Report interpretation: What does the U.S. Treasury think tank think about stablecoins?

Original Author: TechFlow

Stablecoins are undoubtedly the hottest topic in the crypto market over the past week.

With the US GENIUS Stablecoin Bill passing through Senate procedural voting, and the Hong Kong Legislative Council passing the Stablecoin Regulation Bill on third reading, stablecoins have now become a crucial variable in the global financial system.

In the United States, the future development of stablecoins not only concerns the prosperity of the digital asset market but may also have far-reaching implications for government bond demand, bank deposit liquidity, and US dollar hegemony.

A month before the GENIUS bill passed, the US Treasury's "think tank" - the Treasury Borrowing Advisory Committee (TBAC), delved into the potential impacts of stablecoin expansion on US fiscal and financial stability through a report.

As an important component of the Treasury Department's debt financing plan, TBAC's recommendations not only directly influence the US Treasury bond issuance strategy but may also indirectly shape the regulatory path for stablecoins.

So, how does TBAC view the growth of stablecoins? Will this think tank's perspective influence the Treasury Department's debt management decisions?

We will use TBAC's latest report as an entry point to interpret how stablecoins have evolved from "on-chain cash" to an important variable influencing US fiscal policy.

TBAC, the Fiscal Think Tank

First, a brief introduction to TBAC.

TBAC is an advisory committee that provides economic observations and debt management advice to the Treasury Department. Its members consist of senior representatives from buy-side and sell-side financial institutions, including banks, broker-dealers, asset management companies, hedge funds, and insurance companies. It is also an important component of the US Treasury's debt financing plan.

TBAC Meetings

TBAC meetings primarily provide financing recommendations to the US Treasury Department and are a crucial part of the Treasury's debt financing plan. From the financing plan process, the US Treasury's quarterly financing process includes three stages:

1) Treasury debt managers seek advice from primary dealers;

2) After meeting with primary dealers, Treasury debt managers seek advice from TBAC; TBAC issues a formal report to the Treasury Secretary regarding the questions and discussion materials raised by the Treasury;

3) Treasury debt managers make decisions on changes to debt management policies based on research analysis and recommendations from the private sector.

Report Summary: Impact on US Banks, Treasury Market, and Money Supply

• Bank Deposits: The impact of stablecoins on bank deposits depends on whether they have earning capabilities and payment characteristics compared to other financial products. In an increasingly competitive landscape, banks may need to raise interest rates to maintain funds or seek alternative funding sources.

• Treasury Market: Overall increase in Treasury demand; reserve requirements in stablecoin legislation will provide an additional and growing source of demand for Treasuries; overall forward shift in Treasury holding periods, with legislation requiring stablecoin issuers to hold Treasury bills with maturities less than 93 days, leading to concentration of Treasury holdings in the short term.

• Money Supply: Stablecoin demand may have a net neutral impact on US money supply. However, the attractiveness of US dollar-pegged stablecoins may redirect current non-US dollar liquidity towards the US dollar.

• Impact on Existing Market Structure: Current legislative proposals do not provide pathways to main accounts for non-qualifying issuers. Stablecoin issuers' inability to access the Federal Reserve may exacerbate risks during stress or volatile periods.

Current Diversified Implementation of Digital Currencies: A Panorama from Private to Central Bank

This image provides us with a panoramic view of digital currencies, showcasing their diverse implementation paths and practical applications across various domains.

1. Digital Currency Classification

• Issued by Private Sector (Commercial Bank Balance Sheet)

• Tokenised Deposits: Blockchain-based representation of commercial bank deposit liabilities.

• Tokenised Money Market Funds: Blockchain-based tokenization of money market funds.

• Issued by Private Sector (Central Bank Balance Sheet)

• Stablecoins: Blockchain cash representation backed by 1:1 reserve assets, which can be interest-bearing or non-interest-bearing.

• Issued by Private or Public Sector

• Cryptocurrencies: Virtual currencies based on decentralized networks.

• Issued by Central Bank

• Trigger Solutions: Connection between blockchain and central bank real-time gross settlement (RTGS) systems.

• CBDC (Central Bank Digital Currency): Blockchain cash representation directly issued and regulated by central banks.

2. Current Market Trends

• Tokenised Deposits

• J.P. Morgan and Citi have launched blockchain-based payment and repurchase activity solutions.

• Tokenised Money Market Funds

• BlackRock's BUIDL has attracted over $240 million in investment.

• Franklin Templeton launched BENJI token, supporting Stellar, Polygon, and Ethereum blockchains.

• Stablecoins

• Market dominated by major issuers like Tether and Circle, with a total market cap of around $234 billion.

• Cryptocurrencies

• Total market cap near $3 trillion, with mainstream currencies including Bitcoin ($1.7 trillion) and Ethereum ($191 billion).

• Trigger Solutions

• Mechanism launched by the German Central Bank facilitates settlement of blockchain assets with traditional payment systems.

• CBDC

• Among 134 tracked countries and monetary unions, 25% have launched, 33% are in pilot stages, and 48% are still in development.

Stablecoin Market Status: Market Cap and Key Events Overview

The stablecoin market has experienced significant volatility and development in recent years. As of April 14, 2025, the total market cap reached $234 billion, with USDT (Tether) dominating at $145 billion, followed by USDC (Circle) at $60.2 billion, and other stablecoins totaling $28.7 billion.

Looking back over the past four years, two major events in the stablecoin market became watershed moments for industry development.

In May 2022, the collapse of algorithmic stablecoin UST triggered a trust crisis across the entire DeFi sector. UST's de-pegging not only raised questions about the feasibility of algorithmic stablecoins but also impacted market confidence in other stablecoins.

Immediately after, the regional bank crisis in March 2023 again threw the market into turmoil. At the time, Circle, the issuer of USDC, had approximately $3.3 billion in reserves frozen at Silicon Valley Bank (SVB), causing USDC to briefly de-peg. This event prompted the market to reassess stablecoin reserve transparency and safety, while USDT further consolidated its market share during this period.

Despite experiencing multiple crises, the stablecoin market gradually recovered in 2024 and kept pace with broader digital asset market developments. In 2024, the US launched its first spot crypto ETFs, providing institutional investors with tools to access BTC and ETH.

Currently, the growth of the stablecoin market is primarily driven by three aspects: increased institutional investment interest, gradual improvement of global regulatory frameworks, and continuous expansion of on-chain application scenarios.

Digital Currency Market Funds and Stablecoins: A Comparison of Two On-Chain Assets

With the rapid growth of Tokenized Money Market Funds (MMFs), an alternative narrative to stablecoins is gradually forming. Although both have similar use cases, a significant difference is that stablecoins cannot become yield-generating instruments under the current GENIUS Act, whereas MMFs can generate returns for investors through underlying assets.

Market Potential: From $230 Billion to $20 Trillion

The report suggests that the market capitalization of stablecoins is expected to reach approximately $20 trillion by 2028. This growth trajectory depends not only on natural market demand expansion but is also driven by multiple key factors that can be summarized into three categories: adoption, economic, and regulatory.

• Adoption: Financial institution participation, on-chain migration of wholesale market trading, and merchant support for stablecoin payments are gradually pushing them to become mainstream payment and trading tools.

• Economic: The value storage function of stablecoins is being redefined, especially with the rise of interest-bearing stablecoins, providing possibilities for yield generation for holders.

• Regulatory: If stablecoins can be incorporated into capital and liquidity management frameworks and receive banking permissions on public chains, their legitimacy and credibility will be further enhanced.

(Note: The stablecoin bill was not yet passed when the report was issued and was at the voting procedure stage)

By 2028, the stablecoin market size is expected to grow from the current $234 billion to $20 trillion. This growth requires significant transaction volume increase and assumes a constant stablecoin circulation velocity.

Although the growth of stablecoins will not immediately change the total money supply in the United States, their potential as a value storage and monetary acquisition method may have a profound impact on capital flows and international dollar demand. This phenomenon needs to be paid attention to in policy-making and financial regulation to ensure the stability of the financial system.

Possible Directions for Future Stablecoin Regulation

The current stablecoin regulatory framework proposed by the United States is similar to the MMF reform requirements after 2010, focusing on:

• Reserve Requirements: Ensure high liquidity and safety of stablecoin reserves.

• Market Access: Discuss whether stablecoin issuers can obtain support from the Federal Reserve (FED), deposit insurance, or access to a 24/7 repurchase market.

These measures aim to reduce the risk of stablecoin de-pegging and enhance market stability.

Summary

• Market Size Potential

The stablecoin market is expected to grow to approximately $2 trillion by 2030 under continuous market and regulatory breakthroughs.

• US Dollar-Pegged Dominance

The stablecoin market is primarily composed of US dollar-pegged stablecoins, which focuses recent attention on potential US regulatory frameworks and their legislative impact on stablecoin growth.

• Impact and Opportunities for Traditional Banks

Stablecoins may impact traditional banks by attracting deposits, but also create opportunities for banks and financial institutions to develop innovative services and benefit from blockchain technology usage.

• Far-Reaching Implications of Stablecoin Design and Adoption

The ultimate design and adoption of stablecoins will determine their impact on the traditional banking system and potential driving force for US Treasury demand.