U.S. Treasury Turns to Stablecoins as Key Debt Investors

U.S. Treasury Secretary Scott Bessent is exploring stablecoins as a new class of investors in short-term government debt, signaling a dramatic shift in how Washington manages its borrowing needs [1]. This move comes amid rising interest rates and softening foreign demand, prompting the Treasury to look to the rapidly expanding stablecoin market for a fiscal lifeline. Initial discussions with major players like Tether and Circle suggest a strategic pivot toward crypto-backed liquidity [1].

The GENIUS Act, passed in July 2025, has provided a legal framework for this initiative by mandating that stablecoins are fully backed by high-quality liquid assets, including U.S. Treasuries and cash [1]. This regulatory clarity has transformed stablecoins into de facto Treasury investors, with each digital dollar tied directly to government debt. Analysts have highlighted this as a dual benefit: it offers safety to stablecoin users while broadening the base of Treasury investors [1].

Tether alone has amassed nearly $100 billion in U.S. Treasury holdings by early 2025, positioning it among the largest non-sovereign holders of government debt [1]. According to a recent academic study, a 1% increase in Tether’s share of Treasury bills could reduce 1-month yields by 6.3 basis points, potentially saving the U.S. government around $15 billion per year in interest costs [1]. As the stablecoin market is projected to grow from $250 billion to $2 trillion, its influence on Treasury yields and borrowing costs could become increasingly systemic [1].

However, the strategy is not without risks. If a major stablecoin were to lose its peg or face redemption pressures, issuers might be forced to sell Treasuries en masse, potentially triggering a yield spike and destabilizing the broader financial system [1]. The Bank for International Settlements (BIS) has previously warned about such "cliff-edge dynamics," and Bessent himself has acknowledged the need for balanced regulation that supports innovation while maintaining financial stability [1].

Stablecoins initially emerged as a tool for crypto traders seeking a stable digital alternative to volatile assets. However, their role has evolved significantly, with the sector processing over $28 trillion in payments in 2024—surpassing traditional payment giants like Visa and Mastercard [1]. Deutsche Bank has forecast that stablecoins could reshape the landscape of sovereign debt markets within the next decade [1].

Despite the potential benefits, the International Monetary Fund (IMF) has urged caution, citing concerns that private stablecoins could further entrench dollar dominance and introduce new systemic risks [1]. The irony of the situation is not lost on observers: a technology initially seen as an alternative to traditional finance may now serve as a critical pillar in U.S. fiscal policy.

Bessent appears confident in the Treasury’s strategy, given the current fiscal challenges and the need for innovative solutions. With record deficits and strained investor relations, the government may have little choice but to integrate stablecoins into its debt management framework [1].

Source: [1] Debt Crisis Averted? Treasury Turns to Stablecoins as Lifeline (https://coinmarketcap.com/community/articles/68a5b40a00db01532553fd75/)