Dollar stablecoins have grown to about $300 billion in circulation, prompting a Bank of England policymaker to warn that their expansion could increase demand for US Treasurys while creating new risks during periods of heavy redemptions.
Summary
- Dollar-linked tokens account for about 98% of the global stablecoin market.
- USDT and USDC held nearly $150 billion in Treasury bills at the end of 2025.
- The two issuers bought about $33 billion in Treasury bills during the year.
- Large redemptions could force reserve sales and add pressure to stressed Treasury markets.
Stablecoins could extend the dollar into new markets
The Bank of England said in a Sep. 15 speech that stablecoins could reinforce the US dollar’s international role by making dollar-linked assets and settlement systems easier to access outside the United States.
Carolyn Wilkins, an external member of the central bank’s Financial Policy Committee, told an audience at Queen’s University Belfast that dollar stablecoins already have a “considerable first-mover advantage.” About 98% of stablecoin value is denominated in dollars, according to figures cited in her speech.
Stablecoins in circulation reached roughly $300 billion by mid-2026, compared with less than $5 billion at the beginning of 2020. Although most activity still involves crypto trading, lending, collateral, and market liquidity, Wilkins said the tokens could move deeper into payments and international finance.
Cross-border settlement forms one channel for that expansion. Stablecoin transfers can operate around the clock and move between countries without passing through every institution in a traditional correspondent banking network.
Research cited by Wilkins found that such systems could lower costs in payment corridors where banking services remain slow or expensive. Sending a $200 remittance cost an average of 6.4% worldwide in 2024, while the average charge in Sub-Saharan Africa reached about 8.5%.
Dollar stablecoins can also give people in countries with unstable currencies access to a dollar-linked asset through a mobile phone, without requiring a US bank account. Wilkins said such use could extend dollarization into digital markets, although thin liquidity still limits some payment corridors.
Other currencies have yet to build comparable scale. Circle’s euro-backed token passed €400 million in circulation in August, while the entire euro stablecoin market stood at about €650 million in June, according to a previous EURC supply report. Dollar tokens remain far ahead despite efforts to build alternatives tied to the euro and pound.
Stablecoin reserves add demand for US Treasurys
Issuers generally invest the money received from token buyers in liquid reserve assets, including cash, short-term government debt and Treasury-backed repurchase agreements. Growth in stablecoin supply can therefore send additional funds into the market for US government securities.
USDT issuer Tether and USDC issuer Circle held almost $150 billion in Treasury bills at the end of 2025, according to Bank for International Settlements research cited by Wilkins. Their net purchases reached about $33 billion during the year.
Although the combined position remains small compared with the full Treasury market, Wilkins described the largest stablecoin issuers as meaningful participants in short-term US government debt. Research referenced in her speech found that stablecoin inflows can place modest downward pressure on short-term Treasury yields as issuers buy more safe assets.
The net effect depends on where users obtained the money placed into stablecoins. Moving capital from a Treasury money market fund into a token whose issuer buys the same bills may add little new demand. Funds transferred from another currency or asset class would have a stronger effect, while withdrawals from bank deposits could affect lenders’ funding costs and capacity to provide credit.
Tether’s own accounts show how closely issuer earnings have become linked to US debt. The company generated about $1.5 billion in operating profit during the second quarter of 2026, supported by returns from its Treasury and repo holdings, crypto.news reported in July.
Circle also earns much of its income from the assets backing USDC. Average USDC circulation doubled from $38.1 billion to $76.2 billion in the fourth quarter of 2025, while its reserve portfolio returned 3.8%, according to the company’s results covered in a February earnings report.
Redemptions could reverse Treasury buying
The same reserve structure that sends money into Treasury bills during stablecoin growth can create selling pressure when users redeem tokens.
Stablecoins are claims that holders expect to exchange for cash at face value. Since tokens trade continuously, issuers may have to raise cash quickly when redemptions accelerate, even outside conventional market hours.
Wilkins warned that several large issuers selling Treasury bills at the same time could worsen changes in yields and liquidity if the government-debt market were already under strain. Pressure would not have to begin inside the stablecoin industry, as concerns about US inflation, public debt or institutional credibility could weaken demand for dollar assets before token redemptions add to the selling.
The stablecoin sector is not yet large enough to pose a major threat to the Treasury market or create a material financial-stability risk in the UK, according to Wilkins. A large depegging event could still damage confidence in regulated tokens.
USDC provided an earlier example of how reserve concerns can reach a stablecoin. Circle held about $3.3 billion at Silicon Valley Bank when the lender failed in March 2023, causing USDC to lose its dollar peg as redemptions rose. The token was recovered after US authorities guaranteed the bank’s deposits.
Wilkins compared the possible Treasury feedback loop with the UK liability-driven investment crisis in 2022, when forced gilt sales added to falling bond prices and prompted intervention by the Bank of England.
US rules deepen the stablecoin-Treasury link
The GENIUS Act, enacted in July 2025, created a federal framework for US payment stablecoins and requires issuers to hold at least one dollar of eligible reserves for each dollar of tokens outstanding.
Permitted assets include cash, insured deposits, short-dated Treasury bills, Treasury-backed repo agreements and qualifying money market funds. The law also establishes disclosure requirements and gives stablecoin holders priority in an issuer’s insolvency.
Implementation remains unfinished. The Office of the Comptroller of the Currency expects to finalize its stablecoin rules by November 2026, which could push their effective date to around March 2027, according to an August implementation update. Issuers worth more than $50 billion must undergo annual audits, while all regulated issuers will have to report weekly to their main regulator and publish monthly disclosures.
Wilkins said reserve rules address whether issuers have enough assets but do not fully answer how quickly those assets can be converted into cash during a run. Even Treasurys faced severe liquidity pressure during the March 2020 dash for cash, when the Federal Reserve intervened in the market.
A limited Federal Reserve account proposed for eligible payment firms could improve routine settlement, according to the speech. The account would not provide access to Fed borrowing, leaving stablecoin issuers without a prearranged source of emergency liquidity during a redemption crisis.
UK stablecoin rules place more weight on liquidity
The Bank of England’s framework for systemic sterling stablecoins applies stricter reserve and liquidity requirements than the US regime, although Wilkins noted that the two systems cover different groups of issuers.
The UK framework applies once a sterling stablecoin is classified as systemic, while the GENIUS Act governs US payment stablecoins more generally. Britain’s model includes payment-system access, liquidity contingency plans and procedures for issuer failure, with conditional access to central bank liquidity also possible.
For cross-border issuers, the Bank of England would require a UK legal entity and place key safeguarding arrangements inside the country. Its final framework for systemic sterling stablecoins is scheduled for completion at the end of 2026.
Separately, the Financial Conduct Authority finalized its rules for UK stablecoin issuance in June after reducing some proposed capital requirements. The regulator has also allowed prospective issuers to test their products through a dedicated sandbox, while the Bank of England continues experiments involving stablecoins and a simulated digital pound.