Stablecoins' Structural Impact on Interest Rates and Investment Strategy

The rise of stablecoins has emerged as a transformative force in global finance, reshaping monetary policy frameworks and unlocking new opportunities in dollar-denominated assets. By 2025, stablecoin market capitalization had surged to $300 billion, with projections suggesting it could reach $500–750 billion in the coming years, according to JPMorgan's research. This growth, driven by their role in cross-border payments, treasury operations, and decentralized finance (DeFi), is not merely a technological shift but a structural recalibration of how liquidity, interest rates, and capital allocation are managed in a digitizing economy.

The Monetary Policy Conundrum: Stablecoins and the Neutral Interest Rate

Federal Reserve Governor Stephen Miran has sounded an alarm about the potential for stablecoins to drive down the neutral interest rate (r), a critical benchmark for monetary policy. In a speech at the BCVC Summit 2025, Miran explained that stablecoins, often backed by highly liquid assets like U.S. Treasuries, increase demand for these instruments, pushing up their prices and lowering yields, according to a MarketMinute article. This dynamic exerts downward pressure on r, which could reduce it by as much as 40 basis points if adoption continues to accelerate, according to the same article.

The implications are profound. A lower r would force central banks to reconsider their policy rate calibrations to avoid inadvertently tightening monetary conditions. For instance, if the Fed maintains its current policy rate while r declines due to stablecoin-driven liquidity, it risks creating a contractionary environment. Miran's warning underscores the need for central banks to adapt traditional tools to a financial landscape increasingly influenced by private-sector innovation, according to the same article.

Investment Opportunities in Dollar-Denominated Assets

Stablecoins are not only a policy concern but also a catalyst for new investment strategies. By design, they are pegged to the U.S. dollar, reinforcing its global dominance while creating a private-sector demand for dollar assets. For example, stablecoin issuers now hold around $160 billion in U.S. Treasuries, a requirement under the GENIUS Act enacted in July 2025, according to Morgan Stanley's research. This regulatory clarity has legitimized stablecoins as an asset class, attracting institutional investors seeking liquidity and yield in a low-interest-rate environment.

The integration of stablecoins into DeFi ecosystems further amplifies their appeal. These tokens enable real-time liquidity, programmable smart contracts, and dynamic collateral management, bridging traditional finance and decentralized systems, according to Pinebridge's analysis. As a result, institutional investors are increasingly allocating capital to dollar-denominated assets linked to stablecoin infrastructure, such as tokenized Treasuries and cross-border settlement platforms.

Risks and the Road Ahead

While stablecoins offer opportunities, they also pose risks. In emerging markets, their adoption could accelerate capital flight, undermining local currencies and central bank control-evident in cases like Nigeria, according to Morgan Stanley's research. Additionally, stablecoins may disrupt traditional payment systems, particularly in regions with low credit card penetration, according to JPMorgan's research. However, these challenges also present opportunities for innovation, such as hybrid models that integrate stablecoins with regulated banking infrastructure.

Conclusion

The structural impact of stablecoins on interest rates and investment strategies is undeniable. As central banks grapple with their influence on r*, investors must navigate a landscape where dollar-denominated assets are increasingly intertwined with digital innovation. The coming years will test whether regulators can balance the benefits of stablecoins with the stability of the broader financial system. For now, the quiet revolution in digital money continues to reshape the rules of the game.