GENIUS Act: $2 trillion stablecoin to save US debt?

Question

This article analyzes how the United States uses stablecoins to digest U.S. Treasury bonds for reference.

On May 8, 2025, Eastern Time, U.S. Treasury Secretary Basent testified before the House Financial Services Committee, stating that cryptocurrencies are an important source of innovation driving the global use of the U.S. dollar. He pointed out that there could be a demand of about $2 trillion for U.S. Treasury bonds, primarily driven by stablecoins.

According to analyses by the U.S. Treasury and several agencies, the demand for stablecoins for U.S. Treasury bonds is rapidly increasing. However, can it absorb up to $2 trillion in U.S. Treasury bonds and become a lifeline for U.S. Treasury bond sales? A comprehensive judgment needs to consider policies, market trends, and potential challenges.

Current demand scale for stablecoins in US Treasuries

The current demand for stablecoins in relation to U.S. Treasuries has reached hundreds of billions of dollars. As of the end of March 2025, Tether holds nearly $120 billion in short-term U.S. Treasury bonds, while Circle holds over $22 billion in Treasury bonds.

The total market capitalization of stablecoins is approximately $230 billion (2025 data). If we follow the current reserve ratio (about 60%-80% in U.S. Treasury bonds), the demand for U.S. Treasuries is about $138 billion to $184 billion, accounting for 0.38%-0.51% of the total U.S. Treasury market (approximately $36 trillion).

Previously, JPMorgan predicted that by the end of 2024, approximately $114 billion of U.S. Treasury bonds would be used as reserves for stablecoins. As the stablecoin market continues to expand and related legislation progresses, the demand for stablecoins for U.S. government bonds is expected to grow further in the future. U.S. Treasury Secretary Basant stated that the demand for U.S. government bonds in the digital asset space could surge in the coming years, with a potential scale reaching $2 trillion, most of which would come from stablecoins.

The Strategic Significance of Stablecoins Against the US Dollar

Most stablecoins are pegged to a fixed exchange rate with the US dollar, such as USDT, USDC, and so on. The increase in demand for stablecoins for US Treasury bonds means that stablecoin issuers need to hold more US dollar assets as reserves, which makes the use of the US dollar more widespread in international payments and settlements. This increases the demand for US Treasury bonds in the international market, enhancing the market recognition and attractiveness of US Treasury bonds, further increasing the proportion of US dollar assets in global asset allocation, and strengthening the core position of the US dollar in the international financial market.

The demand for stablecoins against U.S. Treasuries has prompted a global influx of funds into the U.S. financial markets, providing financial support for the U.S. fiscal deficit and economic development. This enables the U.S. to raise funds at a lower cost, maintain its large military expenditures, social welfare programs, and infrastructure construction, further enhancing America's economic and military hegemony, and indirectly consolidating the dollar's dominance.

The increase in demand for stablecoins for U.S. Treasury bonds has driven continuous innovation and development in the U.S. financial markets, enhancing the depth and breadth of its financial market. For example, it has promoted the development of derivative markets related to U.S. Treasury bonds, attracting more international financial institutions to participate in U.S. financial market transactions, thereby enhancing the global influence of U.S. financial markets and consolidating the core position of the U.S. dollar in the international financial system.

Factors Driving the Growth of Demand for Stablecoins in U.S. Treasury Bonds

Legislative Push: The "STABLE Act 2025" and "GENIUS Act 2025" currently under consideration by the U.S. Congress require that stablecoins be fully backed by high-quality assets such as short-term U.S. Treasury bonds. If the bills are passed, the stablecoin industry will be forced to increase its holdings of U.S. Treasury bonds, potentially creating an additional annual demand of $400 billion.

Most stablecoins are backed by a 1:1 reserve of cash and highly liquid assets, primarily short-term U.S. Treasury bonds. Stablecoin issuers earn interest spread by holding reserve assets such as U.S. Treasuries, and this business model encourages issuers to continuously expand the issuance scale of stablecoins, thereby increasing the demand for U.S. Treasuries.

As the circulation and global demand for stablecoins continue to rise, issuers need to hold more U.S. Treasury bonds as reserve assets to maintain the stable value of stablecoins. Standard Chartered Bank predicts that by 2028, the total market value of stablecoins could increase from the current $230 billion to $2 trillion. If we follow the existing reserve rules, the corresponding demand for U.S. Treasury bonds will reach between $1.2 trillion and $1.6 trillion, approaching the $2 trillion target.

With the overall development of the digital asset industry, blockchain technology continues to innovate. The integration of stablecoins and other blockchain-based financial products with the US dollar and the US Treasury market is deepening, attracting more investors and capital into the digital asset space, indirectly stimulating the demand for stablecoins for US Treasuries. The on-chain tokenized US Treasury market is expected to grow from $769 million in 2024 to $3.4 billion in 2025, showing significant growth. If the DeFi ecosystem continues to integrate, it may further expand the liquidity demand for US Treasuries.

Stablecoins do not alter the credit logic of U.S. Treasury bonds.

In summary, the demand for stablecoins for U.S. Treasury bonds has significant growth potential, but whether it can absorb $2 trillion requires the following conditions to be met: first, relevant legislation must be passed and strictly enforced to impose reserve requirements, promoting industry compliance; second, the adoption rate of stablecoins in cross-border payments and DeFi must continue to rise; third, scale expansion must be achieved during the period of slowing issuance growth of U.S. Treasury bonds or structural transformation of demand.

However, in reality, challenges are being faced. The outstanding amount of U.S. Treasury bonds is approximately $36 trillion, and even if the demand for stablecoins reaches $2 trillion, it would only account for 5.5%, which is insufficient to fully address the supply-demand imbalance of U.S. Treasury bonds. Traditional buyers of U.S. Treasury bonds continue to reduce their holdings, while the growth in demand for stablecoins needs to fill this gap. Currently, the absorption rate of stablecoins for U.S. Treasury bonds (about $100 billion added annually) is still lower than the net issuance of U.S. Treasury bonds (which will be $26.7 trillion in 2024).

The bill faces bipartisan disagreements, with some lawmakers concerned that insufficient investor protection may lead to legislative delays or adjustments to the terms, affecting the process of stablecoin compliance. If the proposed legislation is delayed or cannot be passed due to political disagreements and other reasons, there will be a lack of legal mandatory requirements for stablecoin issuers to invest in U.S. bonds, which may affect the growth expectation of stablecoin demand for U.S. bonds.

Additionally, different countries have varying regulatory policies regarding stablecoins and digital assets, which may result in restrictions on the operations of stablecoin issuers globally, affecting their business expansion and demand for US Treasuries. For instance, some countries may adopt a cautious stance towards stablecoins, limiting their use and issuance within their borders, thereby reducing the global stablecoin market size and indirectly decreasing the demand for US Treasuries.

The stablecoin market is becoming increasingly competitive, with new stablecoin projects popping up all the time, and market share may be fragmented. Some small stablecoin issuers may not be able to invest as much in U.S. Treasuries as large as large issuers due to their limited financial strength. At the same time, in order to stand out from the competition, issuers may adopt some innovative asset allocation strategies to reduce their dependence on U.S. Treasuries. In addition, if other, more attractive, low-risk, high-liquidity assets emerge, stablecoin issuers may shift some of their funds from U.S. Treasuries to these alternative assets. Some emerging digital assets or traditional financial assets may show better investment value in specific market environments, thereby diverting the demand for U.S. bonds for stablecoins.

In summary, stablecoins may become important buyers in the U.S. Treasury market in the short term, but in the long run, their role is more likely to be a temporary relief rather than a complete solution to the supply-demand contradiction of U.S. Treasuries. In fact, the absorption of U.S. Treasuries by stablecoins is based on the credit of the U.S. Treasuries themselves. If policies and the market work together, the $2 trillion target may be partially achieved, but it will not change the credit logic of U.S. Treasuries. Relying on stablecoins for the U.S. Treasury market is unrealistic.