Stablecoins and the Fed: How Growing Adoption Could Reshape Monetary Policy and Lower U.S. Borrowing Costs

The stablecoin revolution is no longer a speculative footnote in the crypto narrative-it's a seismic shift in global finance. By Q3 2025, stablecoin payments surged to $41 billion, with on-chain transaction volumes reaching $4 trillion annually, a 83% increase from 2024, according to a InvestorEmpires report. This growth, driven by Tether (USDT) and USD Coin (USDC), which dominate 90% of the market cap, is reshaping the U.S. dollar's role in the financial system. For investors in U.S. Treasuries and dollar assets, the implications are profound: stablecoins are becoming a catalyst for lower borrowing costs and a redefinition of monetary policy.

Regulatory Frameworks as Catalysts for Stability

The U.S. GENIUS Act, enacted in 2025, has created a legal framework requiring stablecoin issuers to back their tokens with highly liquid assets like U.S. Treasuries and cash, according to a CryptoTimes analysis. This mandate has directly increased demand for short-term Treasury bills, as stablecoin providers seek compliance with full-reserve requirements. Similarly, the EU's MiCA and Canada's 2025 budget reforms have aligned global standards, ensuring stablecoins are treated as systemic infrastructure rather than speculative tools, according to a Coinotag report. These regulations have not only stabilized the sector but also amplified the dollar's dominance, as 90% of stablecoins remain pegged to the U.S. dollar, as noted in the InvestorEmpires report.

Federal Reserve Governor Stephen Miran has explicitly linked this trend to monetary policy. He argues that stablecoin adoption could lower the neutral interest rate (R-star), forcing the Fed to maintain lower short-term rates to support economic growth, as reported by Reuters. This dynamic is already playing out: stablecoin issuers now hold a significant portion of Treasury securities, with the market projected to grow from $310.7 billion to $3 trillion by 2030, as noted in a Coinotag analysis. Such demand could compress Treasury yields, reducing U.S. government borrowing costs by as much as 30 basis points, according to a Banking Journal article.

The BITCOIN Act: A Wild Card in the Fed's Calculus

While regulatory alignment and Treasury demand are clear tailwinds, a potential disruptor looms: Senator Cynthia Lummis' BITCOIN Act. This proposal, which seeks to sell part of the Fed's gold reserves to purchase 1 million bitcoins, could introduce volatility into the dollar's reserve status, as reported by Moomoo. Though the plan's 31% probability of enactment remains low, its mere existence highlights the tension between traditional monetary policy and crypto innovation. If enacted, the Fed's balance sheet could face unpredictable shifts, complicating efforts to manage interest rates and Treasury demand, according to a Moomoo analysis.

Strategic Implications for Investors

For investors in U.S. Treasuries, the stablecoin-driven surge in demand presents a dual-edged opportunity. On one hand, increased demand could lower yields, enhancing returns for long-term holders. On the other, the Fed's potential rate cuts-spurred by stablecoin adoption-might reduce the attractiveness of high-yield bonds. Dollar assets, meanwhile, are poised to benefit from the dollar's reinforced role as the global reserve currency. However, investors must remain vigilant: regulatory arbitrage and currency substitution risks could emerge if stablecoins outpace traditional banking systems, as discussed in a Brookings analysis.

Conclusion: A New Era of Dollar-Centric Finance

Stablecoins are no longer a niche asset-they are a structural force in global finance. By anchoring their value to the U.S. dollar and complying with stringent reserve requirements, they are amplifying demand for Treasuries and reshaping monetary policy. For investors, this means a reevaluation of risk-return profiles: Treasuries may offer safer yields, while dollar assets gain a tailwind from stablecoin-driven demand. Yet, the BITCOIN Act and other crypto experiments remind us that the Fed's playbook is still evolving. In this new era, adaptability will be the key to navigating the intersection of stablecoins and traditional finance.