Could stablecoins help America's debt problem?

The full answer

How do stablecoin reserves connect to US government debt?

A dollar stablecoin promises to be worth one dollar, and the issuer’s pool of reserve assets backs that promise. Coinpaprika reported on September 6, 2026 that dollar-backed tokens hold US Treasuries as reserves, so a larger stablecoin market would buy more government paper [1]. Treasury Secretary Scott Bessent has presented regulated stablecoins as a fresh source of demand for government debt. He argues, in Coinpaprika’s account, that this demand could lower borrowing costs and help finance the federal deficit [1].

The benefit runs through bond prices. Buying normally raises a bond’s price and lowers its yield, as a bond-market explainer on Hollow Point Trading puts it [2]. The Bank for International Settlements (BIS) found that link in stablecoin data. Its June 2025 Annual Economic Report estimated that a $3.5 billion increase in stablecoin market capitalisation can depress Treasury yields by around 2.5 to 5 basis points [3]. That estimate tracked three-month T-bill yields using daily data from January 2021 to March 2025 [3].

None of this retires debt. The government still owes every dollar; a stablecoin issuer is simply another lender. The background on why the government watches buyers so closely is on the page about why the US cares about demand for Treasuries.

How is stablecoin demand for Treasuries different from quantitative easing?

During its quantitative easing (QE) programmes, the Federal Reserve became the largest single buyer of Treasuries and absorbed trillions of dollars in supply, according to a Gridoasis guide to bond markets [4]. When the Fed buys bonds through QE, it removes supply from the private market [4]. The Hollow Point Trading explainer adds that Fed QE creates reserve balances to purchase securities and changes the central bank’s balance sheet [2].

Stablecoins work from the other direction. The BIS report says any additional stablecoin issuance requires full upfront payment by holders, which it calls a cash-in-advance constraint [3]. Holders supply the dollars before the issuer has anything to invest. Both routes add a Treasury buyer. Only QE involves the central bank creating new reserves to do the buying.

How much of the stablecoin reserve base is in short-term bills versus other assets?

US law points reserves toward short-dated government debt. The GENIUS Act, signed on July 18, 2025, requires payment stablecoins to be fully backed by highly liquid assets, and eligible reserves include US Treasuries maturing in 93 days or less, Coinpaprika reported [1]. Coinpaprika wrote that this rule links stablecoin growth directly to short-term government debt [1]. The rules are not yet in force. Treasury issued a proposed rule on August 17, 2026 and gives January 18, 2027 as the Act’s expected effective date [5]. The detail of what counts is covered on what reserves stablecoins must hold under the GENIUS Act.

Issuer disclosures show the mix varies. Tether reported $141 billion in US Treasury exposure in its fourth-quarter 2025 attestation, a figure that combines direct holdings with reverse repurchase agreements, according to Coinpaprika [1]. Tether describes itself as the largest non-sovereign holder of US government debt [1]. For Ripple’s RLUSD, Ripple said on September 11, 2026 that reserves are held in cash, short-term US Treasuries and cash equivalents, with BNY Mellon as a reserve custodian [6]. Ripple said RLUSD launched in December 2024 and keeps its reserves in cash, short-term US Treasuries and cash equivalents [4]. Ripple adds that its New York charter requires reserves in permitted assets such as cash, short-dated Treasuries and certain Treasury-backed repo, segregated from the issuer’s own assets [6]. More on that stablecoin is on what backs RLUSD.

The BIS said in its 2025 annual economic report that stablecoins’ investment in US Treasury markets stands on par with large jurisdictions and government money market funds [3].

Tether’s $141 billion Q4 2025 figure combines direct Treasury holdings with reverse repurchase agreements, according to CoinPaprika’s account of Tether’s attestation [1].

How does a $3T-class reserve base compare with total Treasury debt and annual issuance?

Coinpaprika reported in September 2026, citing Bloomberg, that the stablecoin market sat at roughly $300 billion to $310 billion, after growth slowed following a two-year climb and weaker crypto trading cut demand [1]. Coinpaprika also gave Tether’s USDT a market capitalisation near $183 billion on September 5, 2026 [1].

Forecasts sit below $3 trillion as well. Bessent expects the sector to grow toward roughly $2 trillion over time [1]. Standard Chartered analysts estimate $800 billion to $1 trillion of extra Treasury bill demand if the market reaches about $2 trillion by the end of 2028 [1]. Coinpaprika called that a forward-looking scenario that depends on rapid growth that has not yet arrived [1].

Against the debt itself, total outstanding Treasury debt exceeded $34 trillion by 2024, according to Gridoasis [4]. A $3 trillion reserve base would equal just under 9% of that 2024 figure, and only part of it would be in Treasuries. No figure for annual Treasury issuance is set against these numbers here, because no source cited on this page gives one.

What happens to Treasury markets if stablecoins face a run?

The BIS treats this as the main downside. Holders can redeem stablecoins at short notice, so issuers that invest in assets with any credit or liquidity risk cannot fully guarantee stability, the June 2025 report says [3]. It describes the status quo as one where promises are generally, but not always, honoured [3].

The yield effect also reverses harder. The BIS found effects up to three times larger in absolute terms during redemption episodes [3]. It warned that stablecoins’ growing presence creates a tail risk of fire sales of safe assets. The risk is worse because stablecoins have so far shown larger redemptions when monetary policy tightens, behaving like risky assets such as stocks [3].

Who gains from lower yields, and who pays when bank deposits move to stablecoins?

The government gains if borrowing costs fall, which is Bessent’s argument as Coinpaprika reported it [1]. Issuers gain too. The BIS describes their business model as highly profitable, since reserve assets yield at least risk-free rates while stablecoin liabilities pay zero [3]. Some jurisdictions prohibit paying interest to stablecoin holders, the BIS notes, while others leave it open [3]. How that plays out for one issuer is on who earns the interest on RLUSD’s reserves.

Other investors may pay. The BIS says major stablecoins invest largely in safe assets and their expansion risks crowding out other investors [3]. Banks face a separate risk. If banks issue stablecoins, the BIS warns of rapid and unpredictable flows between different types of bank liabilities under stress, and of spillovers that could undermine banks’ ability to lend to households and businesses [3]. How much money has actually left deposits for stablecoins had not been publicly measured as of October 1, 2026.

What is the strongest case against the stablecoin-debt argument?

The BIS is the sharpest critic. Its June 2025 report found that stablecoins perform poorly against its three tests for serving as the mainstay of the monetary system, and that even with regulation their limitations cast serious doubts on that role [3]. It concluded they may at best serve a subsidiary role [3]. Growth is the other weak point. Coinpaprika wrote on September 6, 2026 that recent data showing stalled growth marks the first real test of the $2 trillion scenario [1].

Does XRP play any part in this?

RLUSD is issued by Standard Custody & Trust Company, a Ripple subsidiary, under a New York trust charter, Ripple said on September 11, 2026 [6]. RLUSD is a dollar stablecoin, and its listed reserves are cash, Treasuries and cash equivalents [6]. The claim that XRP itself helps pay down the debt is a different argument, examined on whether the US is using XRP to pay off the national debt. Whether stablecoin-Treasury demand is official policy is covered on stablecoins and Treasury demand.