GENIUS Act: 2 trillion stablecoins to save US debt?

This issue analyzes the use of stablecoins by the United States to absorb U.S. Treasury-related content for reference.

On May 8, 2025, Eastern Time, U.S. Treasury Secretary Basant testified before the House Financial Services Committee, stating that cryptocurrency is an important source of innovation driving the global use of the U.S. dollar. He pointed out that digital assets could have a demand of about $2 trillion for U.S. Treasury bonds, with this demand primarily coming from stablecoins.

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

1. Current demand scale of stablecoins for U.S. Treasury bonds

The current demand for stablecoins against U.S. Treasury bonds has reached several hundred billion 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 calculated based on the current reserve ratio (about 60%-80% in U.S. Treasuries), the demand for U.S. Treasuries would be around $138 billion to $184 billion, accounting for 0.38%-0.51% of the total U.S. Treasury market (approximately $36 trillion).

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

II. 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, etc. The increase in demand for stablecoins for US Treasury securities implies that stablecoin issuers need to hold more US dollar assets as reserves, which makes the use of the US dollar in international payments and settlements more widespread. This increases the demand for US Treasury securities in the international market, enhances the market recognition and attractiveness of US Treasury securities, and further elevates the proportion of US dollar assets in global asset allocation, reinforcing the core position of the US dollar in the international financial market.

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

The increase in demand for stablecoins for U.S. Treasury securities drives continuous innovation and development in the U.S. financial market, enhancing the depth and breadth of its financial market. For example, it promotes the development of derivatives markets related to U.S. Treasury securities, attracting more international financial institutions to participate in trading within the U.S. financial market, thereby enhancing the global influence of the U.S. financial market and consolidating the core position of the U.S. dollar in the international financial system.

3. Factors Driving the Demand for Stablecoins against US Treasuries

Related Legislation Promotion: The "STABLE Act 2025" and "GENIUS Act 2025" currently under review by the U.S. Congress require that stablecoins must 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 resulting in an additional demand of $400 billion per year.

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

As the circulation and global demand for stablecoins continue to rise, issuers need to hold more U.S. Treasuries as reserve assets to maintain the value stability 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. According to the current reserve rules, the corresponding demand for U.S. Treasuries will reach $1.2 trillion to $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 field, indirectly stimulating demand for stablecoins against 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.

4. Stablecoins do not change the credit logic of US Treasuries

In summary, the demand for stablecoins for U.S. Treasury bonds has significant growth potential, but whether it can absorb 2 trillion dollars requires the following conditions to be met: first, relevant legislation must be passed and reserve requirements strictly enforced to promote 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 of U.S. Treasury bonds or structural transformation of demand.

However, in practice, it faces challenges. The outstanding amount of U.S. government bonds is about $36 trillion, and even if the demand for stablecoins reaches $2 trillion, the proportion would still only be 5.5%, which is insufficient to completely resolve the supply-demand imbalance of U.S. government bonds. Traditional buyers of U.S. government bonds continue to reduce their holdings, while the growing demand for stablecoins needs to fill this gap. Currently, the absorption rate of stablecoins for U.S. government bonds (approximately $100 billion added each year) is still lower than the net issuance amount of U.S. government bonds (which will be $26.7 trillion in 2024).

Relevant legislation faces bipartisan disagreements, with some lawmakers concerned about insufficient investor protection, which could lead to delays in legislation or adjustments to provisions, affecting the compliance process for stablecoins. If the proposed related legislation is delayed or fails to pass due to political disagreements or other reasons, stablecoin issuers may lack a legal obligation to invest in U.S. Treasury bonds, potentially impacting the growth expectations for stablecoin demand for U.S. Treasury bonds.

In addition, different countries have varying regulatory policies regarding stablecoins and digital assets, which may result in limitations on the operations of stablecoin issuers globally, affecting their business expansion and demand for U.S. Treasury bonds. For instance, some countries may adopt a cautious approach towards stablecoins, restricting their use and issuance within their borders, thereby reducing the overall size of the global stablecoin market and indirectly decreasing the demand for U.S. Treasury bonds.

The competition in the stablecoin market is becoming increasingly fierce, with new stablecoin projects continuously emerging, potentially leading to a fragmentation of market share. Some small stablecoin issuers may find it difficult to invest heavily in U.S. Treasuries like larger issuers due to limited financial strength. At the same time, to stand out in the competition, issuers may adopt innovative asset allocation strategies to reduce reliance on U.S. Treasuries. Additionally, if other more attractive low-risk, high-liquidity assets emerge, stablecoin issuers may shift some funds from U.S. Treasuries to these alternative assets. Some emerging digital assets or traditional financial assets may demonstrate better investment value under specific market conditions, thereby diverting the demand for stablecoins away from U.S. Treasuries.

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 short-term alleviation 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 predicated on the credit of the Treasuries themselves. If policies and the market work in synergy, the $2 trillion target may be partially achieved, but it will not change the credit logic of U.S. Treasuries themselves. It is unrealistic to pin hopes on stablecoins for the U.S. Treasury market.