Stablecoins are digital tokens that aim to hold a fixed value. Most are backed by traditional currencies like the U.S. Dollar. Each token corresponds to an equivalent amount of assets, typically held in the form of cash or short-term government bonds. This simple mechanism allows them to function like digital cash with a built-in redemption promise.
Initially developed for use in crypto markets, stablecoins are no longer confined to that space. With over USD 230 billion in circulation and new legal clarity from Washington, they are being integrated into the mainstream financial system.
The shift was cemented in 2025 with the passage of the GENIUS Act. This legislation sets strict conditions for issuing fiat-backed stablecoins. Issuers must hold fully matched reserves in liquid assets. They must register with U.S. authorities, follow anti-money laundering rules, and provide regular third-party audits. Furthermore, only supervised financial firms can operate under this framework.
These conditions have turned stablecoins into a new form of regulated liability. They are not deposits. They do not pay interest. But they are increasingly treated as a liquid, transparent, and dollar-linked instrument that can move across networks and jurisdictions.
How Banks Are Repositioning Around Stablecoins
Stablecoins have shifted from loosely defined crypto instruments to legally codified financial products. With the GENIUS Act now in place, the U.S. has drawn firm lines around what constitutes a compliant, fiat-backed stablecoin. Issuers must hold fully matched reserves in liquid, dollar-denominated assets. These may include Treasury bills with maturities under 93 days, overnight repos, and insured bank deposits. The assets must be segregated, regularly audited, and disclosed in monthly statements. Redemption at par is mandatory and interest payments to holders are prohibited.
The intent is clear. Stablecoins are no longer tolerated as regulatory grey zones. They are now positioned as non-interest-bearing digital liabilities that sit within a controlled framework. This structure eliminates most of the risks previously associated with unregulated issuers and opens the door to integration with traditional finance.
Banks are paying close attention. The clearest signal comes from those who have chosen to build or sponsor their own stablecoins. JPMorgan continues to expand its wholesale JPM Coin platform. Custodial banks, including those with trust-chartered affiliates, are preparing to offer reserve management services to third-party issuers. Others are entering joint ventures to access licensing regimes at state or federal level.
The economic model behind stablecoins is undergoing a structural shift. While stablecoins do not pay interest to end-users, the underlying reserves generate yield. That yield accrues to the issuer or to service providers involved in managing the assets. In effect, stablecoins replicate parts of the deposit business without triggering the same capital or liquidity requirements.
Stablecoins are no longer an external risk to banking. They are now embedded within the system. As a result, the challenge for banks is no longer to assess whether they matter, but to define what role they intend to play.
Treasuries, Stability and Risk
Stablecoins are not only reshaping private balance sheets. They are also beginning to reshape public debt markets. Under the GENIUS Act, every regulated stablecoin must be backed one-to-one by a reserve of safe, liquid assets. In practice, that reserve increasingly means U.S. Treasury bills with a maturity of 93 days or less. As of 2025, issuers like Tether and Circle are among the largest private holders of short-dated Treasuries. Tether alone holds nearly USD 100 billion in T-bills and Circle’s USDC fund allocates nearly 90 percent of its reserves to the same instruments. In total, stablecoin issuers now hold approximately USD 182 billion in U.S. Treasuries, making them the 17th-largest holder globally, ahead of countries like South Korea and the UAE. These figures continue to rise in step with token supply.
Projections suggest the implications are enormous. If the stablecoin market expands to two trillion dollars by 2028, as industry analysts expect, then issuers would need to hold at least 1.6 trillion dollars in additional Treasury bills. That amount is roughly equivalent to all the new T-bill issuance expected over the same period. In other words, stablecoin issuers could become the marginal buyer of U.S. short-term debt.
This would address a real need. The U.S. fiscal path depends on sustained demand for government securities. Foreign central banks and institutional investors remain important but are not expanding their purchases fast enough to match supply. Stablecoins, by contrast, grow with market demand and regulatory acceptance, with reserve requirements ensuring that every new dollar issued brings a corresponding bid for government paper.
But the benefits come with risk. Stablecoins behave like narrow money funds. They hold liquid assets and promise par redemption. However, they do not have access to the Federal Reserve’s liquidity facilities. If confidence breaks, redemptions could force rapid asset sales into thin markets. This could amplify front-end volatility and destabilize Treasury funding during stress. Issuers concentrate on ultra-short maturities, often avoiding anything beyond the next Fed meeting. This narrows demand to a limited pool of weekly bills, heightening bid pressure and the risk of dislocation if supply falters. Apparent demand stability can quickly unwind in a crisis.
The current framework mitigates some of these concerns through transparency and regulatory oversight. But it does not eliminate the core fragility: stablecoin issuers are private institutions, and their role in sovereign debt markets is growing faster than their systemic safeguards. Yet despite these risks, stablecoins are now functioning as a regulated bridge between digital finance and public debt, anchoring billions in Treasury demand and positioning themselves as the next great buyer of America’s fiscal future.
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