Stablecoin Market Growth Prompts Debate Over US Treasury Demand and Financial Stability

The total capitalization of the stablecoin market has reached between $300 billion and $322 billion, a significant increase from the approximately $124 billion recorded at the end of 2023. Tether’s USDT accounts for roughly 60% of this market, while Circle’s USDC holds approximately 24%. Combined, these two entities represent between 83% and 85% of all stablecoins in circulation, with non-dollar stablecoins accounting for less than 0.5% of the total.

The regulatory landscape for these assets was altered in July 2025 with the passage of the GENIUS Act. This legislation established a federal framework permitting approved institutions to issue stablecoins backed by dollar-denominated assets, primarily short-term Treasury bills. Treasury Secretary Scott Bessent has noted that this demand for government debt could reach hundreds of billions or trillions by 2030, potentially lowering yields and expanding the reach of the dollar.

However, the growth of the sector has raised concerns regarding systemic stability. Harvard economist Kenneth Rogoff has highlighted risks such as concentrated reserves and the potential for runs, noting that the failure of a major issuer would not be a contained event. Similarly, the concentration of Treasury demand within two private companies creates single points of failure that could lead to significant Treasury liquidation in the event of a crisis of confidence.

Despite these risks, some observers suggest that dollar-pegged stablecoins may strengthen US monetary dominance. Isabel Schnabel of the European Central Bank and Cornell economist Eswar Prasad have argued that network effects and high switching costs for users reinforce the position of the dollar. Furthermore, if issuers become price-insensitive buyers of short-term Treasuries, they may influence yields at the front end of the curve independently of Federal Reserve policy.