Stablecoins Drive $5B Weekly US Treasury Demand, Reshape Finance

The rapid growth of US dollar-pegged stablecoins, with the market projected to reach $1.2 trillion by 2028, is reshaping the financial landscape by increasing demand for US Treasury bills and challenging traditional money market funds (MMFs). The recently enacted GENIUS Act establishes a federal regulatory framework for stablecoins, requiring full reserves, regular audits, and bankruptcy protections, which has spurred institutional confidence and market expansion, including for synthetic stablecoins like Ethena Labs' USDe. Stablecoin issuers may need to purchase billions in Treasury bills weekly to maintain reserves, potentially nudging Treasury yields higher and impacting borrowing costs across governments and corporations. Meanwhile, MMFs are responding by tokenizing assets to retain competitiveness amid stablecoins' rise, with major financial institutions adopting blockchain-based ownership recording. Federal Reserve Governor Christopher Waller views stablecoins as a tool to reinforce the US dollar's international dominance, aligning with broader strategic interests. Despite enthusiasm, some asset managers advise a nuanced outlook, suggesting that the full impact on dollar dominance and Treasury demand may unfold over an intermediate timeframe.