With US debt exceeding $37 trillion, the Treasury market is now seeing stablecoin issuers like Tether and Circle as significant buyers. This development is being driven by an Act recently signed by President Donald Trump, creating the first legal framework for the stablecoin industry. The new law requires tokens to be backed by US dollars or high-quality liquid assets, making short-term Treasury bills the preferred collateral.
The $250 billion stablecoin market is currently dominated by Tether (65% market share) and Circle (25%), which together control 90% of the market capitalization. While their holdings of Treasury bills are still small at around $125 billion, less than 2% of the $6 trillion in circulation, they are still expected to grow rapidly. Forecasts by Coinbase, Standard Chartered, and Bernstein put the market value of stablecoins at between $1.2 trillion and $4 trillion by 2035, making them the largest potential source of demand for US debt.
The shift comes as traditional buyers such as China and Japan are increasingly reducing their holdings of US bonds due to Trump’s tariff policies and efforts by foreign central banks to reduce risk. Bond holdings by major foreign creditors have fallen from 23% to just 6% in the past 13 years. In 2024, Tether even emerged as the seventh-largest buyer of US bonds, ahead of several countries. Ark Invest analysts expect stablecoins to replace China and Japan as the top holders by 2030, contributing to lower long-term interest rates.
However, the shift of funds from bank deposits to stablecoins could have a mixed effect, increasing demand for bonds but reducing the supply of loans in the economy. However, industry advocates see the net effect as positive. “Stablecoins will be a significant accelerator of economic growth, both in the US and abroad,” said Will Beeson, founder of Uniform Labs.
