A recent paper from the BIS quantifies the connection between stablecoins and Treasuries, revealing figures that may surprise you.
The fact that stablecoins are tied to US Treasuries is now common knowledge among industry experts. The tokens of stablecoins are backed by government debt that is only valid for a certain time. The answer is obvious. It has been more difficult to identify the relationship's precise mechanics and, more significantly, its trajectory.
To that end, the Bank for International Settlements has released a new report. Updates to Rashad Ahmed and Iñaki Aldasoro's earlier studies on stablecoins and Treasuries have been made. A more exact picture emerges. The numbers are much higher now.
When taken to their logical extreme, the repercussions are considerable.
Peak Drop Within 10 Days
Principal finding: short-term Treasury rates are affected by the demand for stablecoins. The yield on 3-month T-bills drops 0.7 basis points instantly after a $3.5 billion injection into stablecoins over five days. In just 10 days, that effect grows to almost four basis points.
The reason for the delay is that certain stablecoins are distributed from reserves that were already issued, rather than being generated from scratch.
During periods of market volatility, the impact tends to increase significantly. A 10% increase in the market cap of stablecoins from the current level could lead to a decrease of approximately 30 basis points in 3-month T-bill yields.
This is why US Treasury Secretary Scott Bessent has been promoting stablecoins. The calculations are clear-cut.
Increased adoption of stablecoins will lead to a heightened demand for short-term US government securities. Increased demand results in diminished yields. Reduced yields result in more affordable borrowing for the US government. It's a straightforward narrative.
However, the BIS paper addresses an issue that many earlier works have overlooked: it seriously considers the endogeneity problem.
Why Endogeneity Matters
Endogeneity presents a complex statistical challenge that occurs when the relationship between cause and effect becomes intertwined. In this scenario, do inflows into stablecoins lower Treasury yields, or do low Treasury yields attract capital into stablecoins?
It is entirely possible for both statements to hold true at the same time.
Although this was acknowledged in much earlier research, they continued without delving deeper into the matter. By taking a thorough approach to pinpoint the direction of causation, Ahmed and Aldasoro have improved their technique and conducted a more accurate study.
The result: their anticipated impact is nearly double what it was when they first published.
When making policy decisions, knowing the direction is crucial. If stablecoins are only responding to changes in yields, then their growth doesn't tell us anything about how they could affect the Treasury market when they're multiplied.
The fast-growing stablecoin industry isn't just sitting on its hands if stablecoin demand is driving down yields; it's actively involved in US government funding.
When making policy decisions, knowing the direction of causation is crucial. Stablecoins are actively influencing markets rather than merely reacting to them.
It’s important to highlight another distinction between the original document and this update.
The initial version identified an imbalance: an increase in stablecoin demand significantly influenced yields more than a decrease in demand did.
Potential gains were more significant than potential losses. That conclusion is reevaluated in the new study. But it does show a different side of the coin: that market conditions are more important than movement trajectories.
Stablecoin inflows have a greater impact on Treasury rates when the market is stressed. When everything is calm, the effect is usually milder.
This distinction is vital. The stablecoin's connection to the Treasury is fluid. Stablecoins' impact on the government bond market during a crisis could end up being far more than their total market size suggests.
The Extrapolation That Matters
Currently, the entire market valuation of fiat-backed stablecoins is at $270 billion.
The report forecasts that 3-month T-bill rates would fall by around 30 basis points if issuance were to rise by 10% from this point, which would be approximately $27 billion.
Quite a substantial sum. To put that in perspective, monetary authorities pay close attention to changes of 30 basis points in short-term rates.
A number of predictions point to substantial expansion in the stablecoin industry in the next few years, which would have far-reaching consequences for the Treasury market.
It is important to take a moment to reflect on the significant increase in the estimated impact.
The initial study identified a significant yet moderate connection. The revised approach, focused on a more meticulous management of endogeneity, has almost doubled the magnitude of the impact.
That is a noteworthy adjustment. It indicates that previous research might have consistently undervalued the significance of stablecoin demand in relation to US government borrowing costs.
There is no room for just academic theory here. If approved, institutional adoption is anticipated to accelerate. Reserve requirements are made clearer as a result of stricter regulation of stablecoins.
A more stable demand for Treasury securities is the result of improved transparency about reserves.
Without making any suggestions for new policies, the BIS document stands pat.
No, that isn't required. The numbers make a strong case. Assuming stablecoins will experience growth, as most reasonable predictions indicate they will, it follows that the US Treasury market will also experience it.
In terms of a quantifiable, short-term impact on yields, which control mortgage rates and business borrowing costs.
The federal government of the United States has every reason to support such expansion. This study has helped shed light on their valuation of one billion dollars in stablecoin demand. Much more than originally anticipated is the correct response.
The Bigger Picture: Stablecoins, a Monetary Policy Variable
Let's get straight to the point regarding what the BIS paper is truly conveying, as the courteous academic language tends to cloud the message.
Stablecoins have transitioned from being a mere curiosity on the periphery of the financial landscape to a significant player seeking institutional recognition.
They are already engaged in the intricacies of US government financing, and the involvement is expanding more rapidly than many Treasury officials openly recognize.
The updated BIS estimates do more than just fine-tune a figure; they redefine the classification of what is being discussed.
What was previously a minor detail in conversations about short-term rate dynamics has now become a factor that monetary policymakers may soon need to incorporate directly into their models.
That is a remarkable development. The speed with which it arrived is even more astounding.
A Buyer Class Nobody Voted For
There is little doubt about who often buys short-term US Treasuries: money market funds, foreign central banks, commercial banks managing liquidity reserves, and occasionally corporate treasurers seeking cash.
These are regulated, trustworthy, and integral parts of the transmission system run by the Federal Reserve.
Despite not fitting those criteria, stablecoin issuers have become major buyers of T-bills in the aggregate.
Tether has more US government debt than several independent states. Short-term government securities make up the bulk of Circle's USDC reserves, which are audited periodically. The $270 billion market size indicated in the BIS research indicates a substantial and growing interest in one of the world's most important marketplaces.
The distinction lies in the fact that this group of buyers came into existence not as a result of intentional policy design, but rather through the natural reasoning of a financial product that required a reliable foundation.
The Treasury market was not selected based on political inclinations. It was selected due to its status as the most secure, highly liquid, and short-term asset on the market.
That practical reasoning has now created a feedback loop that no one completely orchestrated.
From $3 Trillion Prediction to Market Structure Reality
The numbers coming out of Washington are now clear and conclusive. According to a published estimate by Treasury Secretary Scott Bessent, the total volume of stablecoins in circulation might reach $3 trillion by 2030, a tenfold increase from the current level.
After the GENIUS Act, that prediction, which had previously made people suspicious, has a whole new ring to it.
A legal framework was established in July 2025 by the GENIUS Act, which sought to address possible concerns about financial stability and encourage the production of stablecoins backed by the US dollar.
Circle, Paxos, and three other nonbank financial entities were provisionally given national trust bank licenses in December 2025 by the OCC.
Stablecoin issuers are being strategically and not just concessionarily incorporated into the regulated financial system, according to this trend.
Starting with a base of about $270 billion, the BIS report estimated that a 10% growth in market capitalization would need 30 basis points. The discussion moves beyond small changes in the margins of error when Bessent's $3 trillion number is used.
What we are talking about is a major shift in the US government agencies that are responsible for setting interest rates on short-term loans. When the numbers are large enough, the computations begin to interact with the policy tools of the central bank in ways that have been heavily restricted.
The Stress Condition Nobody Wants to Think About
There should have been further investigation into the BIS paper's conclusions on the substantial effect of stablecoin inflows on Treasury rates during volatile market periods.
In steady states, the relationship seems to be rather simple: more stablecoins issued means somewhat lower T-bill yields, which is a little but manageable signal.
The problem stems from the difficult circumstances.
A feedback loop could arise where volatility is amplified rather than reduced if the demand for stablecoins rises at the same time that traditional market players are pulling back, like in a flight-to-quality scenario or after a big stock selloff that drives retail and institutional users towards dollar-denominated stable assets.
This is an actual circumstance.
As people sought safety in dollar-pegged assets in March 2023, onchain stablecoin inflows spiked. This was in the midst of a regional financial crisis. At that time, the scale couldn't provide noticeable effects on yield. It seems like the same dynamic changes drastically when the market cap is $3 trillion.
The BIS writers proceed with caution when evaluating this danger. But their method is predicated on the underlying assumption: their solution to the endogeneity problem is the same thing that makes stress-period dynamics modelling so difficult.
Conventional ways of differentiating cause and effect become far less reliable when stablecoins concurrently respond to and impact market circumstances.
Regulation as Amplifier
The Digital Asset Market Clarity Act, which successfully passed the House alongside the GENIUS Act, enhances the regulatory framework for non-stablecoin crypto assets, complementing the stablecoin legislation.
However, for Treasury market considerations, the reserve provisions outlined in the GENIUS Act are of primary importance.
The pathway from the adoption of stablecoins to the demand for government bonds has now been formalized through legislation, rather than being a mere trend on the horizon.
What Asia Should Be Watching
The effects extend well beyond the workings of US interest rate dynamics when seen through the lens of the Asian market.
Network effects and the breadth and depth of the US capital markets are the bedrock reasons for the dollar's continued dominance as a worldwide settlement and reserve currency.
To further establish their dominance, stablecoins have opened a new channel for dollar-based payment systems to cross Southeast Asia, the Middle East, and Latin America at a rate never before possible, surpassing even the most rapid wire transfers and correspondent banking.
Each additional user in Jakarta, Lagos, or São Paulo who uses a dollar-pegged stablecoin indirectly adds to the demand dynamic described in the BIS report.
Buying T-bills is not in their budget. However, the entities preserving reserves on their behalf are.
A global route is being established that directly supports US government financing through the geographic growth of stablecoin adoption. This growth is driven by remittances, international commerce, and the simple function of providing a dependable store of value in countries with unstable local currencies.
This is not a mere coincidence that the US Treasury is choosing to take a passive stance.
The GENIUS Act's extraterritorial provisions are clear: any stablecoin activity involving US individuals or dollar-denominated instruments falls under federal jurisdiction, irrespective of the issuer's location.
That regulatory framework reflects the network effects of the dollar itself — and it is being developed using the same rationale.
The Undervaluation That Accumulated Quietly
The most important insight from the updated BIS paper is not the exact basis-point numbers.
It reflects what the necessity for revision suggests regarding the previous level of comprehension.
Scholarly and policy-oriented investigations have frequently underestimated the influence of stablecoin demand on Treasury dynamics, recognizing the endogeneity issue yet failing to adequately address it.
The revised estimate is almost twice as much as the initial one. If that pattern persists.
If early assessments of structural financial impacts are often considerably underestimated due to methodologies that fail to keep pace with the dynamics of the situation, then the $3 trillion scenario requires more immediate analytical attention than it is presently receiving.
Stablecoins have transitioned from being a marginal innovation to a fundamental component in the mechanics of US fiscal policy.
The BIS paper assigns a specific figure to that transition.
What unfolds next hinges on the degree of seriousness with which decision-makers, market players, and analysts approach that figure, or if the necessary adjustments come, yet again, after the fact.
