Treasury Forecasts $2 Trillion Stablecoin Market by 2028

The United States Department of the Treasury has projected that the market capitalization of US dollar-pegged stablecoins could reach approximately $2 trillion by 2028. This forecast is based on the Treasury's Q1 2025 report, which highlights the evolving market dynamics that could accelerate the growth of stablecoins. Currently, the cumulative market cap of stablecoins stands at roughly $230 billion. Stablecoins, which are cryptocurrencies pegged to traditional assets like the US dollar, are increasingly being used as a new payment mechanism, often referred to as 'cash on-chain.'

The report also notes the emergence of tokenized money market funds as an alternative to stablecoins, primarily due to their yield-bearing feature. This development is part of a broader trend where the US government is embracing blockchain technology. The Treasury has previously endorsed cryptocurrency, recognizing its potential to create a new financial market infrastructure and increase global demand for US Treasury bills. Stablecoins like Tether (USDT) and USDC (USDC) invest their fiat backing into yield-bearing instruments such as US Treasurys, which has likely resulted in a modest increase in demand for short-dated Treasury securities.

The Treasury's April report also mentioned pending stablecoin legislation that would require stablecoin issuers to hold short-dated T-bills, further solidifying the link between stablecoin adoption and US Treasury bill demand. This legislation could also put pressure on retail banks to pay higher interest rates to depositors. As of April 25, Tether’s USDT is the dominant stablecoin, commanding approximately 66% of the market share. The token has a market capitalization of roughly $150 billion. Circle’s USDC ranks second, with a market capitalization of approximately $60 billion as of April 30.

The report underscores the growing importance of stablecoins in the financial ecosystem. Their widespread use as a payment mechanism and the potential for increased demand for US Treasury bills highlight the need for regulatory frameworks that can manage the risks and opportunities associated with these digital assets. The Treasury's endorsement of blockchain technology and its recognition of the potential benefits of stablecoins suggest a supportive stance towards their integration into the broader financial system. However, the report also acknowledges the need for stablecoin issuers to hold short-dated T-bills, which could impact the stability and liquidity of the market. Overall, the Treasury's projections and analysis provide a comprehensive view of the current state and future potential of stablecoins, emphasizing their role in the evolving financial landscape.