BIS | Stablecoins and safe asset prices

Author: Rashad Ahmed and Iñaki Aldasoro Translated by: Institute of Financial Technology, Renmin University of China

introduction

The stablecoins supported by the US dollar have experienced significant growth and are expected to reshape financial markets. As of March 2025, the total asset management scale of these commitments with the US dollar and supported by US dollar-denominated assets exceeded US$200 billion, surpassing short-term U.S. securities held by major foreign investors such as China (picture 1 left). Stablecoin issuers, especially Tether (USDT) and Circle (USDC), support their tokens primarily through U.S. short-term Treasury bonds (T-bills) and money market tools, making them an important player in the short-term debt market. In fact, stablecoins supported by the US dollar purchased nearly $40 billion in U.S. short-term Treasury bonds in 2024, which is comparable to the largest government money market fund in the United States and exceeds the purchase volume of most foreign investors (Figure 1 right). Although previous research focuses on the role of stablecoins in cryptocurrency fluctuations (Griffin and Shams, 2020), their impact on the commercial paper market (Barthelemy et al., 2023), or their systemic risks (Bullmann et al., 2019), their interactions with traditional security asset markets are still underexplored. This article examines whether stablecoin liquidity has measurable demand pressure on U.S. Treasury yields. We documented two key findings. First, stablecoin liquidity has lowered short-term Treasury yields, and its impact is comparable to the impact of small-scale quantitative easing on long-term yields. In our strictest norms, by overcoming endogenous problems by using a series of crypto shocks that affect stablecoin flows but do not directly affect Treasury yields, we found that a $3.5 billion inflow of 5-day stablecoin (i.e. 2 standard deviations) would drop the 3-month Treasury yield by about 2-2.5 basis points (bps) in 10 days. Secondly, we decompose the yield impact into issuer-specific contributions and find that USDT contributes the most to lower Treasury yields, followed by USDC. We discuss the policy implications of these findings for monetary policy transmission, transparency of stablecoin reserves, and financial stability. Our empirical analysis is based on daily data from January 2021 to March 2025. To build a measure of stablecoin flow, we collected market capitalization data for six largest stablecoins supported by the US dollar and summarized them into a single number. We then use the 5-day change in the total market value of stablecoins as a proxy indicator for stablecoin inflows. We collected data on the U.S. Treasury yield curve and cryptocurrency prices (Bitcoin and Ethereum). We chose the 3-month Treasury yield as the outcome variable of interest to us, as the largest stablecoin has been disclosed or publicly stated that this maturity is its preferred investment period. A simple univariate local projection that links changes in 3-month Treasury yields with 5-day stablecoin flows may be affected by severe endogenous bias. In fact, estimates of this "naive" norm suggest that the $3.5 billion inflow of stablecoin is associated with a 3-month Treasury yield drop of up to 25 basis points in 30 days. This impact is incredibly large, as it shows that the impact of 2 standard deviations of stablecoin inflows on short-term interest rates is similar to the impact of the Fed's policy rate cut. We believe that these large estimates can be explained by the existence of endogeneity that bias the estimate downward (i.e., negative estimates with greater relative to the real effect), due to missed variable bias (because potential confounders are not controlled) and simultaneous bias (because Treasury yields may affect stablecoin flows). To overcome the endogenous problem, we first expanded the local projection specification to control the U.S. Treasury yield curve and crypto asset prices. These control variables are divided into two groups. The first group includes forward changes in U.S. Treasury yields for maturities other than 3 months (from t to t+h). We control the evolution of the forward Treasury yield curve to isolate the conditional effect of stablecoin flow on 3-month yields based on changes in adjacent term yields over the same local projection period. The second set of control variables includes 5-day changes (from t-5 to t) Treasury yields and crypto asset prices to control various financial and macroeconomic conditions that may be associated with stablecoin flows. After the introduction of these control variables, local projections estimate that Treasury yields fell by 2.5 to 5 basis points after the inflow of US$3.5 billion of stablecoins. These estimates are statistically significant, but nearly an order of magnitude smaller than the “naive” estimates. The attenuation of the estimate is consistent with our expectations of the endogenous deviation sign. In the third specification, we further strengthen the identification through the instrumental variable (IV) strategy. According to the method of Aldasoro et al. (2025), we used a series of crypto shocks to toolize the 5-day stablecoin flow, which are built on the unpredictable components of the Bloomberg Galaxy Crypto Index. We use the accumulation of cryptographic shock sequences as tool variables to capture the special but persistent nature of cryptographic market booms and busts. The first phase regression of the 5-day stablecoin flow on the cumulative crypto shock meets the correlation conditions and shows that stablecoins tend to have significant inflows during the crypto market boom. We believe that exclusion restrictions are satisfied because the special crypto boom is sufficiently isolated to have a meaningful impact on the pricing of the Treasury market – unless the issuer uses these funds to purchase Treasury bonds through inflows of stablecoins. Our IV estimates suggest that the $3.5 billion inflow of stablecoin will drop 3-month Treasury yields by 2-2.5 basis points. These results are robust to changing the set of control variables by focusing on periods with lower correlation to 3-month yields—if any, the results will be slightly stronger in quantity. In the additional analysis, we did not find spillover effects of stablecoin purchases on longer term, such as 2-year and 5-year periods, although we did find limited spillover effects in the 10-year period. In principle, the effects of inflow and outflow may be asymmetric, as the former allows the issuer to have a certain discretion in purchasing time, and this flexibility does not exist when market conditions are tight. When we allow the estimates to differ under inflow and outflow conditions, we do find that the effect of outflow on yield is greater in quantity than inflow (+6-8 basis points vs. -3 basis points, respectively). Finally, based on our IV strategy and baseline specifications, we also break down the estimated yield impact of stablecoin flows into issuer-specific contributions. We found that USDT flow contributed the largest average, at about 70%, while USDC flow contributed about 19% to the estimated yield effect. Other stablecoin issuers contributed the rest (about 11%). These contributions are proportional to the issuer size in quality. Our findings have important implications for policy, especially if the stablecoin market continues to grow. Regarding monetary policy, our yield impact estimates suggest that if the stablecoin industry continues to grow rapidly, it may ultimately affect the transmission of monetary policy to Treasury yields. The growing influence of stablecoins in the Treasury market may also lead to scarce safety assets for non-bank financial institutions, which may affect liquidity premiums. Regarding stablecoin regulation, our results highlight the importance of transparent reserve disclosure in order to effectively monitor a centralized stablecoin reserve portfolio. When stablecoins become large investors in the Treasury bond market, there may be potential financial stability impacts. On the one hand, it puts the market at risk of selling off when major stablecoins encounter runs. In fact, our estimates suggest that this asymmetry effect is already measurable. Our estimated amplitudes may be the lower limit of the potential sell-off effect, as they are based on a sample based primarily on the growth market and therefore may underestimate the potential of the nonlinear effect under severe pressure. In addition, stablecoins themselves may promote arbitrage strategies through investments such as reverse repurchase agreements supported by Treasury bond collateral, such as Treasury bond basis trading, which is the primary focus of regulators. Equity and liquidity buffers may mitigate some of these financial stability risks.

Data and methodology

Our analysis is based on daily data from January 2021 to March 2025. First, we collected market capitalization data from CoinMarketCap for six stablecoins supported by USD: USDT, USDC, TUSD, BUSD, FDUSD and PYUSD. We summarize the data of these stablecoins, get an indicator that measures the total market value of stablecoins, and then calculate its 5-day changes. We collected daily prices for two largest cryptocurrencies, Bitcoin and Ethereum, through Yahoo Finance. We took the daily sequence of the U.S. Treasury yield curve from FRED. We considered the following periods: 1 month, 3 months, 6 months, 1 year, 2 years and 10 years. As part of our identification strategy, we also used a daily version of the crypto-impact sequence proposed by Aldasoro et al. (2025). Crypto Shock is calculated as an unpredictable component of the Bloomberg Galaxy Crypto Index (BGCI), which captures a wide range of crypto market dynamics (we will provide more details about crypto Shock below). Figure 2 shows the market value of stablecoins supported by USD and U.S. Treasury yields over the sample period. Stablecoin market value has been rising since the second half of 2023, with significant growth in early and end of 2024. The industry is highly concentrated. The two largest stablecoins (USDT and USDC) account for more than 95% of the outstanding amount. The Treasury yields in our sample cover both the interest rate hike cycle and the suspension that began around mid-2024 and subsequent easing cycles. The sample period also included a period of obvious curve reversal, with the most obvious dark blue lines moving from the bottom of the yield curve to the top.

Conclusion and revelation

scale. It is estimated that the yield of 2 to 2.5 basis points is affected by the inflow of stablecoin from $3.5 billion (or 2 standard deviations), with the industry being about $200 billion by the end of 2024. As the stablecoin industry continues to grow, it is not unreasonable that its footprint in the Treasury bond market will also be expected to increase. Assume that by 2028, the stablecoin industry will grow 10 times to $2 trillion, and the 5-day traffic difference will increase proportionally. The 2 standard deviation flow will then reach about $11 billion, with an estimated impact on Treasury yields ranging from -6.28 to 7.85 basis points. These estimates suggest that the growing stablecoin industry may eventually curb short-term yields, thus completely affecting the transmission of Fed monetary policy to market yields. mechanism. There are at least three channels for stablecoins to affect the pricing of the Treasury bond market. The first is through direct demand, because the purchase of stablecoins will reduce the available supply of banknotes, as long as funds flowing into stablecoins will not flow into Treasury bills. The second channel is indirect, as the demand for U.S. Treasury bonds in stablecoins may ease traders’ balance sheet restrictions. This in turn will affect asset prices, as it will reduce the supply of Treasury bonds that traders need to absorb. The third channel is through signal effects, as a large inflow may become a signal of institutional risk appetite or lack of risk appetite, which investors then include in the market. Policy impact. Policies surrounding reserve transparency will interact with the growing footprint of stablecoins in the Treasury market. For example, USDC’s fine-grained reserve disclosure improves market predictability, while USDT’s opacity complicates analysis. Regulatory requirements for standardized reporting can mitigate the systemic risks posed by centralized ownership of Treasury bonds by making some of these flows more transparent and predictable. While the stablecoin market is still relatively small, stablecoin issuers are already a meaningful player in the Treasury market, and our results suggest that yields have had some impact at this early stage.

Monetary policy will also interact with the role of stablecoins as investors in the Treasury market. For example, when stablecoins become very large, stablecoin-driven yield compression may weaken the Fed's control over short-term interest rates, which may require coordinated monetary policy among regulators to effectively affect financial conditions. This view is not just theoretical—for example, the "green dilemma" in the early 21st century stems from the fact that the Federal Reserve's monetary policy did not have an impact on long-term Treasury yields as expected. At that time, this was mainly due to the huge demand for U.S. Treasury bonds from foreign investors affected the pricing of the U.S. Treasury market.

Finally, stablecoins become investors in the treasury bond market, which has a significant impact on financial stability. As discussed in the literature on stablecoins, they can still function, and their balance sheets are affected by liquidity and interest rate risks, as well as some credit risks. Therefore, if a major stablecoin faces serious redemption pressure, especially given the lack of discount windows or access from lenders of last resort, the concentrated position of Treasury bonds may put the market in a sell-off, especially those that do not expire immediately. The evidence we provide about the asymmetric effect suggests that stablecoins may have a greater impact on the Treasury market in an environment characterized by large-scale and dramatic outflows. In this regard, the proposed magnitudes by our estimates may be a lower limit, as they are obtained based on a sample that mainly includes a growing market . This situation may change as the stablecoin industry grows, increasing concerns about the stability of the Treasury market.

limit. Our analysis provides some preliminary evidence of the emerging footprint of stablecoins in the Treasury market. However, our results should be explained with caution. First, we face data constraints in our analysis because the expiration date disclosure of the USDT reserve combination is incomplete, resulting in complex identification. Therefore, we must assume which Treasury bill term is most likely to be affected by stablecoin traffic. Second, we control volatility in the financial market by including returns from Bitcoin and Ethereum and yield changes in various Treasury maturities. However, these variables may not fully capture the risk sentiment and macroeconomic conditions that jointly affect stablecoin traffic and Treasury bond yields. We tried to solve this problem with the tool variable strategy, but we realized that our tool variables themselves may be limited, including the wrong specifications in our local project model. Furthermore, due to data limitations and the high concentration of the stablecoin industry, our estimates rely almost entirely on time series variations, as the cross-sections are too limited to be exploited in any meaningful way.

In short, stablecoins have become an important player in the Treasury bond market, having a measurable and significant impact on short-term yields. Their growth blurs the line between cryptocurrencies and traditional finance, requiring regulators to pay attention to the mode of reserves, the potential impact on monetary policy transmission and financial stability risks. Future research could explore cross-border spillover effects and interactions with money market funds, especially during liquidity crises.