Written by: Deep Tide TechFlow
Stablecoins have undoubtedly been a hot topic in the crypto market over the past week.
Previously, the U.S. GENIUS stablecoin bill passed the Senate voting process, and now the Hong Kong Legislative Council has passed the Stablecoin Bill in its third reading. Stablecoins have now become an important variable in the global financial system.
In the United States, the future development of stablecoins is not only about the prosperity of the digital asset market, but also has a profound impact on the demand for Treasury bonds, the liquidity of bank deposits, and the hegemony of the US dollar.
A month before the passage of the GENIUS Act, the U.S. Department of the Treasury’s “think tank” - the Treasury Borrowing Advisory Committee, or TBAC for short, published a report that delved into the potential impact of the expansion of stablecoins on U.S. fiscal and financial stability.
As an important part of the debt financing plan formulated by the Treasury Department, TBAC’s recommendations not only directly influence the issuance strategy of U.S. Treasury bonds but may also indirectly shape the regulatory path for stablecoins.
So, how does TBAC view the growth of stablecoins? Will the opinions of this think tank influence the Treasury’s debt management decisions?
We will use the latest report from TBAC as a starting point to interpret how stablecoins have evolved from “on-chain cash” to an important variable influencing U.S. fiscal policy.
TBAC, Treasury Brain Trust
First, let me introduce TBAC.
TBAC is a consulting committee that provides economic observation and debt management advice to the Department of the Treasury, composed of senior representatives from buy-side and sell-side financial institutions, including banks, brokerage firms, asset management companies, hedge funds, and insurance companies. It is also an important part of the U.S. Treasury’s debt financing plans.
TBAC meeting
The TBAC meeting primarily provides financing recommendations to the U.S. Department of the Treasury and is an important component of the Treasury’s debt financing plan. From the perspective of the financing plan process, the U.S. Treasury’s quarterly financing process includes three stages:
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The treasury debt manager solicits suggestions from primary dealers;
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After meetings with major traders, the Treasury debt managers seek advice from TBAC; in response to the questions and discussion materials presented by the Treasury, TBAC will issue a formal report to the Secretary of the Treasury;
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The treasury debt manager makes decisions on changes to debt management policies based on research analysis and suggestions received from the private sector.
Report Summary: The Impact on American Banks, the Treasury Bond Market, and Money Supply
Bank deposits: The impact of stablecoins on bank deposits depends on whether they have a yield function and the operational payment characteristics compared to other financial products. Against the backdrop of increased competition, banks may need to raise interest rates to sustain funding, or seek alternative sources of financing.
Treasury market: an overall increase in demand for Treasuries, with reserve requirements in stablecoin legislation providing an additional and growing source of demand for Treasuries; The overall maturity of treasury bonds has moved forward, and the legislation requires stablecoin issuers to hold treasury bonds with a maturity of less than 93 days, resulting in a concentration of treasury bonds in the short term.
Money Supply: The demand for stablecoins may have a net neutral effect on the U.S. money supply. However, the appeal of stablecoins pegged to the dollar may shift current non-dollar liquidity holdings towards the dollar.
Current Market Structure Impact: The current legislative proposal fails to provide a pathway for ineligible issuers to access the main account. Stablecoin issuers cannot access the Federal Reserve, which may exacerbate the risks of stablecoins during periods of stress or volatility.
The current diversification of digital currency: a panorama from private to central banks.
This image provides us with a panoramic view of digital currencies, showcasing their diverse implementation paths and practical applications across various fields.
Classification of digital currencies
Private sector issuance (commercial bank balance sheet)
Tokenised Deposits: The blockchain representation of commercial bank deposit liabilities.
Tokenised Money Market Funds: Tokenisation of money market funds based on blockchain.
Private sector issuance (central bank balance sheet)
Stablecoin: A blockchain cash representation backed by a 1:1 reserve of assets, which can be interest-bearing or non-interest-bearing.
Issuance by private or public sector
Cryptocurrency: Virtual currency based on decentralized networks.
Central Bank Issuance
Trigger Solutions: Connection between blockchain and Central Bank Real-Time Gross Settlement System (RTGS).
CBDC (Central Bank Digital Currency): A form of blockchain cash issued and regulated directly by the central bank.
Current market trends
Tokenized deposits
J.P. Morgan and Citi have launched blockchain-based payment and repurchase activity solutions.
Tokenized Money Market Fund
BlackRock’s BUIDL has attracted over $240 million in investment.
Franklin Templeton launches the BENJI token, supporting Stellar, Polygon, and Ethereum blockchains.
stablecoin
The market is dominated by major issuers such as Tether and Circle, with a total market capitalization of approximately $234 billion.
cryptocurrency
The total market capitalization is close to $30 trillion, with mainstream currencies including Bitcoin ($1.7 trillion) and Ethereum ($191 billion).
Trigger Solution
The mechanism introduced by the German central bank has facilitated the settlement of blockchain assets and traditional payment systems.
CBDC
Among the 134 countries and currency unions being tracked, 25% have been launched, 33% are in the pilot stage, and 48% are still in development.
Current Status of the Stablecoin Market: Overview of Market Capitalization and Key Events
The stablecoin market has experienced significant volatility and development in recent years. As of April 14, 2025, the total market capitalization has reached $234 billion, with USDT (Tether) dominating the market at $145 billion, followed closely by USDC (Circle) at $60.2 billion, and other stablecoins having a total market capitalization of $28.7 billion.
Looking back over the past four years, two major events in the stablecoin market have become watershed moments for the industry’s development.
In May 2022, the collapse of the algorithmic stablecoin UST triggered a crisis of confidence across the DeFi sector. The depegging of UST not only raised doubts about the feasibility of algorithmic stablecoins but also affected the market confidence in other stablecoins.
Then, the regional banking crisis in March 2023 once again threw the market into turmoil. At the time, USDC’s issuer, Circle, had about $3.3 billion in reserves frozen at Silicon Valley Bank (SVB), resulting in a brief de-anchoring of USDC. This event caused the market to re-evaluate the reserve transparency and security of stablecoins, and USDT further strengthened its market share during this period.
Despite experiencing multiple crises, the stablecoin market gradually recovered in 2024, keeping pace with the broader digital asset market’s development. In 2024, the United States launched its first spot crypto ETFs, providing institutional investors with tools to access BTC and ETH.
Currently, the growth of the stablecoin market is mainly attributed to three aspects: the increasing interest of institutional investors, the gradual improvement of the global regulatory framework, and the continuous expansion of on-chain application scenarios.
Comparison of Cryptocurrency Market Funds and Stablecoins: Two Types of On-Chain Assets
With the rapid growth of Tokenized Money Market Funds (MMFs), an alternative to stablecoins is taking shape. DESPITE THE SIMILARITIES IN USE CASES, ONE SIGNIFICANT DIFFERENCE IS THAT STABLECOINS CANNOT BE USED AS YIELD INSTRUMENTS UNDER THE CURRENT GENIUS ACT, WHILE MMFs can generate income for investors through the underlying asset.
Market potential: from 230 billion to 2 trillion USD
According to the report, the market capitalization of stablecoins is expected to reach about $2 trillion by 2028. This growth trajectory relies not only on the natural expansion of market demand, but also on a number of key drivers, which can be grouped into three broad categories: adoption, economics, and regulation.
The adoption of participation by financial institutions, on-chain migration of wholesale market transactions, and merchant support for stablecoin payments are gradually driving it to become a mainstream payment and trading tool.
Economy: The value storage function of stablecoins is being redefined, especially with the rise of interest-bearing stablecoins, which provide the possibility of yield generation for holders.
Regulation: If stablecoins can be incorporated into capital and liquidity management frameworks and obtain permission from banks to operate on public chains, it will further enhance their legitimacy and credibility.
(Note: At the time the report was issued, the stablecoin bill had not yet been passed, and it had entered the voting procedure stage.)
The stablecoin market is expected to grow from the current $234 billion to $2 trillion by 2028. This growth requires a significant increase in trading volume, assuming the velocity of stablecoins remains constant.
The market dominance of the US dollar stablecoin
USD stablecoins account for 83% of the total amount of fiat-pegged stablecoins, far higher than other currencies (EUR accounts for 8%, others account for 9%).
In the overall stablecoin market capitalization, USD stablecoins account for over 99%, with a market cap of 233 billion USD, of which approximately 120 billion USD is backed by U.S. Treasuries. Non-USD stablecoins have a market capitalization of only 606 million USD.
The market size of USD stablecoins is 386 times that of non-USD stablecoins, indicating their absolute dominance in the global stablecoin market.
Potential Impact of Stablecoin Growth on Bank Deposits
The growth of stablecoins may have a significant impact on bank deposits, particularly whether their design pays interest will be a key factor.
As of the fourth quarter of 2024, total deposits in the U.S. reached $17.8 trillion, with non-trading deposits (including savings accounts and term deposits) accounting for the majority at $8.3 trillion and $2.9 trillion, respectively. Transactional deposits include demand deposits ($5.7 trillion) and other non-demand trading deposits ($0.9 trillion).
Among these deposits, transaction-type deposits are considered the most “vulnerable,” meaning they are more easily impacted by stablecoin fluctuations. The reason is that this type of deposit usually does not pay interest, is primarily used for daily activities, and is easy to transfer. Uninsured deposits are often moved by holders to higher-yielding or lower-risk instruments, such as money market funds (MMFs), during periods of market uncertainty.
If stablecoins do not pay interest, their growth will mainly rely on payment functions and the overall activity of the digital asset market, thus having a limited impact on bank deposits. However, if stablecoins begin to pay interest, especially by offering higher yields or convenience of use, traditional deposits may be massively transferred to such stablecoins. In this case, USD-pegged interest-bearing stablecoins will not only attract on-chain users but also become an important tool for value storage, further enhancing their global appeal.
In summary, the interest characteristics of stablecoin design will directly affect its potential impact on bank deposits:
The impact of non-interest-bearing stablecoins is relatively small, whereas interest-bearing stablecoins may significantly change the deposit landscape.
The Potential Impact of Stablecoin Growth on U.S. Treasury Bonds
According to publicly available reserve data, major stablecoin issuers currently hold more than $120 billion in short-term Treasury bonds (T-Bills), of which Tether (USDT) accounts for the highest proportion, with about 65.7% of reserves allocated in T-Bills. This trend suggests that stablecoin issuers have become significant players in the short-term Treasury market.
In the future, the demand for T-Bills from stablecoin issuers is expected to be closely related to the expansion of overall market instruments.
In the coming years, this demand may additionally push up the demand for short-term government bonds by about $900 billion.
There is a trade-off between the growth of stablecoins and bank deposits. Large amounts of money may flow from bank deposits to stablecoin-backed assets, especially during periods of market volatility or a crisis of confidence, such as stablecoin depeging, where this transfer can be further amplified.
The U.S. “GENIUS Act” requirements for short-term government bonds may further drive stablecoin issuers to allocate to T-Bills.
In terms of market size, stablecoin issuers will hold about $120 billion in T-Bills in 2024, and by 2028, this number could grow to $1 trillion, an 8.3x increase. In comparison, the current market size of tokenized government securities is only $2.9 billion, showing significant growth potential.
In summary, the demand for T-Bills from stablecoin issuers is reshaping the ecosystem of the short-term Treasury bond market, but this growth may also intensify the competition between bank deposits and market liquidity.
The Potential Impact of Stablecoin Growth on the Growth of the US Money Supply
The growth of stablecoins primarily impacts the potential shift of funds in the U.S. money supply (M1, M2, and M3), rather than a direct change in the total amount.
Current currency supply structure:
M1 includes currency in circulation, demand deposits, and other checkable deposits, totaling approximately $6.6 trillion.
M2 includes savings deposits, small time deposits, and retail money market funds (MMFs).
M3 includes short-term repurchase agreements, institutional MMFs, and large-term deposits.
The Role of Stablecoins:
Stablecoins are seen as a new means of value storage, especially within the framework of the GENIUS Act.
Stablecoins may attract some funds out of M1 and M2, shifting towards stablecoin holders, especially non-US dollar holders.
Potential impact
Transfer of funds:
The growth of stablecoins may not directly change the total amount of money supply in the United States, but it could lead to a transfer of funds from M1 and M2. This transfer may affect the liquidity of banks and the attractiveness of traditional deposits.
International Influence:
Stablecoins, as a means of obtaining U.S. dollars, may increase the demand for dollars among non-U.S. dollar holders, thereby increasing the inflow into the U.S. money supply. This trend could promote the use and acceptance of stablecoins globally.
The growth of stablecoins, while not immediately altering the total money supply in the United States, has the potential to profoundly affect capital flows and international demand for dollars as a means of value storage and monetary acquisition. This phenomenon needs to be addressed in policy-making and financial regulation to ensure the stability of the financial system.
Possible Directions for Future Stablecoin Regulation
The current proposed regulatory framework for stablecoins in the United States is similar to the reform requirements for MMFs after 2010, focusing on:
Reserve requirements: Ensure high liquidity and security of stablecoin reserves.
Market Access: Discuss whether stablecoin issuers can obtain support from the Federal Reserve (FED), access to deposit insurance, or access to a 24/7 repurchase market.
These measures aim to reduce the risk of stablecoin de-pegging and enhance market stability.
Summary
Market size potential
The stablecoin market is expected to grow to approximately $2 trillion by 2030, driven by ongoing market and regulatory breakthroughs.
The dominant position of the US dollar peg
The stablecoin market is largely made up of dollar-pegged stablecoins, which has led to a near-term focus on the potential U.S. regulatory framework and the accelerating impact of its legislation on stablecoin growth.
Impact and Opportunities for Traditional Banks
Stablecoins may impact traditional banks by attracting deposits, but at the same time, they create opportunities for banks and financial institutions to develop innovative services and benefit from the use of blockchain technology.
The far-reaching impact of stablecoin design and adoption
The final design and adoption of stablecoins will determine their impact on the traditional banking system and their potential to drive demand for U.S. Treasury securities.
