May2025 - STABLECOINS DEMAND | GENIUS ACT in USA & How stablecoins are now some of the largest structural buyers of US Treasuries

The GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins Act of 2025)

It is a bipartisan legislative effort to create a federal regulatory framework for stablecoins in the United States. Introduced on February 4, 2025, by Senator Bill Hagerty (R-TN) and co-sponsored by Senators Tim Scott (R-SC), Cynthia Lummis (R-WY), Kirsten Gillibrand (D-NY), and Angela Alsobrooks (D-MD), the Act passed the Senate Banking Committee with an 18-6 vote on March 13, 2025, and is now headed to the full Senate for consideration. It aims to balance innovation, consumer protection, and U.S. dollar dominance by establishing clear rules for stablecoin issuers while fostering financial inclusion and transaction efficiency.

Key Provisions of the GENIUS Act Relevant to Stablecoin Reserves

The GENIUS Act establishes strict requirements for stablecoin issuers, particularly around reserve backing, which directly ties into their role as buyers of U.S. Treasuries: 1:1 Reserve Backing: Stablecoins must be fully backed on a one-to-one basis with high-quality liquid assets, such as U.S. currency, demand deposits at insured depository institutions, Treasury bills (with maturities of 93 days or less), repurchase agreements, reverse repurchase agreements, money market funds, or central bank reserves. This ensures each stablecoin is redeemable for its pegged value, typically the U.S. dollar.

Reserve Restrictions: Issuers cannot use reserves as collateral, lend them out, or rehypothecate them unless explicitly permitted by federal rules, ensuring reserves remain liquid and safe for redemption.

Transparency and Audits: Issuers must publish monthly liquidity reports detailing reserve composition, certified by their CEO and CFO, and undergo regular audits to verify solvency.

Dual Regulatory Framework: Issuers with a market capitalization over $10 billion face federal oversight (Federal Reserve for depository institutions, Office of the Comptroller of the Currency for nonbanks), while smaller issuers can opt for state regulation if the state’s framework is “substantially similar” to federal standards.

AML/KYC Compliance: Stablecoin issuers are classified as financial institutions under the Bank Secrecy Act, requiring anti-money laundering (AML) and know-your-customer (KYC) programs to prevent illicit activity.

These provisions incentivize stablecoin issuers to hold significant portions of their reserves in U.S. Treasuries, particularly short-duration T-Bills, due to their liquidity, safety, and alignment with regulatory requirements.

Stablecoins as Major Buyers of U.S. Treasuries

Stablecoin issuers have already emerged as significant holders of U.S. Treasuries, driven by the need to back their digital assets with safe, dollar-denominated reserves. Here’s the current and projected impact:

Current State Market Size and Treasury Holdings: As of May 2025, the stablecoin market has a market capitalization of approximately $242 billion, with over $120 billion (roughly 50%) held in U.S. government debt, primarily 93-day T-Bills, overnight repurchase agreements, and money market funds.user_query

Ranking Among Holders: Stablecoin issuers collectively rank as the 18th largest holder of U.S. Treasuries, surpassing countries like Norway, Saudi Arabia, and South Korea.

Key Players: Major stablecoin issuers like Tether (USDT) and Circle (USDC), which dominate the market, hold billions in Treasuries. For example, Tether’s reserves are managed through firms like Cantor Fitzgerald, reinforcing their structural demand for U.S. debt.

Projected Growth by 2030

Market Expansion: Projections suggest the stablecoin market could grow to $1.6 trillion (base case) or as high as $3.7 trillion (bull case) by 2030, driven by regulatory clarity from the GENIUS Act, increased institutional adoption, and global demand for dollar-pegged digital assets.

Treasury Demand: If the stablecoin market reaches $2 trillion by 2030, as cited, and assuming 45–50% of reserves remain in U.S. Treasuries (consistent with current trends), this could translate to $900 billion in additional demand for T-Bills and other short-duration government debt. This would position stablecoin issuers as one of the largest holders of U.S. Treasuries, potentially surpassing major sovereign nations.user_query

Citibank’s Analysis: Citibank’s “Digital Dollars” report (April 2025) estimates that stablecoin issuers could hold over $1.2 trillion in U.S. Treasuries by 2030 in the base case, reinforcing the scale of this structural demand. The report highlights 2025 as a potential “ChatGPT moment” for blockchain adoption, with the GENIUS Act catalyzing growth.

Why USA Treasuries?

Stablecoin issuers favor U.S. Treasuries for several reasons: Safety and Liquidity: T-Bills and repos are among the safest and most liquid assets, aligning with the GENIUS Act’s requirement for high-quality reserves.

Regulatory Compliance: The Act’s strict reserve standards prioritize assets like Treasuries to prevent de-pegging events (e.g., TerraUSD’s collapse in 2022).

Yield Potential: Short-duration Treasuries offer modest yields with minimal risk, allowing issuers to earn returns on reserves without compromising stability.

Dollar Dominance: Holding Treasuries reinforces the U.S. dollar’s role as the world’s reserve currency, a key policy goal of the GENIUS Act.

Implications of the GENIUS Act and Treasury Demand Strengthening U.S. Debt Markets: The influx of stablecoin-driven demand for T-Bills could lower yields and stabilize borrowing costs for the U.S. government, especially as global demand for Treasuries faces pressures from dedollarization efforts or foreign divestitures.

Stablecoin issuers could absorb a significant portion of new Treasury issuance, acting as a structural buyer in a market where traditional buyers (e.g., foreign central banks) may reduce holdings.

Boosting Dollar Dominance:

By mandating dollar-backed reserves, the GENIUS Act ensures stablecoins extend the dollar’s reach in global digital payments, countering alternative reserve currencies or central bank digital currencies (CBDCs).

Senator Hagerty and others emphasize that stablecoins can “drive demand for U.S. Treasuries” while enhancing the dollar’s supremacy.

Market Dynamics:

Competitive Advantage for U.S. Issuers: Stricter standards for foreign issuers (e.g., compliance with U.S. court orders or potential trading bans) could favor U.S.-based stablecoins like USDC and RLUSD over foreign ones like Tether, increasing domestic Treasury purchases.

Consolidation Risks: Smaller issuers may face challenges with compliance costs, potentially leading to market concentration among larger players who can afford to hold substantial Treasury reserves.

Corporate Entry: The Act may allow corporations (e.g., Meta, Google) to issue stablecoins, further increasing Treasury demand if they enter the market.

Financial Innovation:

Clear regulations could spur institutional adoption, integrating stablecoins into traditional finance (e.g., JPMorgan’s Kinexys platform) and driving further reserve accumulation in Treasuries.

The Act’s interoperability standards and international reciprocity provisions aim to make U.S. stablecoins competitive globally, potentially increasing their market share and Treasury holdings.

Risks and Criticisms:

Critics like Senator Elizabeth Warren argue that stablecoins pose risks for money laundering and consumer protection, and the GENIUS Act may not fully address decentralized blockchain transfers or foreign issuer enforcement.

Ambiguities in the Act’s definition of “payment stablecoin” (e.g., excluding private blockchains) could create regulatory gaps, potentially affecting reserve practices.

Rapid passage without addressing these “holes” could lead to unintended consequences, as warned by Warren and others.

Mathematical Breakdown

Current (2025):

Stablecoin market cap: $242 billion

Treasury holdings: $120 billion (50% of market cap)

Implication: Stablecoin issuers are already a major buyer, equivalent to a mid-sized sovereign nation’s holdings.

Projected (2030):

Stablecoin market cap: $2 trillion (mid-range estimate between $1.6T base and $3.7T bull case)

Treasury holdings (assuming 45% in Treasuries, slightly conservative): $900 billion

Alternative estimate (Citibank, base case): $1.2 trillion (60% of $2T, assuming higher Treasury allocation)

Implication: $900B–$1.2T in additional Treasury demand could make stablecoin issuers the largest non-government holder, rivaling major central banks like Japan or China.

Growth Drivers:

Regulatory clarity from the GENIUS Act increases trust and adoption.

Global demand for dollar-pegged stablecoins, especially in regions with limited banking access.

Institutional integration (e.g., DeFi, cross-border payments) amplifies market cap growth.

Conclusion

The GENIUS Act is poised to transform the stablecoin market by establishing a robust regulatory framework that prioritizes reserve safety, transparency, and U.S. dollar dominance. Its reserve requirements cement stablecoin issuers as structural buyers of U.S. Treasuries, with current holdings of $120 billion potentially scaling to $900 billion–$1.2 trillion by 2030 if the market grows to $2 trillion. This could stabilize U.S. debt markets, strengthen the dollar’s global position, and foster financial innovation, though risks like regulatory gaps and market concentration warrant close attention. The Act’s bipartisan support and alignment with the Trump administration’s pro-crypto stance suggest a high likelihood of passage, setting the stage for stablecoins to reshape both crypto and traditional finance.