Stablecoins: Impact on U.S. Treasury Market

Stablecoins are becoming a structural buyer at the front end of the Treasury curve and they are largely price-insensitive. Issuers buy bills to collateralize their liabilities, not because yields are attractive relative to alternatives. If supply continues to scale, this introduces a new flow into bill auctions and repo markets whose growth is governed by crypto adoption and regulation rather than by interest rate cycles. That has real implications for how much new bill issuance the market can absorb, how short-term funding rates behave, and where T-bill yields ultimately clear.

If a U.S. user moves $100 from a Treasury-heavy money market fund into USDC (also Treasury-backed), Treasuries don't gain a new buyer. All that changed is the instrument, and this is substitutive. If a worker in Argentina converts pesos into newly minted USDT on Tron, that dollar liability didn't previously exist in the U.S. financial system, and the reserve backing is genuinely new Treasury demand. The report's core contribution is quantifying this distinction.

Tron hosts the largest concentration of stablecoin balances of any blockchain, almost entirely in USDT, and it has a clean usage pattern. Tron's balances are dominated by a single, well-understood behavior: USDT functioning as digital cash in emerging markets for payments, savings and remittances. Solana hosts a more diverse mix of activity across DeFi, exchange flows, application-embedded balances, and consumer wallets.

The factors (1.0 for outright T-bills, 0.6 to 0.8 for tri-party Treasury repo, and 0.1 to 0.3 for bank deposits) reflect how directly each instrument creates marginal Treasury demand. Outright bills are mechanically incremental, repo is partial because it finances pre-existing collateral but expands dealer balance-sheet capacity, and deposit factors depend on the marginal bank's HQLA composition and its lending versus securities allocation. These ranges could be adjusted, and the framework is designed so readers can substitute their own factors and derive their own aggregate estimate.

With Treasury reverse repurchase agreements, cash is lent to a dealer overnight against Treasury collateral the dealer already owns. No new bill is issued or purchased in that transaction, but the dealer now has cheap, reliable funding for that collateral, which over time supports their willingness to take down more Treasuries at auction. The effect is real but indirect, closer to expanding the capacity of the Treasury market than to directly bidding at auctions.

First, wallet labeling is incomplete. The roughly $41B "uncategorized" bucket, which includes about two-thirds of Solana supply, is large enough that the central estimate could shift several tens of billions depending on what's included. Second, substitution assumptions are static and could change materially in a zero-rate environment or after a banking stress event. That said, the composability of the estimate is meant to permit for adjustment to these static assumptions. Third, issuer reserves are a snapshot: Tether's and Circle's reserve mixes shift quarterly, new issuers such as PayPal and bank-issued stablecoins will have different compositions, and Ethena-style synthetic dollars sit outside the framework entirely. The report is best read as a point-in-time framework, not a permanent calibration.

Regulation determines who holds stablecoins, in what form, and for what purpose. If a CLARITY Act variant or similar framework restricts yield pass-through for U.S. users, compliant stablecoins effectively become non-interest-bearing, and U.S. users would likely reallocate idle balances. Foreign restrictions on USD stablecoin holdings could also impact stablecoin allocations, but with the opposite impact of lowering the aggregate impact factor. Policy can reshuffle the mix and therefore the headline number.

It's a directional sizing exercise, not a forecast. It assumes today's impact factor of roughly 0.58 holds at ten times the current scale.

A few trigger conditions are worth watching. First, DeFi supply yields persistently exceeding T-bill yields. Second, regulatory clarity bringing U.S. participants onto DeFi at scale, which would broaden the user base from crypto-natives to traditional brokerage cash. Third, DeFi-specific risks subsiding, including de-peg risk, smart-contract failure, oracle manipulation and bridge exploits, which would compress the yield premium DeFi users currently demand and make these venues more directly comparable to traditional cash-like products. None are the base case today, but all are plausible.

This bucket covers unlabeled balances on smaller chains (including roughly two-thirds of Solana stablecoin supply), DAO and multisig treasuries such as Gnosis Safe, payroll and operational corporate balances, validator, sequencer and oracle infrastructure flows, and application-embedded balances such as Polymarket. This bucket and its lower factor highlight that stablecoins are increasingly the operating currency of the onchain economy itself, including offchain applications with onchain settlement, which is a structurally durable source of demand for U.S. Treasuries.