Report Interpretation: How does the US Treasury Department think about stablecoins?

Question

Stablecoin is undoubtedly the hot topic in the crypto market this past week.

Recently, the U.S. GENIUS stablecoin bill passed through the Senate procedural vote, followed by the Hong Kong Legislative Council's third reading approval of the "Stablecoin Ordinance Draft." Stablecoins have now become an important variable in the global financial system.

In the United States, the future development of stablecoins is not only related to the prosperity of the digital asset market but may also have far-reaching impacts on the demand for government bonds, the liquidity of bank deposits, and the hegemony of the US dollar.

A month before the passage of the GENIUS Act, the U.S. Treasury's "think tank"—the Treasury Borrowing Advisory Committee (TBAC)—released a report that explored in depth the potential impact of the expansion of stablecoins on U.S. fiscal and financial stability.

As an important component of the debt financing plan formulated by the Treasury Department, the TBAC's recommendations not only directly influence the issuance strategy of U.S. Treasury bonds but may also indirectly shape the regulatory path for stablecoins.

So, how does TBAC view the growth of stablecoins? Will the opinions of this think tank influence the Treasury's debt management decisions?

We will use the latest report from TBAC as a starting point to interpret how stablecoins have evolved from "on-chain cash" to an important variable influencing U.S. fiscal policy.

TBAC, Treasury Advisory Committee

First, let me introduce TBAC.

TBAC is a consulting committee that provides economic observation and debt management advice to the Treasury Department, consisting of senior representatives from buy-side and sell-side financial institutions, including banks, broker-dealers, asset management companies, hedge funds, and insurance companies. It is also an important component in the Treasury Department's formulation of debt financing plans.

TBAC meeting

The TBAC meeting mainly provides financing suggestions to the U.S. Department of the Treasury and is an important part of the Treasury's debt financing plan. From the perspective of the financing plan process, the U.S. Treasury's quarterly financing process includes three stages:

The treasury debt manager seeks advice from primary dealers;
After meetings with the primary dealers, the Treasury debt managers seek advice from the TBAC; in response to the questions and discussion materials presented by the Treasury, the TBAC will issue a formal report to the Secretary of the Treasury;
The debt manager of the treasury makes decisions on changes to debt management policies based on research analysis and suggestions received from the private sector.

Report Summary: The impact on U.S. banks, the treasury market, and money supply.

Bank deposits: The impact of stablecoins on bank deposits depends on whether they have income-generating functions and their operational payment characteristics compared to other financial products. In the context of increasing competition, banks may need to raise interest rates to retain funds or seek alternative sources of financing.

Government Bond Market: The overall increase in demand for government bonds, along with the reserve requirements in stablecoin legislation, will provide an additional and continuously growing source of demand for government bonds; the overall shortening of the holding period for government bonds, with legislation requiring stablecoin issuers to hold treasury bills with a maturity of less than 93 days, results in a concentration of government bond holdings in the short term.

Money Supply: The demand for stablecoins may have a net neutral impact on the US money supply. However, the attractiveness of stablecoins pegged to the dollar may shift current non-dollar liquidity holdings towards the dollar.

Existing market structure impact: The current legislative proposal fails to provide a pathway for ineligible issuers to access main accounts. Stablecoin issuers are unable to access the Federal Reserve, which may exacerbate the risks of stablecoins during periods of stress or volatility.

The current diversification of digital currency: a panorama from private to central banks

This image provides us with a panoramic view of digital currency, showcasing its diverse implementation paths and its practical applications in various fields.

Classification of digital currency

Private sector issuance (commercial bank balance sheet)

Tokenised Deposits: The blockchain representation of liabilities for commercial bank deposits.

Tokenised Money Market Funds: Tokenisation of money market funds based on blockchain.

Private sector issuance (central bank balance sheet)

Stablecoin: A blockchain cash representation supported by a 1:1 reserve of assets, which can be interest-bearing or non-interest-bearing.

issued by the private or public sector

Cryptocurrency: Virtual currency based on decentralized networks.

Central bank issuance

Trigger Solutions: The connection between blockchain and the Central Bank Real-Time Gross Settlement System (RTGS).

CBDC (Central Bank Digital Currency): A form of blockchain cash issued and regulated directly by the central bank.

Current market trends

tokenized deposit

J.P. Morgan and Citi have launched blockchain-based payment and repurchase activity solutions.

Tokenized currency market fund

BlackRock's BUIDL has attracted over $240 million in investments.

Franklin Templeton launches the BENJI token, supporting Stellar, Polygon, and Ethereum blockchains.

Stable Coin

The market is dominated by major issuers such as Tether and Circle, with a total market value of approximately $234 billion.

cryptocurrency

The total market capitalization is close to 3 trillion USD, with mainstream coins including Bitcoin (1.7 trillion USD) and Ethereum (191 billion USD).

trigger solution

The mechanism introduced by the German central bank has facilitated the settlement of blockchain assets with traditional payment systems.

CBDC

Among the 134 countries and currency unions being tracked, 25% have been launched, 33% are in the pilot phase, and 48% are still under development.

Current Status of the Stablecoin Market: Market Capitalization and Key Events Overview

The stablecoin market has experienced significant fluctuations and developments in recent years. As of April 14, 2025, the total market capitalization has reached $234 billion, with USDT (Tether) dominating the market at $145 billion, followed closely by USDC (Circle) at $60.2 billion, while the total market capitalization of other stablecoins is $28.7 billion.

Looking back over the past four years, the two major events in the stablecoin market have become a watershed moment for the development of the industry.

In May 2022, the collapse of the algorithmic stablecoin UST triggered a crisis of trust in the entire DeFi sector. The depegging of UST not only raised doubts about the viability of algorithmic stablecoins but also affected the market confidence in other stablecoins.

Shortly thereafter, the regional bank crisis in March 2023 once again plunged the market into turmoil. At that time, Circle, the issuer of USDC, had approximately $3.3 billion of reserves frozen at Silicon Valley Bank (SVB), leading to a brief depegging of USDC. This event prompted the market to reassess the reserve transparency and safety of stablecoins, while USDT further solidified its market share during this period.

Despite experiencing multiple crises, the stablecoin market gradually recovered in 2024 and kept pace with the broader digital asset market development. In 2024, the United States launched its first spot crypto ETFs, providing institutional investors with tools to access BTC and ETH.

Currently, the growth of the stablecoin market is mainly attributed to three factors: the increased interest of institutional investors, the gradual improvement of the global regulatory framework, and the continuous expansion of on-chain application scenarios.

Comparison of Digital Currency Market Funds and Stablecoins: Two Types of On-Chain Assets

With the rapid growth of Tokenized Money Market Funds (MMFs) in the digital currency market, a narrative that serves as an alternative to stablecoins has gradually formed. Although there are similarities in their use cases, a significant difference is that stablecoins cannot become income-generating tools under the current GENIUS Act, whereas MMFs can provide returns to investors through their underlying assets.

Market potential: From 230 billion to 2 trillion USD

The report suggests that the market value of stablecoins is expected to reach around $2 trillion by 2028. This growth trajectory relies not only on the natural expansion of market demand but is also driven by several key factors that can be categorized into three main areas: adoption, economy, and regulation.

The adoption of participation by financial institutions, on-chain migration of wholesale market trading, and merchant support for stablecoin payments is gradually driving it to become a mainstream payment and trading tool.

Economy: The value storage function of stablecoins is being redefined, especially with the rise of interest-bearing stablecoins, which provide the possibility of yield generation for holders.

Regulation: If stablecoins can be incorporated into capital and liquidity management frameworks and obtain permission from banks to operate on public chains, it will further enhance their legitimacy and credibility.

(Note: The stablecoin bill had not yet been passed when the report was issued, and it had entered the voting process at this time)

It is expected that by 2028, the stablecoin market size will grow from the current $234 billion to $2 trillion. This growth requires a significant increase in trading volume, assuming that the circulation speed of stablecoins remains unchanged.

The market dominance of the US dollar stablecoin

The USD stablecoin accounts for 83% of the total fiat-backed stablecoins, far exceeding other currencies (EUR accounts for 8%, others account for 9%).

In the overall stablecoin market capitalization, the share of USD stablecoins exceeds 99%, with a market capitalization of 233 billion USD, of which approximately 120 billion USD is backed by US Treasury bonds. The market capitalization of non-USD stablecoins is only 606 million USD.

The market size of USD stablecoins is 386 times that of non-USD stablecoins, indicating its absolute dominance in the global stablecoin market.

The potential impact of stablecoin growth on bank deposits

The growth of stablecoins may have a significant impact on bank deposits, especially whether their design pays interest will be a key factor.

As of the fourth quarter of 2024, the total deposit size in the United States reached $17.8 trillion, with non-transaction deposits (including savings accounts and time deposits) accounting for the majority, at $8.3 trillion and $2.9 trillion respectively. Transaction deposits include demand deposits ($5.7 trillion) and other non-demand transaction deposits ($0.9 trillion).

Among these deposits, transaction-type deposits are considered the most "vulnerable," meaning they are more susceptible to the impact of stablecoins. The reason is that this type of deposit typically does not pay interest, is mainly used for daily activities, and is easy to transfer. Uninsured deposits are often moved by holders to higher-yielding or lower-risk instruments, such as money market funds (MMFs), during periods of market uncertainty.

If stablecoins do not pay interest, their growth will mainly depend on payment functionality and the overall activity of the digital asset market, so the impact on bank deposits is limited. However, if stablecoins begin to pay interest, especially by offering higher yields or convenience of use, traditional deposits may be massively transferred to such stablecoins. In this case, interest-bearing stablecoins pegged to the USD will not only attract on-chain users but also become an important tool for value storage, thereby further enhancing their global appeal.

In summary, the interest characteristics of stablecoin design will directly affect its potential impact on bank deposits:

The impact of non-interest-bearing stablecoins is relatively small, while interest-bearing stablecoins may significantly change the deposit landscape.

The potential impact of stablecoin growth on US Treasury bonds.

According to publicly available reserve data, major stablecoin issuers currently hold over $120 billion in short-term Treasury bills (T-Bills), with Tether (USDT) accounting for the largest share, approximately 65.7% of reserves allocated to T-Bills. This trend indicates that stablecoin issuers have become significant participants in the short-term Treasury bill market.

In the future, the demand for stablecoin issuers for T-Bills is expected to be closely related to the expansion of overall market instruments.

In the coming years, this demand could further boost the short-term government bond demand by about 900 billion dollars.

The growth of stablecoins has an inverse relationship with bank deposits. A large amount of funds may flow from bank deposits to assets backed by stablecoins, especially during periods of market volatility or trust crises (such as stablecoin depegging), where this transfer may be further amplified.

The U.S. "GENIUS Act" requirements for short-term government bonds may further drive stablecoin issuers to allocate to T-Bills.

In terms of market size, the T-Bills held by stablecoin issuers in 2024 are estimated to be around 120 billion USD, and by 2028, this figure could grow to 1 trillion USD, representing an increase of 8.3 times. In contrast, the current market size of tokenized government securities is only 2.9 billion USD, indicating significant growth potential.

In summary, the demand for T-Bills from stablecoin issuers is reshaping the ecosystem of the short-term treasury market, but this growth may also intensify the competition between bank deposits and market liquidity.

The potential impact of stablecoin growth on the increase in the money supply in the United States.

The growth of stablecoins mainly impacts the potential transfer of funds flow on the U.S. money supply (M1, M2, and M3), rather than a direct change in the total amount.

Current currency supply structure:

M1 includes currency in circulation, demand deposits, and other checkable deposits, totaling approximately $6.6 trillion.

M2 includes savings deposits, small time deposits, and retail money market funds (MMFs).

M3 includes short-term repurchase agreements, institutional MMFs, and large-denomination time deposits.

The role of stablecoins:

Stablecoins are seen as a new means of storing value, especially within the framework of the GENIUS Act.

Stablecoins may attract some funds to flow out of M1 and M2, shifting towards stablecoin holders, especially non-US dollar holders.

Potential Impact

Transfer of funds:

The growth of stablecoins may not directly change the total amount of the US money supply, but it will lead to a transfer of funds from M1 and M2. This transfer may affect the liquidity of banks and the attractiveness of traditional deposits.

International Influence:

Stablecoins, as a means of acquiring US dollars, may increase the demand for dollars among non-dollar holders, thereby increasing the inflow into the US money supply. This trend could promote the use and acceptance of stablecoins globally.

The growth of stablecoins, while not immediately changing the total money supply in the United States, has the potential to act as a store of value and a means of obtaining currency, which may have profound effects on capital flows and international demand for the dollar. This phenomenon needs to be addressed in policy-making and financial regulation to ensure the stability of the financial system.

Possible Directions for Future Stablecoin Regulation

The current proposed regulatory framework for stablecoins in the United States is similar to the reform requirements for MMFs after 2010, focusing on:

Reserve requirements: Ensure high liquidity and security of stablecoin reserves.

Market Access: Discuss whether stablecoin issuers can gain access to support from the Federal Reserve (FED), deposit insurance, or a 24/7 repurchase market.

These measures aim to reduce the risk of stablecoin de-pegging and enhance the stability of the market.

Summary

Market scale potential

The stablecoin market is expected to grow to approximately $2 trillion by 2030, supported by ongoing market and regulatory breakthroughs.

The dominance of the dollar-pegged

The stablecoin market is primarily composed of dollar-pegged stablecoins, which has shifted recent focus to the potential impact of U.S. regulatory frameworks and legislation on the acceleration of stablecoin growth.

Impact and Opportunities for Traditional Banks

Stablecoins may pose a challenge to traditional banks by attracting deposits, but at the same time, they create opportunities for banks and financial institutions to develop innovative services and benefit from the use of blockchain technology.

The far-reaching impact of stablecoin design and adoption

The final design and adoption method of stablecoins will determine their impact on the traditional banking system and their potential driving force for the demand for U.S. Treasury bonds.