As foreign official holdings diminish, stablecoin issuers are surfacing as a fresh avenue of demand for US government debt.
According to researchers at the Federal Reserve Bank of San Francisco, Tether and Circle have expanded their holdings of Treasury securities and repurchase agreements by roughly $200 billion over the last five years. This increase accounts for over 40% of the drop in China’s Treasury portfolio over the identical timeframe.
This transition is beginning to reshape the investor foundation supporting the world’s premier government bond market. While China has pressed forward with a withdrawal from US debt that began more than ten years ago, stablecoin issuers have seen their Treasury holdings surge more than tenfold over five years alongside rising demand for dollar-pegged digital tokens.
Stablecoins gain ground as foreign governments retreat
The rise of crypto-linked purchasers coincides with a broader, long-term evolution in the makeup of US creditors that could influence how cheaply Washington can fund its deficits.
The San Francisco Fed noted that foreign investors held over 50% of outstanding Treasury securities around 2008, but that share shrank to roughly 30% by early 2026. Within that cohort, foreign governments have dropped even more drastically in relative significance, moving from nearly all of foreign Treasury demand at their 1970s peak to just above 40% by early 2026.
China has played a pivotal role in this shift. Beijing’s Treasury holdings hit a high in late 2013 and shrank by more than half by mid-2026 as the country diversified its reserve holdings.
With official foreign demand softening, private investors have stepped into a more prominent position. This shift could render Treasury financing increasingly vulnerable to interest-rate adjustments and perceptions of US fiscal risk. In contrast to central banks that may maintain Treasuries for reserve management, private investors can demand higher yields if risks mount or alternate returns improve.
Stablecoin issuers introduce a distinct category of demand because their business model necessitates substantial pools of liquid dollar assets to back tokens that clients can redeem at par value.
As of mid-August, Tether’s USDT and Circle’s USDC comprised over 80% of the stablecoin market capitalization, per the Fed researchers. Both operators maintain significant amounts of short-term Treasury securities alongside cash, bank deposits, and repurchase agreements to satisfy redemption requests.
Driven by this growth, they have already established themselves as major players at the short end of the Treasury market. The research indicates that since 2023, stablecoin issuers have accumulated more short-term Treasury holdings than Japan, which stands as the largest foreign holder of US government debt.
Citing studies from the Bank for International Settlements, the San Francisco Fed noted that this demand is also robust enough to visibly influence short-term government bond yields.
The China comparison has a maturity gap
Stablecoins cannot completely offset the specific type of demand that China has pulled back, as the two investor segments operate within different sectors of the Treasury market.
China’s reductions have focused largely on longer-dated US debt, whereas stablecoin issuers primarily purchase Treasury bills and other highly liquid, short-maturity assets. Consequently, expanding stablecoin reserves can bolster demand for bills without necessarily generating a comparable buyer for longer-term notes and bonds.
This distinction arrives as the US confronts heavier borrowing requirements. Publicly held federal debt has climbed from roughly 35% of gross domestic product in 2006 to about 100% today, intensifying scrutiny over the investor base prepared to absorb fresh debt issuance.
Regulatory measures could further reinforce the preference of stablecoins for the shortest maturities.
Passed in 2025, the GENIUS Act established a federal framework mandating that approved US payment stablecoin issuers fully back outstanding tokens with eligible liquid reserves.
Proposed implementation guidelines encompass Treasury bills, notes, and bonds featuring remaining maturities of 93 days or less, as well as cash, bank deposits, and specific Treasury-backed repurchase agreements.
This framework directly ties the expansion of regulated dollar stablecoins to incremental demand for highly liquid US government securities.
For the issuers themselves, the financial mechanics can also prove attractive. Customers hold tokens that generally do not pay them the yield generated by the reserve assets, allowing issuers to capture interest from the Treasury securities supporting those tokens.
As circulation increases, reserve portfolios and the corresponding interest income can expand accordingly.
Global stablecoin adoption could funnel more capital into T-bills
The trajectory of the next phase will hinge on whether stablecoins continue to draw users beyond the traditional cryptocurrency trading ecosystem.
The San Francisco Fed highlighted the expanding utilization of stablecoins for cross-border transactions and as dollar-denominated stores of value in nations suffering from volatile currencies. Adoption relative to economic output is notably high throughout Africa, the Middle East, and Latin America, with a substantial portion of this activity crossing international borders.
This establishes a channel through which an overseas stablecoin user can indirectly fund US government borrowing. When a customer acquires dollar tokens, it generates extra reserve liabilities for the issuer, which can subsequently buy Treasury bills to back them.
Maintaining the industry’s recent growth pace would push these holdings toward $400 billion by 2030, though the Fed researchers cautioned that this projection involves considerable uncertainty. International regulations, rival digital payment solutions, and emerging banking technologies all possess the potential to decelerate stablecoin adoption.
Ultimately, these competitive forces will dictate how much of the upcoming wave of dollar-based payments filters through stablecoin issuers and into the Treasury markets.
While banks developing more affordable cross-border settlement instruments might capture a portion of that demand, stablecoin companies branching into remittances and payments will be required to continually scale their liquid reserves as circulation climbs.