Scott Bessent has been making the case that crypto's dollar-pegged tokens could become a major buyer base for government debt. Last year, he said the stablecoin market could increase by a factor of ten by decade's end to around $3 trillion, potentially soaking up a meaningful chunk of the roughly $7 trillion in outstanding short-term Treasury bills. He has also looked to tamp down long-term yields by stepping up buybacks and leaning more on issuing short-dated bills, the same securities stablecoin firms tend to buy.
The timing is awkward: crypto trading has cooled, and with it the need for stablecoins that traders use as a parking spot when moving in and out of positions. These coins aim to mirror the U.S. dollar's value and maintain pools of assets - such as short-dated Treasury bills and other liquid holdings - to support that peg. During the first half of the year, Tether's USDT shrank almost $3 billion, landing near $184 billion, setting it up for its first pullback since the sector's 2022 downturn. Circle's USDC also declined by a similar sum to roughly $72 billion, per the company's data. That stall undercuts the pitch that embracing crypto would expand the government's buyer base for its debt.
The slowdown could be temporary. Trading activity dried up after last year's price crash. Bitcoin has bounced recently but is still well below its October high, and Ethereum has dropped sharply. Carlos Guzman at crypto market-maker GSR said the shift in supply is mainly about the trading retreat: "We saw a decline in USDT balances on exchanges," along with outflows from chains linked to Ethereum trading.
Even with slower growth, the largest issuers still sit on sizable piles of government paper. Tether reports about $134 billion, and Circle about $63 billion, in U.S. Treasury instruments and repo positions that are secured with U.S. government obligations. Tether's T-bill portfolio, with a weighted average maturity under 90 days, has come down this year, yet the firm still ranks among the top 20 holders of US government debt. For now, though, the recent trend suggests stablecoin firms will not meaningfully ease pressure in U.S. government debt markets, where investors are seeking richer yields amid stubborn inflation and an expanding national debt.
On Friday, several Treasury yields ticked up as better‑than‑forecast job growth from last month reinforced the view that the Federal Reserve will probably begin hiking rates at its Sept. 16 meeting. Not everyone buys the idea that stablecoins will soon be a market-moving force. Barclays strategist Samuel Earl put it bluntly: "I never thought they'd see that growth various folks were claiming would come."
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One bright spot: real-world payments. In July, card transactions using stablecoins from providers such as RedotPay and EtherFi surpassed $1 billion for the first time, according to Paymentscan. A McKinsey study earlier this year pegged annual stablecoin-based payment volumes at around $390 billion, mostly business-to-business.
Still, more payments do not automatically mean more tokens in circulation, since the same coin can change hands repeatedly without new issuance, said Chris Maurice, CEO of payments firm Yellow Card. "We're seeing this shift from speculative use cases to payments," he said. "It's the US government's job to really actively encourage these payments."
Tether says it is accelerating payment adoption and that this has helped offset the drag from weaker trading. "The current pause in stablecoin growth should not be mistaken for a ceiling on Treasury demand," the company said. Circle declined to comment, and Treasury spokespeople did not respond to a request for comment.
If you are watching where this goes next, keep an eye on trading volumes and payment adoption. If crypto activity reaccelerates or payments meaningfully scale, stablecoin reserves could grow, and with them demand for short-term Treasuries. If not, expect only a modest footprint in the bond market for now.
