Two hundred billion stablecoins: New structural force to lower short-term interest rates

Author: Beidu

When I first wrote a stablecoin in October last year, the total market value of the stablecoin was only US$170 billion. In the following months, the on-chain market was hot, and the US government continued to promote it. The total market value of stablecoins had soared to 230 billion, an increase of 35% in more than half a year . To put it exaggeratedly, stablecoins have become a paradigm shift that cannot be ignored by macro research.

The current mainstream stablecoin issuance model is "collateralize USD 1 and issue USD 1 stablecoin". The issuer will use the mortgaged US dollars to purchase US Treasury and money market funds , and use interest as the company's income.

Looking at the largest two, $ USDT has a market value of 150 billion, holding US Treasury bonds that expired within 3 months, plus US $20 billion reverse repurchase and money market funds; $USDC has a market value of 58.6 billion, holding US Treasury bonds that expired within 3 months, plus 30.4 billion reverse repurchase. Together, the total amount of holdings of US debts is close to South Korea.

This is also consistent with the conclusions of BIS's latest paper , and the research found:

(1) Whenever a net inflow of approximately US$3.5 billion (2 times standard deviation) of stablecoins will cause the 3-month Treasury yield to fall by 2 to 2.5 basis points within 10 days;

(2) When capital outflows of the same scale occur, the upward range of returns can reach 6 to 8 basis points, showing a significant asymmetric effect;

(3) This impact is mainly concentrated on the short-term yield curve and hardly affects long-term treasury bonds (because they buy short-term);

(4) $USDT contributes the most to the impact of interest rates, accounting for 70% of the total impact (because of the large quantity).

From the perspective of marginal purchase volume, from Q1 2024 to Q1 2025, $USDT and $USDC increased their holdings by a total of 35.3 billion US dollars in US bonds, which is the same order of magnitude as the increase in holdings of the UK (+42.9 billion) and Canada (+56.8 billion) and the reduction in holdings of Japan (-36.2 billion).

Going further, NBER 's recent research has deeply revealed the structure of the US bond market, and divided players in the US bond market into two categories:

One category is "granular-demand investors" with term preferences and institutional constraints, including commercial banks, insurance companies, pensions, mutual funds, money market funds, foreign central banks and private investors, etc. Their allocation behavior is usually driven by duration matching, liquidity regulatory requirements or return targets, and demand is insensitive to price changes and has cross-term substitution;

The other type is "arbitrageurs", which are mainly composed of hedge funds, brokerage market makers and lead underwriters. They have strong risk tolerance, are responsible for absorbing market imbalances and assume risk pricing roles in the maturity structure, especially active in the short-term treasury bond market.

A major conclusion of the study is that in the short-term US bond market, arbitrage investors have high intervention and low risks, and the market is more flexible (interest rates are less sensitive to supply and demand) ; in the long-term bond market, the risks are higher, the arbitrage participation is less, and the prices are more sensitive to supply and demand. In order to quickly cash out large redemptions, stablecoin issuers can only hold highly liquid and safe assets (such as US bonds that expire within 3 months), and are the first type of players in the US bond market. As the scale expands, stablecoins are forming a new structural force to lower short-term interest rates.

How do stablecoins affect the amount of currency in the United States? 1 USD to form a stablecoin on the bank account on ramp, which will reduce the classic M1 and M2 statistics; but its existence as a shadow currency does not reduce the actual purchasing power in the economy. If stablecoins are used for daily payments, rather than just transactions and interest generation, their circulation speed V will be significantly higher than traditional currencies.

But if 1 Argentine peso is directly converted into a US dollar stablecoin, the impact will be too great.