Stablecoins' $114B Treasury Bill Exposure: Regulatory Compliance Risks and Cash Flow Vulnerabilities

ABN Amro's balance sheet reflects the broader shift in capital markets, with $114 billion in U.S. Treasury bills held by dollar-backed stablecoins as of March 2025, according to a Cleveland Fed analysis. These stablecoins, which purchased an additional $35 billion in T-bills during 2024, now represent a meaningful chunk of short-term government debt, compressing yields by 2–2.5 basis points during inflows. This concentrated position raises concerns about market stability during rapid outflows. The regulatory landscape changed significantly in 2025 with the GENIUS Act, which introduced a banking-style framework for payment stablecoins. This law requires issuers to maintain 1:1 reserves of U.S. dollars and short-term U.S. Treasuries, shifting oversight from securities regulators to banking authorities and prohibiting interest payments on stablecoins to prevent their use as investment vehicles. While designed for transparency, this new regime creates potential systemic risks by concentrating Treasury holdings within entities operating under different rules than traditional banks. The stablecoin market itself reached approximately $250 billion in 2024, but its growth trajectory under the GENIUS Act could significantly reshape Treasury demand. The Kansas City Fed estimated that if the market expands to $900 billion, stablecoins could displace $325 billion from bank loans into Treasury purchases, reducing overall lending by about 1%. This shift could alter market dynamics by increasing demand for short-term Treasuries and potentially tightening credit conditions if banks lose funding sources according to research.

Liquidity Risks: Systemic Fragility

Stablecoins' rapid accumulation of Treasury bills creates a hidden vulnerability. Their $35 billion in 2024 purchases alone could trigger significant market stress during a run according to analysis. This concentration means even moderate redemption waves-just 10%-compress short-term yields by a sharp 2.5 basis points. While this yield impact occurs during inflows, the real danger emerges during outflows, where the asymmetry becomes a liability.

The sheer scale of stablecoin holdings compounds the risk. These entities hold $114 billion in T-bills as of March 2025, surpassing some foreign investor positions and creating potential fire-sale scenarios if confidence erodes suddenly. If large-scale redemptions occur, broker-dealers facing sudden Treasury sales would hit critical regulatory constraints. The Supplementary Leverage Ratio (SLR) and VaR models could prevent banks from absorbing these trades, overwhelming secondary markets and freezing liquidity precisely when it's needed most according to MIT research.

This creates a dangerous feedback loop: stablecoins rely on Treasury market stability, but their massive positions could destabilize that same market during stress. Regulatory safeguards designed to protect banks might inadvertently amplify systemic risk by blocking orderly price discovery during a crisis. Policymakers face urgent questions about whether structural reforms or lender-of-last-resort frameworks are needed to prevent contagion as stablecoin issuance continues expanding.

Compliance Constraints

The GENIUS Act's 1:1 reserve mandate fundamentally reshapes stablecoin liquidity management. Per the 2025 law, permitted issuers must back every stablecoin dollar with equivalent U.S. dollars or ultra-short-term Treasuries, effectively locking capital in low-yielding assets while imposing bank-like prudential rules and prohibiting any interest payments to holders. This creates immediate cash flow constraints, as issuers must match redemptions instantly with liquid reserves, eliminating traditional maturity transformation.

Unregulated stablecoins operating outside this framework pose distinct arbitrage and systemic risks. While GENIUS Act-compliant issuers are bound by strict transparency rules, non-compliant stablecoins can pursue yield-generating strategies like Treasury basis trades-exploiting yield gaps between T-bills and repos-that amplify volatility during market stress. Their lack of oversight also raises concerns about reserve adequacy, potentially triggering contagion if runs occur during liquidity crunches.

Emerging economies face additional frictions from currency substitution risks. As stablecoins backed by U.S. government debt gain cross-border traction, their Treasury demand could displace domestic debt markets, reducing local seigniorage and complicating monetary policy transmission according to Brookings research. While this isn't yet systemic, inconsistent global regulations create arbitrage opportunities that may accelerate dollarization in vulnerable economies. Issuers must now balance compliance costs against these cross-border dynamics as regulatory fragmentation persists.

Risk Assessment: Scenarios and Catalysts

Stablecoins could grow to $900 billion by 2027, displacing $325 billion in traditional bank loans and reducing lending capacity by 1% if they expand as projected according to Kansas City Fed research. Current holdings stand at $114 billion in Treasury bills, up from $35 billion in 2024, already compressing short-term yields by 2–2.5 basis points during inflows according to analysis. This shift would redirect funds from credit markets into Treasury securities, potentially tightening overall credit conditions.

The market's current $114 billion in Treasury holdings represents just 0.5% of privately held Treasuries today. If stablecoins reach $900 billion, their Treasury demand could surge to 5% of total holdings-a threshold regulators warn may trigger safe asset scarcity. That concentration would amplify yield volatility during outflows, as rapid redemptions could force fire sales amid liquidity strains.

Catalysts include regulatory shifts under the GENIUS Act, which mandates 1:1 Treasury or cash reserves for stablecoins but prohibits direct lending. Compliance costs and sudden regulatory reinterpretations could disrupt issuer models. Additionally, short-term Treasury dominance makes the market vulnerable to volatility spikes if stablecoin runs occur, especially since arbitrage strategies like Treasury basis trades may exacerbate price swings.

For investors, this evolution demands sensitivity to liquidity risks. While stablecoins may enhance Treasury market depth, their growth could simultaneously squeeze credit availability and amplify systemic stress during volatility shocks. Monitoring regulatory developments and reserve composition transparency remains critical.