Stablecoins are becoming the next policy challenge for the Wash-era Federal Reserve.

Author: Liam ‘Akiba’ Wright

Compiled by: Shenchao TechFlow

Shenchao Briefing: At the Federal Reserve Board Governor Waller’s meeting on June 22, stablecoins were upgraded from tools in the crypto market to objects of study for U.S. dollar policy. This means that when USDT and USDC become large enough to affect short-term Treasury demand, bank funding, and global dollar liquidity, they are no longer just private tokens, but dollar transmission channels that the Fed must monitor.

Federal Reserve Board Governor Christopher Waller, at the central bank’s June 22 dollar conference, added stablecoins to the Fed’s research agenda on the international role of the dollar.

This is important because dollar tokens affect bank funding, short-term Treasury demand, and how global users access dollar liquidity.

The question now is whether the growth is driven by overseas demand or by substitution for bank deposits—and whether reserve and redemption mechanisms can hold up under stress.

Stablecoins have moved from the fringe markets of crypto policy to the Federal Reserve’s dollar policy agenda under Kevin Warsh.

Federal Reserve Board Governor Christopher Waller used the central bank’s June 22 dollar conference to include digital assets, including stablecoins, in the research agenda on the international role of the dollar.

This is a research signal rather than a new stablecoin policy. But it changes the context: stablecoin flows are now placed alongside issues such as dollar funding, payment channels, cross-border capital flows, safe-asset demand, and how private token issuers tap into public dollar infrastructure.

Fed Governor Waller said, “There’s nothing scary about payments on DeFi rails.”

That redefines the market. Dollar-backed stablecoins are still crypto trading tools, payment tokens, and regulatory targets. But the Fed’s dollar agenda now views them as a possible transmission channel.

Waller’s remarks and the Fed’s conference agenda place stablecoins within a larger system: private digital dollar claims can flow between exchanges, wallets, issuers, banks, and reserve portfolios—while still relying on the dollar and on the short-term assets that support it.

A reasonable question is: what changes if these issuers become one of the channels through which global dollar demand reaches the banking system and the Treasury market?

The Fed treats stablecoins as dollar transmission channels

At the opening address of the fifth Conference on the International Role of the Dollar, Waller described distributed ledger technology and tokenized assets (including stablecoins) as channels for global dollar intermediation—running in parallel with or connecting to traditional banking and payment systems.

The conference agenda clarifies the policy framework. The Federal Reserve and the New York Fed organized the June 22–23 event around financial innovation, digital assets, the role of the dollar in investment and payments, market structure, reserve currency status, digital fragmentation, and geopolitics.

Stablecoins sit within this broader digital dollar research map, alongside other digital-asset and market-structure issues.

The dollar’s role is usually discussed from the perspective of banks, the Treasury market, foreign-exchange reserves, trade invoicing, and offshore funding. Stablecoins add a private technology layer to this map.

Users outside the United States can hold dollar-denominated tokens, transfer them across blockchains, trade them for other assets, or redeem them through issuers—interacting with the dollar system in ways different from bank depositors or money market fund investors.

The result is a more complex way of accessing dollars. Stablecoins can expand dollar reach by making dollar claims easier to hold and transfer.

Once reserve management, redemptions, liquidity shocks, or overseas demand become large enough to affect other markets, they also pull private issuers into policy debates.

That is why scale changes the policy question. Compared with the entire Treasury market, stablecoins are still small—but within crypto they are already large.

CryptoSlate market data shows that as of June 25, Tether and USDC ranked among the top five crypto assets by market capitalization, with USDT at nearly $186 billion and USDC at nearly $73.8 billion.

Even Tether’s 24-hour trading volume alone is about $81 billion—nearly twice Bitcoin’s roughly $43 billion over the same period.

These numbers are just a snapshot in time. More importantly, dollar tokens now have sufficient scale and turnover to prompt central bank researchers to ask where the dollars behind them come from, where reserves are held, what happens during redemptions, and whether these flows could create stress in places that were previously studied mainly through banks and money funds.

Circle’s own materials show that as of June 22, USDC circulation was $74.3 billion, and the company says the token is backed by highly liquid cash and cash equivalents. Circle also says that most reserves are held in the Circle Reserve Fund, an SEC-registered government money market fund managed by BlackRock.

This structure turns payment tokens into a reserve-management channel. Changes in stablecoin demand can alter demand for bank deposits, Treasury repos, or short-term Treasury bills—depending on how the issuer manages the backing assets.

Therefore, the dollar policy narrative goes beyond one-to-one redemptions. The policy question is whether enough private tokens—backed by enough short-term dollar assets—can be integrated into the distribution and absorption of dollar liquidity.

Stablecoins compete for both payments and balances

Research by Federal Reserve staff has started to distinguish the potential impact on banks from the simple story that stablecoins drain deposits. A May FEDS note says stablecoins are noteworthy because they combine balance-holding and payment functions on digital rails, meaning they compete for both transaction balances and payment flows.

Another Fed note from December describes the deposit impact as conditional. Stablecoin growth could reduce, circulate, or restructure bank deposits depending on who needs the tokens, what assets they convert into, and how the issuer holds reserves.

If domestic users move transaction balances out of banks, that creates one kind of impact. Overseas users seeking digital dollars could create another.

Issuers that hold reserves in banks, money market funds, repos, or bills can transmit growth through different parts of the financial system.

Banks are now part of the response. On June 5, The Clearing House announced that major financial institutions support an on-chain commercial bank money program to support the clearing and settlement of tokenized deposits, while connecting blockchain activity to RTP and CHIPS.

Big banks may have found an answer to the stablecoin challenge in the CLARITY Act

The announcement shows the direction of the banking response: keep digital-money flows within regulated commercial bank money, while stablecoins establish 24/7 dollar channels.

A 2026 New York Fed staff research paper suggests that stablecoin activity can transmit liquidity stress to banks and complicate monetary policy implementation.

This is not an official policy statement, but it points to the same question raised by the conference framework Waller proposed: once stablecoins interact with banks, reserves, and wholesale payments, their effects can leak beyond crypto markets.

The strongest macro link is demand for short-term safe assets. A June BIS working paper finds that inflows into dollar-backed stablecoins can lower short-term Treasury yields—an effect that intensifies during Treasury market stress and as the sector grows.

The paper’s findings are quite specific: it describes yield compression from short-dated inflows, without claiming effects across the entire Treasury yield curve.

Treasury advisory materials add a scale check. The 2026 Treasury Borrowing Advisory Committee report finds that major stablecoin issuers hold less than 1% of outstanding Treasuries.

Tether’s $141 billion Treasury reserve reveals stablecoin risk now embedded in U.S. debt

The same report also says that if future growth comes from new overseas dollar demand, stablecoins could increase demand for short-term Treasury issuance. This combination is a tension policymakers must track.

Today, relative to the entire Treasury market, stablecoins can be small—but they can still affect bills and repos at the margin.

At a larger scale, their reserve portfolios could become another source of demand for the safest, most liquid dollar assets. During stress, redemptions could work in the opposite direction.

The argument that dollars strengthen depends on this channel. If dollar stablecoins continue to spread overseas, they can expand access to dollar instruments without requiring foreign users to hold U.S. bank accounts.

But that also means private issuers and reserve managers become part of the dollar-liquidity allocation system. The more successful the model is, the harder it becomes to treat it as a crypto fringe market.

The next signal is how the system absorbs them

The Fed’s June meeting left an open question: will stablecoins continue as tolerated private extensions of dollar dominance, or become a more explicitly regulated layer of dollar infrastructure? It indicates that this question has entered the Fed’s main dollar research agenda.

Recent signals suggest that policymakers will watch whether stablecoin growth is driven by overseas dollar demand or by domestic bank deposit substitution.

Banks will test whether tokenized deposits can match the speed and programmability of stablecoins while keeping balances within the banking system. Issuers will have to demonstrate that reserve, redemption, and concentration risks can withstand the rapid expansion or contraction of stablecoin supply.

That is what changes when the Fed treats stablecoins as part of global dollar transmission. Tokens that once looked like crypto settlement assets become private dollar channels with public consequences.

Their growth can support dollar coverage—but it can also raise questions about bank funding, short-term Treasury demand, and liquidity stress within the same framework.

The threshold is lower than replacing banks or dominating the Treasury market. Once stablecoins become large enough, useful enough, and connected enough that more and more of dollar demand flows through them, they become a policy issue.