A grand vision once floated by US Treasury Secretary Scott Bessent—that stablecoins would emerge as trillion-dollar buyers of US Treasuries—is now colliding with harsh reality as the stablecoin industry's expansion has ground to a halt.
With the Treasury Department urgently seeking external capital to support the bond market, the diminished role of stablecoins as a potential source of demand stands in stark contrast to government fiscal expectations.
Data compiled by Woofun AI shows that USDT, issued by leading stablecoin operator Tether, saw its market capitalization contract by nearly $3 billion in the first six months of the year, dropping to roughly $184 billion—potentially the first such decline since the crypto industry collapse in 2022.
Its main rival, USDC issued by Circle Internet Corp., has also seen its supply fall back to approximately $72 billion.
Despite Tether and Circle holding $134 billion and $63 billion respectively in US Treasuries and Treasury-backed reverse repurchase assets, with Tether ranking among the top 20 holders of US debt, the weighted average remaining maturity of their Treasury bills is less than 90 days, exposing significant short-term portfolio volatility.
This supply-side contraction directly undermines the government's strategy of embracing the crypto industry to broaden demand for US debt, leaving stablecoins unlikely to serve as a reliable force to fill the Treasury funding gap in the near term.
Macroeconomic pressures have further compounded the dilemma. Bessent had projected that the stablecoin market could expand tenfold to $3 trillion by the end of the decade, enough to support the roughly $7 trillion in outstanding short-term Treasury bills, but real-world data has failed to validate such optimism.
With inflation remaining elevated, investors demanding higher yields as risk compensation, and employment data exceeding expectations, markets widely anticipate that the Federal Reserve will raise interest rates at its September 16 policy meeting, driving some Treasury yields higher.
Samuel Earl, a strategist at Barclays, bluntly noted that investors are not optimistic about stablecoins growing into a significant market force in the short term, seeing little potential for explosive expansion.
Carlos Guzman, a research analyst at crypto market maker GSR, pointed out that the downturn in the crypto market is the core catalyst behind the stablecoin supply contraction. Since the sharp price collapse late last year, trading activity has dwindled significantly. While Bitcoin has recently rebounded, it remains below its October highs, and other tokens like Ethereum have also suffered steep declines. Declining USDT balances on exchanges and capital outflows from the Ethereum ecosystem have become the norm.
Although payment use cases are viewed as a potential growth avenue for stablecoins, their impact on total supply remains limited.
Tether is accelerating its push into payment and cross-border remittance applications to offset the impact of sluggish trading, while emphasizing that the current growth pause does not signal peaked demand for Treasuries.
Paymentscan data reveals that in July, stablecoin-backed card payment transactions launched by institutions like RedotPay and EtherFi surpassed $1 billion for the first time. McKinsey estimates that annual stablecoin payment volume totals around $390 billion, with the vast majority being business-to-business transactions.
However, Chris Maurice, CEO of Yellow Card, explained that the same token can circulate repeatedly without issuers needing to mint new ones, meaning booming payment activity does not necessarily drive up aggregate supply. He suggested that the US government should proactively support such payment services, but a Circle spokesperson declined to comment, and the Treasury Department did not respond to requests for comment. The logic of shifting industry focus from speculation to payments has yet to translate into substantive incremental demand for US Treasuries.
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