U.S. Treasury to Mandate 100% Stablecoin Backing by July

The U.S. Treasury is set to finalize stablecoin legislation by mid-July, a move that could significantly impact the financial market. The legislation, under the directive of U.S. Treasury Secretary Scott Bessent, aims to mandate that stablecoins be fully backed by U.S. Treasuries. This shift is expected to alter the demand dynamics for government securities, potentially creating a multi-trillion-dollar market by 2030.

The upcoming legislation is seen as a pivotal moment for the financial markets, particularly within the cryptocurrency sector. Stablecoin issuers such as Circle and Tether are key players in this space, and the bill's intent to fully back stablecoins with U.S. Treasuries could reshape market structures. This move is part of the GENIUS Act, which seeks to secure stablecoin reserves with U.S. Treasuries, aiming to reduce federal borrowing costs.

Market forecasts predict a substantial surge in demand for U.S. Treasuries if stablecoins adhere to a 1:1 backing mandate with government-backed assets. This expected shift could result in a stablecoin market cap exceeding 3.70 trillion by 2030, creating new demand for U.S. Treasuries. The potential benefits of this legislation were highlighted by Scott Bessent, who stated that stablecoins could cut federal borrowing costs and slow debt growth if the GENIUS Act is passed. Reserve requirements would drive demand for U.S. Treasuries, providing structural support to government financing.

Market reactions have been notable, with industry experts highlighting the interest of large banks in stablecoin issuance. Adam Ackermann of Paxos emphasized the potential for new ventures in stablecoins, underscoring the significance of this regulatory shift. The stability of USDC, a prominent stablecoin, over recent months supports the potential legislative impact on market perceptions of stablecoin reserves. USDC's current price is 1.00, with a market cap of 61.65 billion, reflecting its stability and market confidence.

Historical trends indicate that structured regulation generally enhances market credibility and broadens participation. The regulatory clarity provided by consistent backing of stablecoins with Treasuries could foster financial stability and drive market demand. This move is expected to mark the largest singular regulatory impact on U.S. Treasury demand, revisiting shifts unseen since major U.S. financial reforms in past decades.