Authors: Sylvain Leduc, Luiz E. Oliveira, Aleisha Sawyer
Compiled by Deep潮 TechFlow
Shenchao Summary: According to calculations from the San Francisco Fed’s Economic Letter, Tether, USDC, and other stablecoin issuers have collectively increased their holdings of U.S. Treasury-related assets by approximately $200 billion over the past five years—more than 40% of China’s同期 reduction during the same period. If this trend continues, demand for short-term Treasuries could nearly double to around $400 billion by the end of 2030—still far below the U.S. government’s financing gap, but sufficient to disrupt short-term yields.
Over the past 20 years, the share of U.S. Treasury securities held by foreign investors has declined significantly. Demand for U.S. Treasuries has partially shifted to private investors, including new types of buyers—particularly stablecoin issuers. Stablecoin issuers have increased their holdings of Treasuries, partially offsetting the decline in demand from some foreign governments. Although their share remains relatively small, if this trend continues, stablecoin issuers’ demand for short-term Treasuries could nearly double by the end of 2030, reaching a more significant level of approximately $400 billion.
Rising federal government debt has raised concerns about its fiscal sustainability and the ability to continue financing at relatively low interest rates. America’s so-called “exorbitant privilege” may face even greater challenges due to changes in the structure of bondholders.
Over the past 20 years, the share of U.S. Treasuries held by foreign investors has declined significantly, primarily due to reductions by certain foreign governments. Notably, the Chinese government has been reducing its holdings of U.S. Treasuries and diversifying its asset allocation since the late 2000s. Demand for U.S. Treasuries has increasingly shifted toward private investors—both foreign and domestic—who are more sensitive to global interest rate movements. As a result, if U.S. Treasuries are perceived as carrying higher risk and private investors account for a larger share, they may begin demanding higher risk premiums.
Meanwhile, demand for U.S. Treasuries from new buyers is rising, such as issuers of stablecoins pegged one-to-one to the U.S. dollar. To ensure redeemability, these issuers hold highly liquid U.S. assets—particularly short-term Treasury securities. The expanding appetite of stablecoin issuers may partially offset the decline in demand from major foreign government holders, though the net effect depends on the composition of new investors entering U.S. Treasuries through the stablecoin market. Indeed, existing research has shown that demand from stablecoin issuers for Treasury securities is already large enough to exert a measurable impact on short-term Treasury yields (see Bank for International Settlements, 2026, and related literature).
In this economic letter, we document the increase in U.S. Treasury holdings by stablecoin issuers over the past five years, contrasting it with the decline in China’s holdings. We also note that since 2023, stablecoin issuers have increased their purchases of short-term Treasuries more than Japan, the largest non-U.S. holder. Finally, we show that if recent purchasing trends continue, demand for short-term Treasuries from stablecoin issuers could nearly double to approximately $400 billion by the end of 2030. This would make stablecoin issuers an increasingly notable source of demand for U.S. Treasuries, though their scale remains far smaller than the U.S. government’s financing needs.
Foreign demand for government bonds
The federal government’s publicly held debt has risen steadily over the past 20 years, increasing from about 35% of GDP in 2006 to approximately 100% today. Meanwhile, the composition of U.S. Treasury creditors has changed significantly (see U.S. Department of the Treasury, New York Fed, and Board of Governors of the Federal Reserve System, 2025). Although demand for U.S. Treasuries both domestically and internationally has risen over the past two decades, Figure 1 shows that the share held by foreign investors has declined steadily from a peak of over 50% around 2008 to approximately 30% in early 2026.
Figure 1: Share of government bonds held by foreigners
Note: "Rest of the world" holdings of Treasury securities divided by holdings across all sectors, as defined by the Federal Reserve Board. Source: Federal Reserve Board.
The decline in foreign-held shares has been partly driven by reductions in holdings by certain foreign governments. As shown in Figure 2, the share of foreign government demand in total foreign demand for U.S. Treasuries peaked near 100% in the 1970s; by early 2026, this share had fallen to just above 40%.
Figure 2: Share of Foreign Governments in Demand for Foreign Government Bonds
Note: According to the Federal Reserve Board, "foreign official institutions" refers to U.S. Treasury securities held by foreign official institutions divided by U.S. Treasury securities held by the rest of the world. Source: Federal Reserve Board.
A key factor in the declining share of foreign governments in foreign holdings is China’s demand. The Chinese government is one of the largest holders of U.S. Treasuries, second only to the Japanese government. China’s overall Treasury holdings peaked at the end of 2013 and have since declined, falling by more than half by mid-2026. One commonly cited reason is that the Chinese government seeks to diversify its portfolio across a broader range of global assets (Chari and Milesi-Ferretti 2026).
Stablecoin issuers' demand for government bonds
Since the first Bitcoin transaction in 2009, investor interest in digital assets has surged dramatically. Some digital currencies enable instant, final payments for digital platform transactions via distributed ledgers such as blockchain. However, the extreme price volatility of these cryptocurrencies limits their effectiveness as a stable store of value.
In contrast, stablecoin issuers aim to maintain a fixed parity—typically pegged one-to-one to a sovereign currency or a basket of currencies—to provide a more stable store of value. As a result, stablecoin investors should be able to redeem their tokens at face value for the underlying currency, most often the U.S. dollar. Stablecoin issuers may also inherit common challenges associated with fixed exchange rate systems. For example, if investors begin to doubt their ability to redeem at face value, the issuer may face a run. To mitigate this risk, stablecoin issuers typically hold historically safe and highly liquid financial assets to meet investor demand for redeeming stablecoins for U.S. dollars.
Banks face similar issues. They accept deposits, lend part of them to businesses and households, or invest in other products. Since depositors can withdraw their funds at any time, banks must maintain sufficient liquidity to meet withdrawal demands. If depositors lose confidence in a bank’s ability to pay, a bank run may occur. Therefore, through banking regulation and deposit insurance, banks are required to hold adequate liquidity to reduce the likelihood of a bank run.
The GENIUS Act, passed in 2025, establishes a regulatory framework for stablecoins. It requires domestic issuers approved under the Act to back their issuance on a one-to-one basis with high-liquidity, high-quality assets such as U.S. Treasury securities.
As of mid-August 2026, the largest stablecoins are Tether and USD Coin, estimated to collectively account for over 80% of the market capitalization. Both offer a one-to-one redeemability against the U.S. dollar. To support this redeemability, a significant portion of the assets held by both issuers consists of short-term U.S. Treasury securities, along with cash, bank deposits, and other assets such as repurchase agreements.
As these two stablecoins have grown, their holdings of U.S. Treasury securities have increased more than tenfold over the past five years, far outpacing the increase in U.S. short-term Treasury holdings by foreign governments.
Importantly, the rising demand for U.S. Treasuries from stablecoin issuers helps offset the decline in Chinese demand, as shown in Figure 3. Over the past five years, stablecoin issuers' holdings of U.S. Treasuries have increased by approximately $200 billion, accounting for more than 40% of the reduction in Chinese holdings during the same period.
Figure 3: Government Bond Holdings: Stablecoin Issuers vs. China
Note: The stablecoin issuers represented are the two with the largest market capitalizations (Tether and USD Coin). Holdings include U.S. Treasury securities and repurchase agreements. Sources: U.S. Department of the Treasury, Tether, and Circle Internet Financial.
However, China’s reductions in U.S. Treasuries primarily involved longer-term securities, while stablecoin issuers have mainly increased their holdings of short-term Treasuries. As a result, demand from stablecoin issuers for short-term Treasuries has叠加ed onto the rebound in foreign government demand for Treasury bills since 2023 (Figure 4). This shift has been primarily driven by Japan, the largest non-U.S. holder. Notably, since 2023, the increase in short-term Treasury holdings by stablecoin issuers has surpassed that of Japan.
Figure 4: Treasury Securities Held by Foreign Official Institutions
Source: U.S. Department of the Treasury
A simple scenario
The demand for government bonds by stablecoin issuers will depend on the pace of global stablecoin adoption and the composition of investors. That is, stablecoins may attract new investors who currently do not hold government bonds, or provide existing holders with an alternative vehicle to indirectly maintain their bond exposure. Stablecoins are partially used to facilitate digital asset transactions, and research by the International Monetary Fund indicates their use in cross-border payments is also growing (Adrian et al., 2022). Relative to GDP, stablecoin usage is higher in Africa, the Middle East, and Latin America, with most transactions being cross-border. Consequently, stablecoins are likely to reduce the cost of cross-border transactions, including remittances. Additionally, in countries with high local currency volatility, stablecoins may offer residents a safer store of value (Waller, 2025).
Extrapolating the recent growth trend in U.S. Treasury holdings by stablecoin issuers over the next five years suggests that demand for Treasuries from this source could double to approximately $400 billion. Other research projects even stronger growth in stablecoin issuers’ Treasury demand by 2030. This would make stablecoins a more notable source of demand for U.S. debt instruments, though their scale remains far smaller than the U.S. government’s financing needs.
This simple projection involves significant uncertainty. The growth of the stablecoin market will largely depend on the implementation of regulations in various countries and the introduction of competing products (BIS, 2026). Additionally, banks may introduce new technologies that facilitate cross-border digital currency payments, thereby competing with stablecoins in such transactions.
Conclusion
This letter examines the growth in Treasury demand from stablecoin issuers over the past five years and how it has partially offset the decline in demand from China, one of the largest foreign government holders. Over the shorter term, since 2023, the increase in holdings by stablecoin issuers has surpassed that of Japan, the largest non-U.S. holder. Our findings suggest that if recent demand trends from stablecoin issuers continue, related Treasury demand could double by the end of 2030 to approximately $400 billion. Although this increase is significant, these holdings still represent only a small fraction of U.S. government financing needs.