Stablecoin Issuers to Become Second-Largest Holder of U.S. Treasuries by 2028?

TradingKey - In a bid to preserve the dominance of the U.S. dollar and mitigate the country’s growing debt crisis, the Trump administration has turned to an unconventional strategy: backing the cryptocurrency industry.

Experts predict that the passage of the GENIUS Act, a landmark stablecoin regulation, could catalyze a tenfold expansion in the stablecoin market over the next three years. This growth is expected to result in stablecoin issuers becoming the second-largest holders of U.S. Treasury securities.

On May 20, the U.S. Senate passed the Global Economic Network Innovation and Uniform Security (GENIUS) Act by a vote of 66 to 22. The bill mandates that all stablecoins must be fully backed on a 1:1 basis by high-quality, low-risk liquid assets such as U.S. Treasuries, bank deposits, and physical U.S. dollars.

Deutsche Bank noted that the legislation formally positions stablecoin issuers as quasi-money market funds, a move that will support the U.S. short-term bond market and channel non-U.S. liquidity into the dollar system.

The Treasury Borrowing Advisory Committee (TBAC), which advises the U.S. Treasury on debt management issues, said the department stands to benefit significantly from developments in the stablecoin sector.

According to TBAC, the current market value of stablecoins is around $234 billion, with approximately $120 billion of that amount backed by U.S. Treasuries. The committee forecasts that the stablecoin market could expand to $2 trillion by 2028, bringing with it more than $1 trillion in additional Treasury holdings.

If realized, this level of Treasury ownership would surpass the current holdings of the U.K. ($779 billion) and China ($765 billion), making stablecoin issuers the second-largest holder of U.S. debt globally — only behind Japan, the largest foreign holder, with $1.13 trillion in Treasuries.

TBAC emphasized that increased demand for U.S. government bonds from stablecoin issuers is positive for U.S. debt financing. New buyers entering the market could help suppress borrowing costs and reduce the burden of U.S. public debt. 

Moreover, broadening the base of foreign and institutional investors in Treasuries could enhance fiscal stability and reinforce the dollar’s global dominance.

However, there are risks associated with this trend. Most of the bonds used as collateral for stablecoins are short-dated, highly liquid Treasuries. A surge in demand for short-term debt could alter the Treasury’s issuance strategy.

For instance, a reduction in long-term bond supply might push down long-term interest rates, while an increase in short-term issuance could lift short-term yields. Such dynamics could eventually lead to a yield curve inversion — a phenomenon often seen as a precursor to economic downturns.