Stablecoin issuers Tether (famous for USDT) and Circle (issuer of USDC) have quietly amassed US Treasury holdings that exceed those of major economies including Germany, South Korea, and the United Arab Emirates, marking a significant shift in the global debt landscape as digital currencies move from crypto trading tools to mainstream financial instruments.
What to Know:
- Tether holds over $100 billion in Treasury bills, ranking as the 18th-largest holder of US debt globally, while Circle maintains $45-55 billion in T-bills
- The combined stablecoin market capitalization has reached $270 billion and could grow to $2 trillion by 2028, creating unprecedented demand for US government securities
- Traditional foreign holders like China are reducing their Treasury positions, creating an opportunity for stablecoin issuers to fill the gap as consistent buyers
Digital Dollar Dominance Takes Shape
The rapid ascent of stablecoins represents more than just cryptocurrency growth. These digital tokens, pegged to the US dollar and backed by reserves primarily held in Treasury bills, have transformed from niche trading instruments into serious contenders in global finance. The recent passage of the GENIUS Act legitimized their use, spurring interest from banks, payment processors, and Fortune 500 companies.
Tether, the world's largest stablecoin issuer, now commands a Treasury portfolio exceeding $100 billion. This positions the company as the 18th-largest holder of US debt worldwide, surpassing the UAE's $85 billion stake. Circle, which issues USDC, maintains between $45 billion and $55 billion in T-bills.
The numbers become more striking when compared individually. Circle's holdings alone exceed South Korea's approximately $75 billion Treasury position. Combined, these two companies control more US debt than Germany, South Korea, and the UAE together.
Market Forces Drive Unprecedented Growth
Stablecoin transaction volumes have already surpassed those of Visa, driven primarily by cryptocurrency trading but increasingly by global money transfers. A recent BeInCrypto report found that 49% of institutions now use stablecoins for various financial operations.
The appeal lies in practical advantages. Near-instant settlement and minimal fees position stablecoins as alternatives to traditional payment systems like SWIFT. This potential caught the attention of major players, exemplified by Stripe's $1.1 billion acquisition of stablecoin startup Bridge in October.
USDC's market capitalization alone surged 90% over the past year, reaching $65 billion.
Circle's high-profile IPO in June accelerated institutional adoption. The broader stablecoin market now represents $270 billion in total value.
Industry projections suggest this figure could reach $2 trillion by 2028. An Apollo report noted that such growth would "significantly increase" demand for Treasury bills, though it warned of "financial stability risks because money will be moved around quickly if depositors lose confidence in a stablecoin issuer."
Traditional Holders Retreat as Digital Players Advance
The rise of stablecoin issuers coincides with traditional foreign holders scaling back their Treasury positions. China's holdings dropped from over $1 trillion a decade ago to $756 billion today. Japan, while maintaining its position as the largest foreign holder at $1.13 trillion, has signaled a more cautious approach.
This retreat creates opportunities for stablecoin companies to serve as consistent sources of Treasury demand. Yesha Yadav, a Vanderbilt Law School professor studying cryptocurrency and bond markets, told Fortune that "having stablecoin issuers always be there is a massive boost in terms of giving confidence to the Treasury [Department] about where to place debt."
Proponents argue stablecoins could strengthen dollar dominance globally, similar to how the offshore "Eurodollar" market functioned in the 20th century. They suggest growing Treasury demand from stablecoin firms might help lower long-term interest rates and enhance US sanctions enforcement abroad.
Understanding the Financial Mechanics
Stablecoins operate on a straightforward principle: digital tokens backed by reserves that maintain a one-to-one peg with the US dollar. This structure ensures reliable redemption and provides stability attractive for cross-border payments and cryptocurrency ecosystem settlement.
Treasury bills serve as the primary backing asset because of their liquidity and safety. When users purchase stablecoins, issuers typically invest the proceeds in T-bills, creating direct demand for US government debt. This mechanism transforms every dollar of stablecoin growth into Treasury purchases.
Money market funds currently dwarf stablecoin holdings at roughly $7 trillion, leading some skeptics to question the significance of current numbers. Banking lobbyists warn that stablecoins could drain deposits from traditional banks, potentially reducing lending capacity.
However, industry executives point to similar concerns raised about money market funds decades ago that proved unfounded. The stablecoin industry now ranks as the 18th-largest external holder of Treasuries, a position that continues strengthening.
Market Disruption and Future Implications
Critics raise legitimate concerns about rapid growth in stablecoin Treasury holdings. A Citibank analysis noted that "if US debt climbs and T-Bills wobble, so does the trust in digital dollar, creating a temporary shift to other currencies." The concentration of holdings in two primary issuers presents additional systemic risks.
Large-scale stablecoin adoption could disrupt how Wall Street manages liquidity and risk. The speed at which digital assets move compared to traditional banking creates new volatility patterns in Treasury markets.
Yet the trend appears unstoppable given current adoption rates. Almost 90% of stablecoin use involves cryptocurrency trading, according to the Apollo report, but the "big breakthrough" would come if US dollar stablecoins gain traction for global retail payments.
Closing Thoughts
The emergence of Tether and Circle as major Treasury holders signals a fundamental shift in global finance, where companies born in cryptocurrency markets now rival sovereign nations in US debt ownership. This transformation reflects both the maturation of digital currencies and changing dynamics in international Treasury demand, positioning stablecoin issuers as influential new players in government debt markets.