Stablecoins - The New Force in the US Treasury Market

The rapid ascent of USD-pegged stablecoins is quietly transforming the short-term US Treasury market, introducing a new breed of investor whose influence is only set to grow. A recent report from Particula charts the remarkable rise of stablecoins such as Tether (USDT) and USD Coin (USDC), and examines how their reserve management is beginning to move the needle on Treasury Bill yields - a development that is drawing the attention of regulators, policymakers, and traditional market participants alike.

Download Now Our Latest Insights Report on Stablecoins and Their Significance in Relation to US Treasuries

Stablecoins, digital tokens designed to maintain a 1:1 value with the US dollar, have become the backbone of the crypto ecosystem. Their promise of stability and instant settlement has made them indispensable for traders and investors seeking a safe harbour in volatile markets. But what is less widely appreciated is how these tokens are anchored: the vast majority are backed by highly liquid, dollar-denominated assets, with US Treasury Bills at the top of the list.

Stablecoin Market’s Exponential Growth

The numbers are striking. In early 2020, the total market capitalisation of stablecoins was less than 10 USD bn. By the first quarter of 2025, that figure had soared to over 230 USD bn. Tether and USDC together now account for more than 90% of the market, with Tether alone representing around 65%. This explosive growth has made stablecoin issuers some of the largest holders of short-term US government debt, with combined holdings exceeding 110 USD bn as of 2024. That places them alongside, or even ahead of, some of the world’s biggest sovereign investors and money market funds.

This shift has not gone unnoticed. The report notes that the emergence of stablecoin issuers as major Treasury holders introduces a non-traditional, and at times volatile, source of demand for short-term US debt. Unlike sovereigns or money market funds, whose investment decisions are often driven by macroeconomic or regulatory considerations, stablecoin issuers must respond to the ebb and flow of crypto market sentiment. When demand for stablecoins surges, issuers must purchase more Treasuries to back new tokens; when redemptions spike - such as during periods of market stress - they may be forced to liquidate reserves quickly.

Impact on Short-Term Treasury Yields

The impact on yields, while still relatively modest in the context of the 28 USD tn Treasury market, is already measurable. According to our analysis, every 1 USD bn in net purchases or sales of Treasury Bills by stablecoin issuers moves the yield on three-month Treasury Bills by an estimated 2.76 basis points.

Looking ahead, the report warns that the influence of stablecoins on the Treasury market could become much more significant if current growth trends persist. The concentration of stablecoin reserves in the shortest maturities means that sudden shifts in demand - whether triggered by crypto market volatility, regulatory changes, or systemic shocks - could amplify yield swings and potentially affect the Federal Reserve’s transmission mechanism. In a hypothetical scenario where stablecoin issuers were forced to liquidate 4 USD bn in Treasuries, our model estimates that yields on three-month bills could jump by 11 basis points - an impact roughly half the size of a typical Fed rate hike.

Policy Implications

The policy implications are clear. As stablecoins become a structural force in the world’s deepest bond market, their activities warrant close monitoring by both market participants and regulators. The report concludes that while stablecoins have so far provided incremental support to Treasury demand, their growing scale and unique risk profile introduce new considerations for market liquidity, stability, and the effectiveness of monetary policy transmission.

In short, stablecoins are no longer just a curiosity of the crypto world. Their rise is reshaping the US Treasury market in ways that demand the attention of anyone with a stake in the global financial system.

‍

Download Report