The digital transformation of the US dollar is rapidly changing the global financial landscape with stablecoins.

Author: Zhao Ying

The dominance of the US dollar is on the verge of collapse, and the stablecoin market is rapidly expanding, becoming a new support point for the dollar and reshaping the global financial system?

According to the Chasing Wind Trading Platform, Jim Reid, the global macro and thematic research head at Deutsche Bank, mentioned in the latest report that stablecoins are expanding at an unprecedented speed, and corporate finance executives have felt the wave of change. Reid stated:

I attended a corporate finance conference on the West Coast of the United States this week, where all the finance executives noted the increase in stablecoin transactions in their businesses, which is a growing market.

The so-called "stablecoin" is a type of digital asset, with over 99% of the stablecoin market value pegged to the US dollar, which effectively acts as a money market fund supporting the US short-term debt market. For example, Tether has entered the ranks of major holders of US Treasury securities.

Currently, the United States is accelerating the advancement of stablecoin regulatory legislation, with payments being a major use case. Regulation may open the door to broader adoption of payments. Recently, the stablecoin bill from GENIUS was rejected, but Deutsche Bank expects significant progress on the bill this year.

Analysis suggests that the stablecoin market has immense potential, and payment applications may lead to broader acceptance of cryptocurrency infrastructure. Citigroup expects that, in the long term, the potential market size for stablecoins could reach between $1.6 trillion and $3.7 trillion under both basic and optimistic scenarios by 2030.

What is a stablecoin? How does it work?

Stablecoins are a type of digital asset used for payments, with lower volatility than other cryptocurrencies due to their 1:1 peg with "stable" assets. A report by Deutsche Bank indicates that there are mainly four types of stablecoins: fiat-collateralized, asset-collateralized, cryptocurrency-collateralized, and algorithmic.

Currently, dollar-backed stablecoins dominate the market, with over 99% of the stablecoin market capitalization pegged to the dollar. These stablecoins hold over $120 billion in US reserve assets, effectively acting as money market funds that support the US short-term debt market.

Citibank's report further explains that stablecoins have become an important part of the cryptocurrency ecosystem: firstly, they are the entry point for decentralized finance—tracking the growth of stablecoin issuance helps determine the overall health and growth of the digital asset environment; secondly, stablecoins can be seen as a means of value storage without the inherent volatility of native tokens.

One use case of stablecoins is as a reserve, with their "safe haven" characteristics increasing their appeal as a store of value amid current market volatility. Another potential use case is for payments and cross-border transactions, where regulatory clarity could pave the way for broader adoption of payments.

Stablecoins - A digital extension of dollar hegemony, a new source of demand for U.S. Treasury bonds?

The impact of stablecoins on the US bond market is increasingly expanding, according to data from Deutsche Bank.

As of March 2025, Tether's holdings of U.S. Treasury bonds have reached $98.5 billion, a figure that was nearly zero in 2020, and it has now entered the ranks of major overseas holders of U.S. debt.

Citigroup also pointed out that large stablecoin providers have become greater holders of U.S. Treasury bonds:

Stablecoins, especially those pegged to the US dollar, are becoming an increasingly important source of demand for US Treasury securities. The two main reasons proposed by the US Secretary of Commerce and the Secretary of the Treasury for legislation are: to increase demand for short-term government bonds and to strengthen the US dollar's status as the global reserve currency.

Large stablecoin providers, such as Tether, have become significant holders of U.S. Treasury securities. The proposed legislation requiring stablecoin holders to hold short-term U.S. Treasuries has created a new source of demand for U.S. short-term debt.

However, analysts at Citibank also pointed out two mitigating factors: First, if any inflows come from existing U.S. Treasury holders, whether directly or indirectly, the demand effect would be weakened. For example, funds moving from money market funds to stablecoins would represent a substitution but would not have a net effect on overall demand. Second, while supporting short-term demand, long-term debt demand may not be affected.

Stablecoins are becoming increasingly important in the digital dollar infrastructure, Deutsche Bank said:

The United States' interests are best served by increasing the demand for stablecoins, thereby strengthening the dollar, especially during a time when the adoption of stablecoins is accelerating, as their "safe haven" characteristics make them an attractive store of value amid current market volatility.

The Citibank report points out:

Currently, the US dollar still dominates the share of foreign exchange reserves. The dominance of USD stablecoins not only stems from first-mover advantage but also reflects the "excessive privilege" of the dollar as the preferred reserve currency. The stablecoin market has huge potential, with Citibank estimating it could reach a scale of $1.6 to $3.7 trillion by 2030.

At the same time, Citigroup reminds that since the launch of euro-backed stablecoins under the European MiCA legislative framework, the market capitalization of non-dollar stablecoins has increased, which aligns with the weakening of the dollar and the cracks in the "American exceptionalism" narrative. Although euro-based stablecoins currently represent only a small share, changes in this area could be a leading indicator of the shift in the dollar's status.

Legislation on stablecoins in the United States is being expedited.

The United States is accelerating the advancement of stablecoin regulatory legislation. According to media reports, the GENIUS bill in the U.S. Senate failed to enter the comprehensive voting stage, but is expected to gain bipartisan support. The House bill has passed the committee and is awaiting a vote by the full chamber.

Deutsche Bank's report points out that the United States is currently accelerating efforts to establish a regulated, dollar-backed stablecoin ecosystem before August this year. The stablecoin bill named GENIUS was recently rejected, but significant progress is expected for the bill this year.

Citibank's analysis shows that there are currently two stablecoin bills progressing through the legislative process in the United States: the STABLE bill in the House of Representatives and the GENIUS bill in the Senate. Both have similar provisions regarding consumer protection and reserves, but there are still differences that need to be coordinated and content that needs to be revised.

Both bills focus on payment functions, so-called "payment stablecoins," and include provisions related to anti-money laundering ( AML ), national security, consumer protection, and reserve requirements. The reserve requirement is 1:1 using short-term U.S. Treasury bonds and repurchased custodial deposits.

Analysts believe that a stable regulatory environment will pave the way for the widespread application of stablecoins, with the payment sector becoming an important use case for stablecoins.