, is not something that policymakers should be counting on,” she warns.
And there’s another potential risk: will banks and other stablecoin issuers limit their reserves to Treasurys? Kevin Lehtiniitty, CEO of , believes bank-issued stablecoins could become subject to the fractional reserve rules that banks have long used to turn their FDIC-insured deposits into more lucrative growth areas. Perhaps, commercial real estate, subprime mortgages, DeFi? Stay tuned.
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