Stablecoin growth has stalled at a time when the U.S. Treasury market is looking for outside buyers.
According to Bloomberg, U.S. Treasury Secretary Scott Bessent had laid out a vision in which stablecoin companies could become trillion-dollar buyers of U.S. government debt. Instead, the sector has hit a pause just as the market needs that support most.
Demand for stablecoins has softened along with crypto trading activity. That has curbed one potential source of demand for Treasuries. Stablecoins are generally pegged to the dollar and backed by reserves that include Treasury bills and other highly liquid assets, and traders often use them as a place to park funds while shifting positions.
USDT and USDC both pulled back
Tether’s USDT, the largest stablecoin globally, shrank by nearly $3 billion in the first six months of the year to about $184 billion. The report said that could mark its first contraction since the 2022 crypto industry crash.
Circle’s USDC, its main rival, also posted a decline of a similar scale, with supply at about $72 billion, based on company data.
After a period of rapid expansion, growth in aggregate stablecoin supply has flattened.
At least in the near term, that weakens a view previously advanced by the current U.S. administration: that embracing the crypto industry could broaden the buyer base for U.S. debt and support federal financing.
Bessent’s $3 trillion projection faces a tougher backdrop
Bessent had previously said the stablecoin market could expand tenfold by the end of this decade to reach $3 trillion. In that scenario, it would create meaningful new demand for the roughly $7 trillion Treasury bill market.
Most circulating stablecoins are issued by Tether and Circle. The two companies have disclosed holdings of $134 billion and $63 billion, respectively, in U.S. Treasuries and Treasury-backed reverse repurchase assets.
Tether’s holdings of short-term U.S. Treasury bills have declined this year. The size of its bond portfolio has placed it among the top 20 holders of U.S. debt, and the weighted average remaining maturity of the Treasury bills it holds is less than 90 days.
Little immediate relief for pressure in the Treasury market
Recent trends suggest stablecoin issuers are unlikely to ease pressure in the Treasury market anytime soon. Inflation remains elevated, debt issuance keeps growing, and investors are demanding higher yields as compensation for risk.
Bessent has been trying to restrain long-end yields by increasing bond buybacks and leaning more heavily on short-term Treasury bill issuance, the segment most commonly purchased by stablecoin issuers.
On Friday, last month’s employment data came in far stronger than expected. That pushed markets to further price in a likely rate hike from the Federal Reserve at its Sept. 16 meeting, and some Treasury yields moved higher.
Samuel Earl, a Barclays strategist who follows short-dated debt markets, said investors do not expect stablecoins to become a market-moving force in the short term. 「I never thought stablecoins could achieve the kind of explosive growth that many people have claimed for them.」
Crypto trading slowdown is weighing on issuance
The pause in stablecoin growth may be temporary. The report said stablecoin activity is closely tied to the pace of crypto trading, and market activity has dropped sharply since the selloff in token prices late last year.
Bitcoin has rebounded recently, but it remains far below its peak from October last year. Ether and other tokens have also suffered steep declines.
Carlos Guzman, a research analyst at crypto market maker GSR, said the downturn in crypto markets is the main reason stablecoin supply has contracted. 「We have seen USDT balances on exchanges fall, and there have also been outflows from on-chain funds tied to the Ethereum ecosystem.」
Payments are growing, but supply may not follow right away
Payments and cross-border remittances are widely seen as a possible path for stablecoin growth. Tether said it is accelerating work on those real-world use cases to offset the drag from weaker crypto trading.
In a response to questions, the company said: 「The current pause in stablecoin growth should not be interpreted as a sign that demand for Treasuries from the sector has peaked.」
A Circle spokesperson declined to comment, and the U.S. Treasury Department did not respond to a request for comment.
Paymentscan data showed that stablecoin bank card payments launched by firms including RedotPay and EtherFi topped $1 billion in transaction volume for the first time in July. A McKinsey study published earlier this year estimated annual stablecoin payment volume at about $390 billion, with most of that tied to business-to-business transactions.
Even so, strong payment activity does not necessarily lift total stablecoin supply in the short term. Chris Maurice, chief executive of stablecoin payments firm Yellow Card, said the same token can circulate repeatedly through transactions, so issuers do not always need to mint new tokens.
「The industry is shifting from speculative use cases to payments,」 Maurice said. 「The U.S. government should actively support this category of stablecoin payment business.」
