How stablecoins help finance U.S. government debt

Since the beginning of 2026, U.S. government debt has increased by more than $1.5 trillion — an amount exceeding half of the total cryptocurrency market capitalization. Against this backdrop, stablecoins are increasingly being considered as a potential source of additional demand for U.S. government bonds.

The stablecoin sector is already large enough for regulators to notice its impact. According to the International Monetary Fund (IMF), by August 2026 the total market capitalization of stablecoins stood at around $300 billion, with nearly 99% of the market consisting of tokens denominated in U.S. dollars. This means that the development of stablecoins today is effectively expanding the digital dollar infrastructure.

The growth of U.S. government debt, rising yields on treasury securities*, and sales of U.S. debt instruments are pushing U.S. authorities to look for new sources of demand. Dollar-denominated stablecoins are increasingly being cited as one such instrument.

* Treasury securities are debt instruments issued by the U.S. Department of the Treasury to raise funds for financing government spending. By purchasing such securities, an investor effectively lends money to the government and receives interest income as well as repayment of the principal at maturity. Treasury securities vary by maturity and include both short-term and long-term instruments. Short-term securities are issued for periods of up to one year and, as of the end of September 2026, yield approximately 3.9–4.5% annually, while long-term securities — typically with maturities of 10 to 30 years — yield around 5.2–5.5% annually.

Bloomberg reported that the White House intends to promote dollar-denominated stablecoins more actively outside the United States. At the same time, the Federal Reserve is developing a regulatory framework for the growth of stablecoins and their closer integration with the government debt market.

$40 trillion in government debt: the U.S. is looking for new buyers

In August, U.S. government debt exceeded $40 trillion for the first time. In less than ten years, the figure has roughly doubled.

What matters is not only the size of the debt but also the cost of servicing it. The U.S. Congressional Budget Office (CBO) projects net federal interest spending of around $1 trillion in 2026, or 3.3% of GDP. By 2036, it could rise to $2.1 trillion per year, or 4.6% of GDP.

At the same time, yields on long-term U.S. government bonds with maturities of 10 to 30 years climbed to their highest levels since 2007.

The U.S. Treasury increased the volume of bond buybacks, yet by the end of September, yields on government securities had risen across all maturities.

Against this backdrop, the administration of U.S. President Donald Trump, as Bloomberg reported, is developing a model under which dollar-denominated stablecoins are intended to simultaneously support demand for U.S. government debt and strengthen the dollar's position as the world's reserve currency.

One of the key elements of this policy was the GENIUS Act, signed by Trump in 2025.

How the GENIUS Act links stablecoins to government debt

The GENIUS Act — Guiding and Establishing National Innovation for U.S. Stablecoins Act — establishes requirements for issuers of dollar-denominated stablecoins.

Issuers must fully back issued stablecoins with reserves consisting of U.S. dollars and short-term U.S. Treasury securities, disclose information about the composition of their reserves, and undergo audits.

This is what creates a direct link between the growth of the stablecoin market and demand for U.S. government bonds.

However, the law itself is largely a framework. Additional regulatory rules are required for its full implementation.

At the end of September 2026, the Federal Reserve proposed two such documents.

The first establishes capital and reserve requirements for issuers. They must ensure that stablecoins are fully backed by the most liquid assets and that companies are able to remain resilient during periods of crisis.

The second document defines the procedures under which a regulated U.S. bank would be able to begin issuing its own stablecoins.

How stablecoins entered the U.S. government debt market

Even before the regulatory framework was fully established, the largest stablecoin issuers had become significant buyers of U.S. government bonds.

As of the end of September, Tether, the issuer of the USDT stablecoin, holds around $140 billion in U.S. government securities. Circle, the issuer of USDC, holds approximately $65 billion of such securities.

Thus, stablecoin issuers' share of U.S. government debt holdings is approaching 0.4%. Taken together, the volume of U.S. government debt held on the balance sheets of stablecoin issuers is already comparable to the holdings of some individual countries.

How stablecoin issuers make money on U.S. government debt

The business model of most centralized dollar-denominated stablecoins is built around U.S. government bonds.

A user gives dollars to the issuer and receives a corresponding number of tokens. The issuer, in turn, invests part of the funds received in short-term U.S. Treasury securities.

These securities generate interest income while remaining highly liquid. If users want to redeem their stablecoins and receive dollars back, the issuer can release the necessary funds relatively quickly.

Thus, the larger the volume of stablecoins issued, the greater the potential demand from issuers for U.S. government bonds.

Tether and "dollar hegemony"

Tether CEO Paolo Ardoino has described the USDT stablecoin as a kind of safety mechanism for the U.S. government bond market.

According to him, around 650 million USDT holders are unlikely to decide simultaneously to get rid of an asset backed by U.S. debt.

Unlike a large state, corporation, or institutional investor capable of changing the structure of its reserves within a short period, stablecoin holders are distributed among hundreds of millions of users around the world.

Ardoino has also previously stated that Tether's interests largely align with those of the United States because the spread of USDT helps strengthen "U.S. dollar hegemony."

At the same time, Tether itself is not registered in the United States. Tether International Limited, previously registered in the British Virgin Islands — a major international offshore financial center — moved its legal registration to El Salvador in January 2025 and became known as Tether International, S.A. de C.V.

USDT vs. USDC: the market chooses a leader

Despite the development of U.S. regulation, the U.S.-regulated USDC stablecoin has so far failed to significantly narrow the gap with USDT.

According to CoinMarketCap, USDT's market capitalization stands at around $183.8 billion, while USDC's is approximately $74.8 billion. Thus, the market capitalization of the largest stablecoin is roughly 2.5 times that of its closest competitor.

In addition, three other projects are among the five largest stablecoins, and their business models are not directly tied to purchases of U.S. government bonds.

DAI and USDS from the Sky project use a more complex collateral model: their reserves include cryptocurrencies, stablecoins, and other assets approved by the protocol. As a result, their issuance does not require direct purchases of U.S. Treasury securities on the same scale as traditional dollar-backed stablecoins.

USDe from the Ethena project works differently. Its dollar peg is maintained through cryptocurrency collateral and hedging positions in the derivatives market. This delta-neutral model makes it possible to offset fluctuations in the value of underlying assets without the need to hold the majority of reserves in U.S. government bonds.

Thus, growth in the overall stablecoin market does not automatically translate into a comparable increase in demand for U.S. Treasury securities.

Forecasts and the actual state of the stablecoin market

So far, no major structural changes have taken place in the stablecoin market.

The distribution of the largest players and the overall composition of the market remain roughly the same as they were before the GENIUS Act was adopted.

At the same time, U.S. authorities expect the stablecoin sector to grow on a much larger scale.

U.S. Treasury Secretary Scott Bessent has repeatedly stated that the spread of stablecoins could strengthen the dollar's position as the world's reserve currency.

In his view, stablecoins backed by U.S. government securities would create a new, sustainable source of private-sector demand for government debt.

It is expected that such demand could help contain borrowing costs, facilitate the financing of government debt, and at the same time expand global access to digital dollar infrastructure.

Bessent has forecast that the total market capitalization of stablecoins could rise to $3.7 trillion by the end of the decade.

Some representatives of the cryptocurrency market offer even higher forecasts — at least $10 trillion as early as 2028.

If Bessent's forecast materializes and the reserve structure remains broadly the same, stablecoin issuers could potentially become the largest holders of U.S. government bonds.

For comparison, Japan holds around $1.1 trillion in U.S. government debt, the United Kingdom approximately $1 trillion, and China around $0.6 trillion.

With a stablecoin market capitalization of $3.7 trillion, issuers could theoretically exceed the combined volume of U.S. government securities held by these three countries.

Stablecoins are growing, but government debt is growing even faster

For now, the actual pace of stablecoin market growth remains significantly behind forecasts.

Regulation is still being developed, while U.S. government debt continues to grow at an increasingly rapid pace almost every year.

From the beginning of 2026 through the end of September, U.S. government debt increased by more than $1.5 trillion.

That is approximately five times larger than the entire stablecoin market capitalization.

Moreover, the increase in debt during this period alone exceeds 50% of the total cryptocurrency market capitalization.

Therefore, although stablecoin issuers have already become significant participants in the U.S. government bond market, the scale of the two markets remains incomparable.

Stablecoin growth is significantly lagging behind the pace at which U.S. government debt is increasing and is not yet capable of covering a substantial portion of the U.S. government's financing needs.

Interest expenses are another important factor. As the debt itself grows, so do the payments required to service it, making it more difficult to assess how significant the impact of stablecoins on the U.S. debt market could become in the future.

For now, stablecoins are creating a new additional source of demand for U.S. Treasury securities rather than becoming a solution to the problem of rapidly growing U.S. government debt.