How USD Adoption in Crypto Stablecoins is a Boon for Treasury Bonds

Elias Zeekeh, MBA, CPA, CMA
Aug 18
3 min read

An increasingly compelling part of the long-term Treasury investment thesis in 2025 is the meteoric rise of USD-denominated stablecoins within the crypto market, and its profound effect on demand for U.S. Treasuries.

Stablecoins: The New Engine of Global Dollar Demand

Stablecoins like USDT and USDC are digital tokens pegged 1:1 to the U.S. dollar, now critical infrastructure for global crypto transactions. To maintain this peg, issuers are required—by both market discipline and new emerging regulations—to back their tokens with highly liquid U.S. assets, overwhelmingly short-term U.S. Treasury bills (T-bills). As of mid-2025, stablecoin issuers hold well over $120 billion in Treasuries, and industry modeling suggests this could balloon to $900 billion or more this decade, should adoption accelerate with regulatory breakthroughs.reuters+2

This dynamic creates a self-reinforcing cycle:

Global Reach: Stablecoins export the U.S. dollar digitally, embedding USD usage in places traditional banking struggles to reach.
Treasury Demand Growth: Every new dollar of stablecoin supply must be backed by new U.S. Treasuries held in reserve, scaling demand in lockstep with adoption.
Strategic Asset: Policymakers now view stablecoins as “Trojan horses” for U.S. dollar and Treasury dominance—reinforcing America’s influence in global finance during a period when sovereign holders (like China and Japan) are paring back Treasury allocations.ark-invest+1

Portfolio Implications for Treasury Investors

This groundswell of Treasury demand from stablecoin adoption introduces powerful tailwinds:

Supports Treasury Prices and Yields: As stablecoin reserves swell, they absorb more government debt, helping to stabilize or even lower U.S. borrowing costs and providing an alternative to traditional foreign investors.insights4vc.substack+2
Counterbalances De-Dollarization: Even as some countries seek alternatives to the dollar and U.S. Treasuries due to geopolitical tensions, stablecoins expand dollar influence in new geographies, keeping demand robust.ark-invest+1
Reduces Volatility at the Short End: Although most stablecoin reserves are parked in short-term T-bills, the overall rise in Treasury demand supports pricing and liquidity across maturities.

Synergy with Long-Duration Treasury Vehicles (TLT, TLTW)

While stablecoins predominantly impact demand for short-term bills, they indirectly enhance the thesis for long-term Treasuries by reinforcing broad USD dominance. Strong, growing global dollar liquidity increases the reliability and perceived safety of U.S. government debt over all maturities, bolstering the case for long-duration assets like TLT and TLTW:

Future Borrowing Costs: As crypto adoption rises, persistent Treasury demand from stablecoin reserves may help anchor rates, making long-duration Treasuries more attractive for “locking in” yields.
Systemic Stability: Robust demand from both digital and traditional buyers can help weather episodes of market stress or foreign divestment, reducing tail risks for long-duration holders.

Risks and Open Questions

It’s important to note:

Regulatory Shocks: Upcoming laws like the GENIUS Act will shape the stablecoin market’s Treasury impact—both positive and negative.weforum+1
Liquidity Concentration: Large-scale stablecoin redemptions could rapidly unwind Treasury holdings, creating potential volatility.ledgerinsights+1
Bank Funding Shifts: As stablecoins siphon deposits from banks, broader shifts in financial sector funding may affect markets in unpredictable ways.insights4vc.substack

Conclusion

The rapid ascent of USD-denominated stablecoins is emerging as a key new source of U.S. Treasury demand in the digital economy. For investors considering long-duration Treasuries and core vehicles like TLT and TLTW in 2025, this crypto-fueled “demand shock” helps reinforce the thesis: the U.S. dollar is being cemented as the settlement currency of both traditional and digital commerce, anchoring Treasury demand and potentially supporting bond prices and yields for years to come. Treasury investors now benefit not only from macro trends and policy pivots, but also from the exponential growth of digital dollar infrastructure—a compelling new pillar in the case for U.S. government debt.