Stablecoin issuers have replaced 40% of China’s lost US Treasury demand

Cryptocurrency stablecoin providers are emerging as a fresh source of demand for US government debt as foreign official holdings decline.

Researchers at the Federal Reserve Bank of San Francisco noted that Tether and Circle have expanded their holdings of Treasury securities and repurchase agreements by roughly $200 billion over the past five years. This increase equals more than 40% of the drop in China’s Treasury holdings during the same timeframe.

This shift is gradually changing the investor base supporting the world’s largest government bond market. Over a five-year period, stablecoin issuers’ holdings of Treasuries have grown more than tenfold alongside rising demand for dollar-linked digital tokens, while China has prolonged a retreat from US debt that started over ten years ago.

Stablecoins gain ground as foreign governments retreat

The rise of crypto-linked purchasers happens alongside a long-term evolution in the makeup of US creditors that could influence the cost at which Washington finances its deficits.

While foreign investors held in excess of half of all outstanding Treasury securities around 2008, that proportion fell to approximately 30% by early 2026, according to the San Francisco Fed. Within that demographic, foreign governments have dropped even faster in relative significance, representing just over 40% of foreign Treasury demand by early 2026 compared to nearly the entirety of it during their 1970s peak.

China has played a central role in this transition. Its Treasury holdings reached a high point in late 2013 and shrank by over half by mid-2026 as Beijing pursued diversification of its reserve assets.

Private investors have assumed a larger position as official foreign demand diminished, which could render Treasury financing increasingly sensitive to shifts in interest rates and perceptions of US fiscal risk. In contrast to central banks—which might maintain Treasuries for reserve-management goals—private investors possess the ability to demand higher yields if risks mount or alternative returns improve.

Stablecoin operators introduce an alternative source of demand because their business model mandates massive pools of liquid dollar assets to back tokens that users can redeem at par.

The Fed researchers stated that Tether’s USDT and Circle’s USDC represented greater than 80% of the stablecoin market capitalization as of mid-August. Both organizations maintain substantial amounts of short-term Treasury securities alongside cash, bank deposits, and repurchase agreements to fulfill redemption requests.

Their expansion has already positioned them as prominent participants at the short duration end of the Treasury market. Based on the research, stablecoin issuers have incorporated more short-term Treasury holdings since 2023 than Japan, which stands as the largest foreign holder of US government debt.

Furthermore, that demand proves substantial enough to noticeably influence short-term government bond yields, the San Francisco Fed noted, referencing findings from the Bank for International Settlements.

The China comparison has a maturity gap

Stablecoins cannot completely substitute for the kind of demand withdrawn by China because both investor categories function within different segments of the Treasury market.

China’s reductions have primarily concentrated on longer-dated US debt, whereas stablecoin issuers predominantly acquire Treasury bills as well as other highly liquid, short-maturity assets. Consequently, growing stablecoin reserves can deepen demand for bills without necessarily generating an equivalent buyer for longer-maturity notes and bonds.

This differentiation surfaces as the US contends with heavier financing needs. Federal debt held by the public has climbed from roughly 35% of gross domestic product in 2006 to about 100% today, bringing heightened scrutiny to the investor base prepared to absorb new issuances.

Future regulations 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 providers fully back outstanding tokens utilizing eligible liquid reserves.

Proposed implementation guidelines encompass Treasury bills, notes, and bonds featuring remaining maturities of 93 days or less, in addition to cash, bank deposits, and specific Treasury-backed repurchase agreements.

Such a structure logically ties the expansion of regulated dollar stablecoins directly to incremental demand for highly liquid US government securities.

For these issuers, the financial economics can also prove appealing. Customers retain tokens that typically do not pay them the yield generated by the underlying reserve assets, leaving issuers free to collect interest from the Treasury securities supporting those tokens.

As circulation grows, reserve portfolios and the corresponding interest income can scale upward alongside them.

Global stablecoin adoption could funnel more capital into T-bills

The upcoming phase relies on whether stablecoins maintain their ability to attract users outside the conventional crypto trading sphere.

The San Francisco Fed highlighted the increasing employment of stablecoins for cross-border transactions and as dollar-denominated stores of value within nations experiencing volatile currencies. Utilization relative to economic output runs especially high throughout Africa, the Middle East, and Latin America, with a significant portion of this activity crossing national borders.

This generates a pathway whereby a stablecoin user internationally can indirectly finance US government borrowing. A consumer acquiring dollar tokens establishes extra reserve liabilities for the issuer, which can subsequently purchase Treasury bills as backing.

Scaling up the industry’s recent growth pace would push those holdings toward $400 billion by 2030, though Fed researchers cautioned that the projection contains considerable uncertainty. International regulations outside the US, competing digital payment solutions, and novel banking technologies could all potentially decelerate stablecoin adoption.

These competitive forces will dictate how much of the upcoming wave of dollar-centric payments ultimately routes through stablecoin providers and enters Treasury markets.

While banks creating cheaper cross-border settlement instruments might capture a share of that demand, stablecoin businesses scaling into remittances and payments will be required to consistently expand their liquid reserves as circulation increases.

?Frequently Asked Questions

01What are stablecoins and how do they buy US Treasuries?

Stablecoins are digital tokens pegged to the value of the US dollar. Issuers like Tether and Circle hold large pools of liquid assets, primarily short-term US Treasury bills and cash, to back their tokens and ensure they can be redeemed at par, thereby creating constant demand for government debt.

02Why are stablecoin issuers replacing China’s demand for US debt?

As China has systematically reduced its long-term US Treasury holdings over the past decade, private entities like stablecoin operators have stepped in. Over the past five years, stablecoin issuers increased their Treasury and repo holdings by about $200 billion—equal to over 40% of China’s decline during the same period.

03Can stablecoins completely replace foreign government buyers?

No. China’s reductions have primarily been in longer-dated US debt, whereas stablecoin issuers mostly purchase short-term Treasury bills and highly liquid, short-maturity assets due to the nature of their reserves and regulations.