For the first time, the United States Treasury’s total accessible market has expanded to global retail investors through stablecoin innovation. While the full impact on the financial system remains uncertain, the effect will be to incrementally loosen Congress’s fiscal constraints by lowering borrowing costs and weakening traditional budgetary discipline.
To unlock the transformative potential of stablecoin but prevent the U.S. from falling off an even more massive fiscal cliff, Congress must establish firm fiscal rules.
The Senate’s passage of the Genius Act last month initiated the regulatory framework for stablecoin, cryptocurrencies pegged to traditional currencies like the U.S. dollar. Stablecoins allow permissionless access to anyone with internet access, even retail investors, around the globe.
Nearly all of these stablecoins, 99% to be exact, are pegged to the U.S. dollar. The peg is achieved by making the coins redeemable for T-bills. These cryptocurrencies function informally as cash equivalents, unlike Treasury ETFs, and allow users to retain full control of their funds through private wallets, bypassing third-party custodians such as banks.
As of May 2025, the stablecoin market reached $247 billion, nearly 10% of the total U.S. currency in circulation globally ($2.4 trillion), underscoring its growing influence in the digital money landscape. Stablecoin transactions amounted to approximately $27.6 trillion in 2024, which is greater than the combined volume of Visa and Mastercard.
Stablecoins fundamentally change the dynamics of U.S. debt demand because more than 50% of stablecoin activity comes from users outside the U.S.
Tether (USDT), the most widely used stablecoin with a market cap of nearly $160 billion, dominates trading in Asia and Europe, while USDC, the second most popular stablecoin, last year, is mostly favored in the Americas. Stablecoins are also widely used for remittances, as they are up to 90% cheaper than traditional cross-border transfers and much faster, with 24/7 settlement.
A recent report from Morgan Stanley found an increase in demand for T-bills due to stablecoin adoption, and this increase is projected to accelerate.
As stablecoins gain traction abroad, the implications extend far beyond foreign markets. Here’s what it could mean for Americans.
This new source of structural demand for T-bills raises bond prices and suppresses yields, effectively lowering the government’s borrowing costs. From a public finance perspective, this mimics a form of financial repression, except it is driven not by regulation but by market mechanisms rooted in digital asset infrastructure, classic supply and demand.
As yields decline, the Congressional Budget Office will score proposed spending programs as less expensive in present value terms, making it appear as though fiscal space has expanded. Unfortunately, Congress operates without a binding budget constraint, but these lower yields will make any constraints on its spending feel less burdensome.
This perception will change policy incentives: the same nominal level of government spending will show a smaller projected debt burden, even if its real impact on inflation, productivity, or interest rate risk remains unchanged. Moreover, the persistence of artificially low yields may discourage structural reforms by creating an environment that makes deficits appear more sustainable than they truly are in the long run.
But deficits are not more sustainable at the margin.
The problem is that Congress is on an unsustainable fiscal path and has stumbled upon a relief valve. This brief window of fiscal breathing room enables continued overspending while avoiding the hard choices needed for real reform. Yes, stablecoins increase demand for debt, but in the long term, this could leave us in a worse spot as we spend without a plan.
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Additional demand for debt, in isolation, is certainly beneficial for the USA, but without fiscal responsibility, this will only lead to larger deficits. Right now, insufficient appetite for U.S. Treasuries could trigger a fiscal crisis. The Genius Act will enable more buyers of U.S. debt, which will most likely enable higher government spending, until we once again face a shortage of buyers, only with far more debt on the books.
A plan that details firm and clear spending rules from Congress, coupled with the Genius Act, is a way to avoid this spending spiral while harnessing the exciting promises of stablecoin.
Julia Cartwright is a Senior Research Fellow in Law & Economics at the American Institute for Economic Research.