Crypto was supposed to be the antidote to the U.S. dollar, but stablecoins have surged to become among the largest holders of U.S. Treasuries, with market value rising from about $20 billion in 2020 to roughly $300 billion today. The Federal Reserve projects they could reach $3 trillion within five years. To maintain their dollar peg, stablecoin issuers back coins with U.S. Treasury debt, making them some of the world’s biggest holders of Treasuries. Circle and Tether now hold more Treasury bonds than major U.S. creditors including Saudi Arabia and South Korea.
Brent Donnelly, a veteran trader and president of Spectra Markets, told the Times that new regulations may make the stablecoin space less Wild West, but cautioned that the asset class still poses real dangers. It is an existential risk at the margins, he said. It’s not economically attractive, but it’s convenient if you’re a crypto person. The core concern is what happens during a market panic: stablecoin issuers hold short-term Treasury bills as collateral, and a future crypto crash could force them to sell these Treasuries quickly and all at once, potentially rippling through broader credit markets.
A New York Fed staff report published last month warned that stablecoins could soon transmit liquidity stress to the banking system. This is not a hypothetical: during the 2022–2023 market meltdown, Circle’s USD Coin briefly fell to 87 cents on the dollar, and Tether’s USDT dropped below 94 cents. The GENIUS Act, signed last year by President Trump, created a formal legal framework for stablecoins in the U.S. financial system. Regulators are still filling in the details, including which assets can serve as collateral, which institutions will be allowed to issue stablecoins, and how anti-money-laundering rules will apply in practice.
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