№ 003Deep DiveDec 20259 min read

StablecoinsRates

Eurodollars 2.0: How Stablecoins Became America's New Treasury Bid

By Akram Ayyash

The unlikely convergence of digital assets and sovereign debt management.

While the financial media spent the past few years focused on Bitcoin's volatility and crypto exchange failures, something quieter happened. A category of digital assets designed for stability rather than speculation grew to over $300 billion in market capitalization. More importantly, the issuers behind these assets became some of the largest holders of U.S. Treasury bills in the world, bigger than Germany, bigger than South Korea, bigger than Saudi Arabia.

In my opinion, stablecoins have demonstrated durable product-market fit, not as instruments for speculation, but as global infrastructure for dollar access. The real story here isn't about crypto adoption. It's about U.S. fiscal plumbing. And I believe we're witnessing something that will sound counterintuitive to anyone who followed the "crypto versus government" narratives of the past decade: the privatization of the digital dollar may actually benefit the U.S. Treasury.

What Stablecoins Are and Who Issues Them

For readers coming from traditional finance, stablecoins are best understood as dollar-denominated liabilities issued on blockchain rails. They're backed primarily by cash, short-term Treasuries, and repurchase agreements, and they're designed to maintain a 1:1 peg with the U.S. dollar. Think of them as privately issued digital dollars that settle on decentralized networks rather than through correspondent banks.

Two issuers dominate the market. Tether, which issues USDT, commands roughly 60% market share with approximately $176 billion in circulation as of December 2025. It operates offshore, provides quarterly attestations rather than full audits, and has built its dominance through aggressive global distribution and deep liquidity on crypto trading venues. Circle, which issues USDC, holds about 25% of the market with roughly $75 billion outstanding. Circle is the compliance-forward alternative: U.S.-domiciled, publicly traded on the NYSE since June 2025, audited by Deloitte, with reserves managed through a BlackRock money market fund.

The business model is simple, and enormously profitable. Issuers take in dollars, invest them in short-term Treasuries yielding 4–5%, and return nothing to holders except price stability. Tether reportedly generated over $10 billion in profit through the first three quarters of 2025, with fewer than 100 employees. Circle reported $1.68 billion in reserve income in 2024. In my view, this is one of the most capital-efficient business models in finance: monetizing the risk-free rate at scale, with the customer bearing redemption risk while receiving none of the yield.

The Cockroach of Crypto

Stablecoins have survived every stress test the crypto market has thrown at them. The 2022 deleveraging that wiped out algorithmic stablecoins like Terra left fiat-backed stablecoins intact. Multiple exchange failures, including FTX, didn't break the peg. When Silicon Valley Bank collapsed in March 2023 and Circle revealed $3.3 billion in reserves were temporarily trapped, USDC wobbled briefly and recovered within days. Through a high interest rate environment that crushed speculative assets, stablecoin supply rebounded to all-time highs.

The resilience comes from utility, not speculation. On-chain transaction volume reached $27.6 trillion in 2024, exceeding the combined volume of Visa and Mastercard. Use cases have expanded well beyond crypto trading: cross-border payments, remittances, and working capital for businesses that struggle to access U.S. banking rails. Active stablecoin wallets grew more than 50% year-over-year.

In a world of fragmented banking and payment systems that shut down on weekends, stablecoins function as the only API for the U.S. dollar that works around the clock. That's the product-market fit. It came from solving a real problem, ie global dollar access without friction, not from promises of appreciation.

Sovereign-Scale Buyers of U.S. Treasuries

Here's where the story becomes relevant to anyone who thinks about government debt markets. Tether alone holds between $127 billion and $135 billion in U.S. Treasury bills, ranking it as the 17th or 18th largest holder globally. Circle holds another $53 billion or more through its reserve fund. Combined, these two issuers hold more Treasuries than most allied nations. Tether was the seventh largest net buyer of U.S. Treasury securities in 2024, adding approximately $33 billion to its holdings. Stablecoin issuers collectively ranked among the top three buyers of T-bills that year.

The concentration in T-bills specifically is no accident. The GENIUS Act, signed into law in July 2025, mandates that stablecoin reserves be held in instruments with 93 days or fewer to maturity. This means minimal duration risk, high liquidity, and clean redemption profiles, exactly what you'd want backing a liability that can be redeemed on demand. The result is that stablecoin issuers have become price-insensitive, structural buyers of front-end government debt.

A note for the plumbing-focused reader: while reserves primarily flow into T-bills, stablecoin liquidity also interacts with the Federal Reserve's Reverse Repo Facility. When bill yields fall below the Fed's RRP award rate, reserves, particularly Circle's, via BlackRock's money market fund, can shift toward parking cash at the Fed rather than funding Treasury issuance. This makes stablecoin liquidity a release valve for both Treasury funding and Fed balance sheet management. The distinction matters: buying bills funds the government; parking in RRP does not.

At a time when traditional foreign holders are reducing their Treasury exposure, China's holdings have fallen from over $1 trillion to roughly $756 billion over the past decade, stablecoins represent a new and growing source of demand. This does not replace traditional foreign buyers, but it introduces a structurally different buyer class with different incentives. Unlike sovereigns managing foreign exchange reserves based on trade balances and geopolitical considerations, stablecoin issuers buy Treasuries because they must. Reserves are the product.

Why the Treasury Quietly Benefits

The U.S. government faces a persistent challenge: financing large deficits while managing duration and rollover risk. Finding buyers for long-dated bonds has become more difficult as term premiums have risen. Heavy reliance on foreign demand creates geopolitical vulnerability. Stablecoins help on the margin in ways that aren't immediately obvious.

First, they create incremental demand for T-bills that grows with stablecoin adoption rather than shrinking like some traditional sources. Second, and more subtly, strong demand at the front end of the curve allows the Treasury to shift its issuance composition toward more bills and fewer long-dated notes. Less duration in the market means a lower term premium, which can translate to lower long-term borrowing costs. Fed Governor Miran noted in a November 2025 speech that stablecoin demand is "putting downward pressure on r*," the neutral rate of interest.

Academic research has attempted to quantify this. A May 2025 paper by Ante, Saggu, and Fiedler estimated that Tether's market share in the T-bill market reduces one-month yields by approximately 24 basis points, translating to roughly $15 billion in annual interest savings for the U.S. government. Bank for International Settlements research found that stablecoin inflows reduce three-month T-bill yields by 2 to 2.5 basis points within ten days.

The Treasury Borrowing Advisory Committee discussed stablecoins at its April 2025 meeting, describing them as a "new payment mechanism" generating "materially heightened demand" for Treasury bills. The framing was notably positive.

This is not policy intent. No one designed stablecoins to help the Treasury. But it is a market outcome. In my opinion, stablecoins are functioning as an unofficial demand stabilizer for the front end of the curve, an accidental fiscal tailwind.

History Rhyming: The Eurodollar Parallel

For those looking for historical precedent, consider the Eurodollar market. In the 1960s, offshore dollar deposits emerged outside U.S. banking jurisdiction, driven by Cold War capital controls and global demand for dollar liquidity. Private markets solved the need for offshore dollar access long before regulators caught up. The Eurodollar market eventually grew to trillions of dollars and became essential plumbing for international finance.

Stablecoins look like Eurodollars 2.0. Same dynamic: a private market solving dollar access outside traditional banking rails. Same result: global dollar liquidity expanding through non-bank channels. The key difference is infrastructure, blockchain enables settlement that runs continuously and can be programmed.

In my view, we're watching the same pattern unfold. The market has already chosen the solution. Regulation is catching up, not leading.

Stablecoins Versus CBDCs

The inevitable question is how stablecoins relate to central bank digital currencies. The short answer is that they solve different problems and reflect different philosophies.

CBDCs are direct liabilities of central banks, designed for policy transmission, compliance, and sovereign control over money. Stablecoins are private liabilities backed by reserves, driven by market demand rather than government mandate. The U.S. has effectively made its choice: the Trump administration supports dollar-backed stablecoins while opposing a domestic CBDC. Fed Chair Powell has stated he will not pursue a digital dollar during his tenure. The GENIUS Act codifies stablecoins as the American digital dollar strategy.

The geopolitical dimension is significant. The U.S. views stablecoins as extending dollar dominance globally; Europe and China see CBDCs as defense against private crypto encroachment. These are not substitutes. They represent fundamentally different approaches to the future of money.

The Risks Worth Watching

Editorial balance requires acknowledging what could go wrong. The most important risk is what I'd call the "fair weather" problem.

BIS research shows an asymmetry: stablecoin inflows reduce yields modestly, but outflows increase yields more sharply, by 6 to 8 basis points versus 2 to 2.5 basis points for inflows. If the Treasury becomes reliant on stablecoins for even 2–3% of short-term funding, a crypto market crash could create a sudden buyer strike. Stablecoin demand is present in calm markets but potentially absent when most needed. This is fair-weather demand, not permanent absorption, and it introduces a new channel for crypto volatility to transmit into sovereign debt markets.

Concentration is another concern. Two issuers control 85% of the market, and Tether's offshore structure and lack of comprehensive audits remain uncomfortable for many institutional participants. On the banking side, if stablecoins eventually pull meaningful deposits away from banks, that reduces lending capacity, though the GENIUS Act's prohibition on paying interest to stablecoin holders limits direct competition with deposits for now.

Finally, there's implementation risk around the GENIUS Act itself. Passing legislation is the easy part; writing the rules is harder. Regulators have one year to promulgate implementing rules, and key questions remain open: How will foreign issuers be treated? What enforcement mechanisms will have teeth? Operators know that regulatory frameworks are living documents. The next twelve months matter more than the bill signing.

What to Watch

Three variables will shape the next phase. First, rulemaking execution, whether OCC and Fed rules give the GENIUS Act real teeth or leave gaps that preserve the status quo. Second, reserve transparency standards, the tension between Tether's opacity and Circle's disclosure will resolve one way or another as the market matures. Third, banking integration, major banks are reportedly exploring joint stablecoin issuance, and settlement through Visa and Mastercard networks continues to expand.

The business model question looms as well. If regulation eventually permits yield pass-through to holders, the economics change dramatically. Why hold a stablecoin at zero percent when T-bills pay four? That's the risk for incumbents and the opportunity for challengers.

Conclusion

Stablecoins are no longer a crypto story. They're a Treasury market story. They're a dollar hegemony story.

Over $300 billion in market capitalization. Over $180 billion in Treasury holdings between the two largest issuers. Sovereign-scale buying that arrives precisely when some traditional foreign demand is softening. A regulatory framework, now law, that mandates the very reserve composition that benefits the front end of the U.S. yield curve.

In my opinion, we are watching the privatization of the digital dollar in real time. And contrary to the adversarial narratives that defined the last decade of crypto discourse, the outcome appears symbiotic. Crypto funds government. Government legitimizes crypto.

Structural shifts often happen quietly before they're recognized. This one is already underway.

Drop me a line:

What do you think? Do you like this? Do you not like this? I would love to hear your thoughts, so please reach me at akram@span.blog

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