Stablecoins and Treasury Yields: How $153 Billion in T-Bill Holdings Reshape Safe Asset Markets

Why Stablecoins Now Hold $153 Billion in Treasury Bills

Dollar-backed stablecoins have quietly become one of the most significant sources of demand for US Treasury bills, fundamentally altering the dynamics of the world’s most important safe asset market. As of December 2025, stablecoin issuers collectively hold approximately $153 billion in US Treasury bill positions, a figure that surpasses the Treasury holdings of many sovereign nations and rivals those of major institutional investors. This remarkable concentration of demand has drawn the attention of the Bank for International Settlements (BIS), which published groundbreaking research quantifying how these holdings are reshaping short-term yield dynamics.

The mechanism driving this accumulation is straightforward but its scale is extraordinary. Stablecoins like Tether (USDT) and Circle (USDC) promise holders a 1:1 peg to the US dollar. To maintain this peg and generate yield on their reserves, issuers invest predominantly in short-term, highly liquid US government securities. Tether, with a market capitalization of $186 billion, holds approximately 63% of its reserves in Treasury bills. Circle, with $72 billion in market cap, allocates roughly 32% of reserves to T-bills. Together, these two issuers account for over 95% of outstanding stablecoin amounts.

During 2025 alone, stablecoin issuers purchased an estimated $33 billion in US Treasury bills, following $35 billion in purchases during 2024. These purchase volumes place stablecoin issuers among the most active buyers in the Treasury bill market, a development that would have been unimaginable even five years ago when the total stablecoin market was a fraction of its current size.

Stablecoin Market in 2025: $270 Billion and Growing

The stablecoin market has grown to over $270 billion in combined assets under management as of December 2025, representing a remarkable trajectory from its nascent origins in the mid-2010s. This growth has not been linear—the market weathered significant stress events including the Terra-Luna collapse in May 2022 and the FTX implosion in November 2022—but the underlying demand drivers have proven resilient.

The BIS research analyzes daily data spanning January 2021 through March 2025, encompassing 1,091 observations of stablecoin market dynamics. During this period, average five-day stablecoin flows measured $0.82 billion with a standard deviation of $1.747 billion, indicating substantial variability in the pace of capital entering and exiting the stablecoin ecosystem. This variability is critical because it means Treasury bill markets must regularly absorb or release billions in demand driven by cryptocurrency market dynamics.

The growth projections are even more striking. The Treasury Borrowing Advisory Committee estimates the stablecoin market could reach $2 trillion by 2028, while Citigroup projects $1.6 to $3.7 trillion by 2030. At these scales, stablecoin issuers’ demand for Treasury bills would approach or exceed the holdings of the Federal Reserve’s System Open Market Account, making stablecoins a structural feature of the US government securities market rather than a peripheral curiosity.

The size comparison between the approximately $3 trillion cryptocurrency market and the $35 trillion US Treasury market might suggest that crypto-driven flows should be inconsequential. However, the BIS research demonstrates that stablecoin demand is concentrated in the shortest-maturity segment of the Treasury market, creating outsized effects in this specific habitat.

How Stablecoin Inflows Lower Treasury Bill Yields

The central finding of the BIS research is both precise and consequential: a $3.5 billion stablecoin inflow—corresponding to approximately two standard deviations of five-day flows—lowers 3-month Treasury bill yields by 2.5 to 3.5 basis points within a 10-to-20-day window. This yield compression effect is comparable in magnitude to the impact of small-scale quantitative easing programs on long-term yields, highlighting the meaningful market power that stablecoin issuers now wield in the short-term government securities market.

The transmission mechanism operates through a straightforward demand channel. When cryptocurrency investors purchase stablecoins—whether to enter the crypto market, exit volatile positions, or access decentralized finance protocols—the stablecoin issuer receives dollars that must be invested in reserve assets. Given the regulatory and risk management imperative to hold highly liquid, short-maturity assets, the vast majority of these inflows are directed toward Treasury bills. This concentrated buying pressure pushes T-bill prices up and yields down.

The reverse dynamic operates during crypto market sell-offs. When stablecoin holders redeem their tokens for dollars, issuers must liquidate Treasury bill positions to fund redemptions. This selling pressure pushes T-bill prices down and yields up. The BIS researchers note, however, that the effects are not perfectly symmetric—the growing market during most of the sample period means that inflow effects are more precisely estimated than outflow effects, and the actual fire sale impact during severe stress could be substantially larger.

Importantly, the yield effects are concentrated in stablecoins’ “preferred habitat”—primarily the 3-month tenor with some spillover to 1-month yields that becomes statistically significant after approximately 20 days. The 6-month, 1-year, 2-year, and 5-year yields show limited to no response, confirming that stablecoin demand creates a localized rather than market-wide distortion. A small and somewhat puzzling effect appears at the 10-year maturity after about 20 days, possibly reflecting indirect channels through collateralized reverse repo positions or dealer inventory adjustments.

USDT vs USDC: Breaking Down Each Stablecoin’s Impact

The BIS research disaggregates the aggregate yield effect to reveal strikingly different contributions from individual stablecoin issuers. Tether (USDT) accounts for approximately 67% of the total yield compression effect, reflecting both its dominant market share and its higher allocation to Treasury bills as a percentage of reserves. USDC contributes roughly 21%, with the remaining 12% attributed to other stablecoin issuers.

This concentration raises important questions about market structure risk. Tether’s outsized influence means that any event affecting Tether specifically—whether a regulatory action, an auditing controversy, or a loss of market confidence—could generate Treasury bill market effects that are disproportionate to the overall stablecoin market’s size. The research implicitly highlights that Tether’s reserve management decisions have become a meaningful variable in the pricing of the world’s benchmark risk-free asset.

The differing reserve compositions of the major stablecoin issuers also contribute to their varying market impacts. Tether’s 63% allocation to T-bills translates to approximately $117 billion in Treasury holdings, while USDC’s 32% allocation corresponds to roughly $23 billion. This nearly five-to-one ratio in Treasury exposure largely explains the disproportionate yield effects, though differences in trading patterns and redemption dynamics also play a role.

Why the Impact Doubles During Treasury Bill Scarcity

Perhaps the most policy-relevant finding of the BIS research is the dramatic state dependency of stablecoin effects on Treasury yields. During periods of T-bill scarcity—specifically when the Federal Reserve’s reverse repo facility is growing or during debt ceiling standoffs that constrain new Treasury issuance—the same $3.5 billion stablecoin inflow compresses yields by 5 to 8 basis points, roughly double the baseline effect.

The economic intuition is straightforward: when the supply of Treasury bills is constrained, additional demand from stablecoin issuers creates a more acute supply-demand imbalance. During the debt ceiling episodes of 2023, for instance, the Treasury’s inability to issue new bills coincided with continued stablecoin market growth, amplifying the yield compression effect. Similarly, when the Fed’s reverse repo facility absorbs T-bills from the market, the available float for other buyers—including stablecoin issuers—shrinks, making each marginal purchase more impactful.

Conversely, when Treasury bill supply is ample—for example, following a debt ceiling resolution when the Treasury rebuilds its General Account through massive bill issuance—stablecoin effects become statistically insignificant. This finding suggests that the market impact of stablecoin demand is not an inherent structural problem but rather a conditional risk that depends on the broader Treasury supply environment.

The policy implications are significant. The Treasury Borrowing Advisory Committee and Federal Reserve policymakers must now consider stablecoin demand dynamics when calibrating bill issuance volumes, reverse repo facility parameters, and overall debt management strategy. Stablecoin issuers have become a structural feature of the demand landscape that cannot be ignored in supply-demand modeling.

Isolating Stablecoin Demand: The Instrumental Variable Approach

A central methodological challenge in measuring stablecoin effects on Treasury yields is establishing causality rather than mere correlation. Both stablecoin flows and Treasury yields respond to common macroeconomic factors—risk appetite, monetary policy expectations, and flight-to-safety dynamics—making it difficult to isolate the independent demand effect of stablecoin purchases.

The BIS researchers address this challenge using an instrumental variable approach that derives “crypto shocks” from the Bloomberg Galaxy Crypto Index after purging correlations with traditional financial market indicators. The logic is compelling: cryptocurrency-specific price movements—driven by factors like protocol upgrades, mining difficulty changes, or crypto-native news events—cause stablecoin flows (as investors enter or exit crypto positions through stablecoins) but should not independently affect Treasury yields except through the stablecoin demand channel.

The strength of this instrument is confirmed by a first-stage F-statistic of 213.5 for aggregate stablecoin flows, far exceeding conventional thresholds for instrument relevance. This strong first stage gives confidence that the second-stage yield effects reflect genuine causal impact of stablecoin demand rather than spurious correlation with omitted variables.

The researchers also conduct extensive robustness checks including controls for VIX, Treasury auction cycles, federal funds rate expectations, and MOVE index volatility. The core findings remain stable across specifications, reinforcing the conclusion that stablecoin demand represents an independent and quantitatively meaningful driver of short-term Treasury yield dynamics.

Event Studies: Terra-Luna, FTX, and the TRUMP Token

The BIS research complements its econometric analysis with event studies centered on four major cryptocurrency market episodes, each providing a natural experiment for observing how stablecoin flows transmit into Treasury markets.

The Terra-Luna collapse in May 2022—when the algorithmic stablecoin UST lost its dollar peg and collapsed, taking down the broader Luna ecosystem—triggered massive redemptions across the stablecoin sector as investors fled to safety. The event study shows a corresponding spike in short-term Treasury yields as stablecoin issuers liquidated T-bill positions to fund redemptions, providing real-time evidence of the transmission mechanism identified in the broader econometric analysis.

The FTX collapse in November 2022 generated a similar but even more severe stablecoin outflow episode. The failure of one of the largest cryptocurrency exchanges created systemic contagion across the digital asset ecosystem, driving unprecedented stablecoin redemptions. The Treasury bill market effects during this period are consistent with the baseline estimates, adjusted for the exceptional magnitude of the flows.

More recent events provide additional evidence from the opposite direction. The US presidential election in November 2024 and the TRUMP token launch in January 2025 both triggered substantial crypto inflows that manifested as stablecoin minting and subsequent Treasury bill purchases. The yield compression observed during these episodes aligns with the instrumental variable estimates, providing out-of-sample validation of the model’s predictive power.

What a $2 Trillion Market Means for Monetary Policy

The extrapolation of current findings to projected future market sizes reveals potentially transformative implications for Federal Reserve monetary policy transmission. At the current $270 billion market size, stablecoin effects on Treasury yields are measurable but manageable. At $2 trillion—the Treasury Borrowing Advisory Committee’s 2028 projection—the dynamics change qualitatively.

The BIS researchers estimate that at a $2 trillion market size, a two-standard-deviation stablecoin flow of approximately $11 billion could lower T-bill yields by 7.85 to 11 basis points. To put this in perspective, the Federal Reserve’s typical rate adjustments occur in 25-basis-point increments. A stablecoin-driven yield compression of nearly half that magnitude could materially affect the pass-through of policy rate changes to market-based short-term rates.

This scenario evokes what former Federal Reserve Chairman Alan Greenspan described as a “conundrum” in 2005—when long-term Treasury yields failed to rise despite aggressive Fed tightening, partly due to outsized foreign demand for US government securities, particularly from Asian central banks. In the stablecoin version of this conundrum, crypto-driven demand for short-term Treasuries could dampen the transmission of Fed rate increases to the short end of the yield curve, potentially requiring larger or more prolonged rate hikes to achieve the same tightening effect.

The implications extend beyond rate-setting. Treasury bill yields serve as a reference rate for money market funds, repurchase agreements, commercial paper, and short-term corporate borrowing. Systematic compression of these yields by stablecoin demand could create mispricing across the entire short-term funding complex, with cascading effects on bank net interest margins, money market fund returns, and corporate treasury management strategies.

Financial Stability Risks: Runs, Fire Sales, and Concentration

The flip side of stablecoin demand’s yield-compressing effect is the financial stability risk that arises from the concentrated and potentially volatile nature of this demand. Stablecoins remain fundamentally runnable—they are redeemable on demand at par, are not insured by the FDIC, and their issuers lack access to the Federal Reserve’s discount window or lender-of-last-resort facilities. This combination of on-demand redeemability and lack of emergency liquidity backstops creates the classic conditions for a destabilizing run.

The BIS researchers note that their yield impact estimates likely represent a lower bound of fire sale effects because the sample period predominantly features a growing stablecoin market. During periods of growth, issuers have more discretionary timing for their Treasury purchases—they can spread purchases across multiple auction cycles and secondary market sessions to minimize market impact. During a run, however, issuers face urgent, non-discretionary selling pressure to fund redemptions, compressing all selling activity into a narrow time window.

The concentration of Treasury bill holdings among stablecoin issuers amplifies this risk. With Tether alone holding an estimated $117 billion in T-bills, a severe redemption event affecting Tether specifically could generate selling pressure equivalent to a small sovereign debt crisis in the world’s deepest and most liquid fixed income market. The Treasury bill market’s daily trading volume typically absorbs such flows, but the speed and concentration of a run-driven liquidation could temporarily overwhelm market-making capacity.

The absence of prudential supervision for most stablecoin issuers compounds the concern. Traditional money market funds, which hold similar Treasury bill positions, are subject to SEC regulation including liquidity requirements, portfolio concentration limits, and stress testing. Stablecoin issuers currently operate under a patchwork of state and international regulations with significantly less consistency in reserve composition requirements, audit standards, and disclosure obligations.

Stablecoin Regulation and the Future of Treasury Markets

The BIS research arrives at a moment of intense regulatory debate over stablecoin supervision. In the United States, the GENIUS Act represents the most advanced legislative effort to establish a comprehensive federal framework for stablecoin regulation. Among its provisions, the GENIUS Act would restrict stablecoin reserves to Treasury securities maturing in 93 days or less, potentially concentrating even more demand into the shortest-maturity T-bill segment and amplifying the yield effects documented in the BIS research.

The irony of well-intentioned regulation is that requiring stablecoin reserves to consist exclusively of short-maturity Treasuries—while addressing credit risk concerns—may exacerbate the safe asset price distortions that the BIS research documents. A $2 trillion stablecoin market with reserves restricted to 93-day-or-less Treasuries would represent demand of $2 trillion concentrated in a market segment where total outstanding supply fluctuates significantly with Treasury’s debt management decisions.

Reserve transparency requirements are another critical regulatory dimension. Currently, the quality and frequency of reserve disclosures vary dramatically across stablecoin issuers. Circle publishes monthly attestation reports through Grant Thornton, while Tether has faced persistent questions about the completeness and verifiability of its reserve disclosures. Standardized, frequent, and independently audited reserve reporting would help market participants and regulators assess the potential Treasury market impact of stablecoin flows in real-time.

Looking ahead, the intersection of stablecoin reserve management and Treasury market dynamics will only grow in significance. As the crypto ecosystem matures and stablecoin adoption accelerates—driven by cross-border payments, decentralized finance, and emerging-market demand for dollar-denominated digital assets—the connection between cryptocurrency markets and the world’s benchmark risk-free asset will deepen. Policymakers, market participants, and financial stability authorities must incorporate this new structural reality into their analytical frameworks, stress testing scenarios, and regulatory approaches. The era when stablecoins could be dismissed as a crypto curiosity with no relevance to traditional finance has definitively ended.