With US debt exceeding $37 trillion and continuing to climb, the Treasury market is increasingly viewing stablecoin issuers like Tether and Circle Internet Corp. (CRCL) as crucial buyers.

The recently signed GENIUS Act (Generative Encrypted Networks for Innovation and Unified Standards), which establishes guiding principles and a milestone regulatory framework for the stablecoin industry, has driven explosive growth in Wall Street's adoption of US dollar-pegged digital tokens.

HSBC analysts wrote in a report earlier this week: "For President Trump's goal of 'making America the global cryptocurrency hub,' a well-regulated stablecoin market could strengthen the dollar's dominance in digital finance."

Under the new legislation, stablecoin issuers must back their tokens with US dollars or other high-quality liquid assets, effectively making short-term US Treasuries (T-bills) the preferred collateral choice.

Treasury Secretary Scott Bessent posted on X (formerly Twitter) earlier this week that stablecoins would provide billions of people worldwide with easier access to the dollar and drive surging demand for US Treasuries (one of the collateral assets for stablecoins), while praising the benefits of the GENIUS Act. He added: "This is a win-win-win for all parties: stablecoin users, stablecoin issuers, and the US Treasury."

Tether and Circle Internet Corp. (which garnered widespread attention during its large-scale IPO) dominate the $250 billion stablecoin market, which has grown 22% since 2025 began. Morgan Stanley analysis shows Tether (USDT-USD) accounts for approximately 65% of total stablecoin market cap, while Circle Internet Corp.'s USD Coin (USDC-USD) represents 25%, with the two companies combining for 90% market share.

On Tuesday, Tether, widely used in overseas markets, announced the hiring of former White House cryptocurrency policy official Bo Hines as a strategic advisor to help expand its US domestic operations.

Despite stablecoin issuers holding most of their reserve assets in short-term US Treasuries, the industry is not yet considered a major force in the Treasury market.

Data from the Federal Reserve Bank of Kansas City shows stablecoin issuers hold approximately $125 billion in US Treasuries, compared to $6 trillion in total outstanding Treasuries, representing less than 2% of the total.

In comparison, insurance companies hold roughly five times more Treasuries than stablecoin issuers, while mutual funds, as the largest private buyers, hold $4.5 trillion in Treasuries—36 times more than stablecoin issuers.

Stefan Jacewitz, an economist at the Federal Reserve Bank of Kansas City, stated: "While the stablecoin market is currently too small to significantly impact Treasury demand, it is expected to grow substantially in the coming years."

This is exactly the trend Wall Street is betting on.

Last Thursday, Coinbase predicted stablecoin market cap could reach approximately $1.2 trillion by the end of 2028; Standard Chartered expects it to exceed $2 trillion over the same period; while Bernstein forecasts the figure could reach $4 trillion by 2035.

Current stablecoin demand continues rising while the US Treasury increasingly relies on short-term debt issuance, even as traditional Treasury buyers like China, Japan, and Canada reduce their holdings.

Ark Invest analysis shows that over the past 13 years, the largest foreign creditors' share of US Treasury holdings has declined from 23% to just above 6%. This trend is expected to continue under the Trump administration's tariff policies and central banks' general preference for reducing bond holdings.

Meanwhile, the Federal Reserve is also reducing its Treasury purchases as it gradually exits quantitative easing policies.

In 2024, Tether was the seventh-largest Treasury buyer, trailing only the UK and Singapore, while China and Japan were the largest sellers.

Lorenzo Valente of Ark Invest wrote in a June report: "Clearly, Tether, Circle Internet Corp., and the broader stablecoin industry are poised to become one of the primary sources of Treasury demand in the coming years, potentially replacing China and Japan as the largest Treasury holders by 2030. Achieving this goal would allow the stablecoin industry to make significant contributions to America's objective of 'lowering long-term interest rates.'"

The Bank for International Settlements notes that dollar-backed stablecoins may be influencing short-term Treasury yields. Their data shows that when stablecoins experience inflows of $3.5 billion within five days, 3-month Treasury yields decline by approximately 2-2.5 basis points within 10 days.

Christopher Vecchio, co-head of global macro at futures and options trading network tastylive, told Yahoo Finance: "If industry predictions prove even partially accurate and stablecoin demand surges above $1 trillion in the coming years, stablecoins will not only continue affecting short-term yields but will inevitably become a key factor the Treasury must consider when formulating debt issuance plans."

Industry observers warn that as funds flow toward stablecoins, likely from bank deposits, this could reduce bank deposit balances and correspondingly lower required bank reserves.

Jacewitz of the Kansas City Fed wrote: "The potential trend of funds flowing from bank deposits to stablecoins could increase demand for US Treasuries while potentially reducing lending supply in the economy."

However, industry participants still view the overall impact as positive.

Will Beeson, founder of fintech infrastructure company Uniform Labs, told Yahoo Finance: "Whether domestically or internationally, stablecoins will become important drivers of economic growth."