San Francisco Fed Research Report: Stablecoin Issuers Including Tether Increase US Treasury Holdings by Approximately $200 Billion Over Five Years, Offsetting More Than 40% of Chin

Authors: Sylvain Leduc, Luiz E. Oliveira, Aleisha Sawyer

Translated by: TechFlow

TechFlow Summary: An economic letter from the Federal Reserve Bank of San Francisco estimates that stablecoin issuers such as Tether and USDC have increased their holdings of Treasury-related assets by approximately $200 billion over the past five years, equivalent to more than 40 percent of China's reduction during the same period; if this trend continues, demand for short-term Treasuries could nearly double to approximately $400 billion by the end of 2030—still far below the U.S. government's financing gap, but sufficient enough to disrupt short-end yields.

Over the past 20 years, the share of U.S. Treasuries held by foreigners has declined significantly. Demand for U.S. Treasuries has partially shifted to private investors, including new types of buyers, particularly stablecoin issuers. Stablecoin purchases of Treasuries have partially offset the decline in foreign government demand. 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 noteworthy approximately $400 billion.

The steadily rising federal 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 greater challenges due to shifts in the composition of Treasury holders.

Over the past 20 years, the share of Treasuries held by foreigners has dropped sharply, primarily driven by reductions by some foreign governments. The Chinese government, in particular, has been reducing its U.S. Treasury holdings and diversifying its asset allocation since the late 2000s. Demand for U.S. Treasuries has partially shifted to private investors (both domestic and overseas), who are more sensitive to global interest rate changes. Consequently, if U.S. Treasuries are perceived as riskier, an increasing share of private investors may begin to demand higher risk premiums.

At the same time, demand for U.S. Treasuries from new buyers is rising, such as stablecoin issuers that offer one-to-one convertibility with the U.S. dollar. To maintain redeemability, these issuers hold highly liquid U.S. assets—particularly short-term Treasuries. The expanding appetite of stablecoin issuers may partially offset the declining demand from major foreign government holders, with the specific impact depending on the composition of new investors entering the Treasury market via the stablecoin ecosystem. In fact, existing research indicates that the scale of Treasury demand from stablecoin issuers has become large enough to produce measurable effects on short-term Treasury yields (see Bank for International Settlements 2026 and related literature).

In this Economic Letter, we document the rise in Treasury holdings by stablecoin issuers over the past five years, focusing on a comparison with China's declining holdings. We also note that since 2023, stablecoin issuers have increased their holdings of short-term Treasuries at a greater pace than Japan, the largest non-U.S. holder. Finally, we project that if the recent accumulation trend continues, demand for short-term Treasuries generated by this source will nearly double to approximately $400 billion by the end of 2030. This will make stablecoin issuers an increasingly noteworthy source of Treasury demand, although their scale remains far smaller than the U.S. government's overall financing needs.

Foreign Demand for Treasuries

Publicly held federal debt has risen steadily over the past 20 years, from approximately 35% of GDP in 2006 to roughly 100% today. Meanwhile, the composition of U.S. Treasury creditors has also changed significantly (see U.S. Treasury, Federal Reserve Bank of New York, and Board of Governors of the Federal Reserve System 2025). Although both domestic and international demand for U.S. Treasuries has increased over the past two decades, Figure 1 shows that the share held by foreigners has steadily declined from its peak of over 50% around 2008 to approximately 30% in early 2026.

Figure 1 Share of Treasuries Held by Foreigners

Note: Based on Board of Governors of the Federal Reserve System definitions, this represents Treasury holdings by "Rest of World" divided by Treasury holdings by "All Sectors". Source: Board of Governors of the Federal Reserve System.

The decline in the foreign-held share has been partly driven by reductions by certain foreign governments. As shown in Figure 2, the share of foreign governments in total foreign demand for 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 Foreign Treasury Demand

Note: Based on Board of Governors of the Federal Reserve System definitions, this represents Treasury holdings by "Foreign Official Institutions" divided by Treasury holdings by "Rest of World". Source: Board of Governors of the Federal Reserve System.

A key factor behind the declining share of foreign governments in foreign holdings is Chinese demand. The Chinese government is one of the largest holders of U.S. Treasuries after Japan. China's total Treasury holdings have continued to fall since peaking at the end of 2013, dropping by more than half by mid-2026. One frequently cited reason is the Chinese government's desire to diversify its portfolio across a broader range of global assets (Chari and Milesi-Ferretti 2026).

Stablecoin Issuers' Demand for Treasuries

Since the first Bitcoin transaction in 2009, investor interest in digital assets has surged. Certain digital currencies can provide instantaneous, final settlement for transactions on digital platforms using distributed ledgers (such as blockchain). However, the high volatility of cryptocurrency prices makes them less suitable as stable stores of value.

In contrast, stablecoin issuers aim to maintain a fixed peg—typically tied one-to-one to a sovereign currency or a basket of currencies—to provide a more stable store of value. Therefore, stablecoin investors should be able to redeem them at par for the corresponding currency, usually the U.S. dollar. Stablecoin issuers may also inherit common problems associated with fixed exchange rate regimes. For example, if investors begin to doubt the ability to redeem at par, issuers could face a run. To mitigate this risk, stablecoin issuers typically hold historically safe and highly liquid financial assets to meet investors' demand to convert stablecoins back into U.S. dollars.

Banks face similar issues. Banks accept deposits, lend portions to businesses and households, or invest in other products. Because depositors can withdraw funds at any time, banks must retain sufficient liquidity to meet withdrawal demands. If depositors doubt a bank's solvency, a run may occur. Therefore, through banking regulations and deposit insurance, banks are required to hold adequate liquidity to reduce the probability of a run.

The GENIUS Act passed in 2025 provides a regulatory framework for stablecoins. It will require domestically approved issuers under the act to maintain a one-to-one reserve backing with high-quality, highly liquid assets such as Treasuries.

As of mid-August 2026, the largest stablecoins are Tether and USD Coin, which together are estimated to account for over 80% of the market capitalization. Both offer one-to-one convertibility with the U.S. dollar. To support redeemability, a large portion of these issuers' assets is allocated to short-term Treasuries; they also hold other assets such as cash, bank deposits, and repurchase agreements.

As these two major stablecoins have grown, their Treasury holdings have increased more than tenfold over the past five years, significantly outpacing the growth in short-term Treasuries held by foreign governments.

Notably, the rising demand for U.S. Treasuries by stablecoin issuers has helped offset the decline in Chinese demand, as illustrated in Figure 3. Over the past five years, stablecoin issuers' Treasury holdings have increased by approximately $200 billion, representing more than 40 percent of China's reduction during the same period.

Figure 3 Treasury Holdings: Stablecoin Issuers vs. China

Note: Stablecoin issuers are represented by the two largest by market capitalization (Tether and USD Coin). Holdings include Treasuries and repurchase agreements. Sources: U.S. Treasury, Tether, and Circle Internet Financial.

However, the U.S. Treasuries sold down by China were largely of longer maturities, whereas stablecoin issuers have primarily increased their holdings of short-term Treasuries. Therefore, stablecoin issuers' demand for short-term Treasuries coincides with a recovery in foreign governments' demand for Treasury bills since 2023 (Figure 4). This shift has been driven primarily by Japan, the largest non-U.S. holder. Notably, since 2023, stablecoin issuers have increased their holdings of short-term Treasuries at a faster pace than Japan.

Figure 4 Treasury Bills Held by Foreign Official Institutions

Source: U.S. Treasury

A Simple Projection

Demand for Treasuries by stablecoin issuers will depend on the global adoption rate of stablecoins and their investor composition. That is, stablecoins may attract new investors who currently do not hold Treasuries, or they may provide existing holders with an alternative vehicle to indirectly continue holding Treasuries. While stablecoins are partially used to facilitate digital asset trading, the International Monetary Fund has noted that their usage 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 costs of cross-border transactions (including remittances). Additionally, in countries with highly volatile local currencies, stablecoins may also provide residents with a safer store of value (Waller 2025).

Extrapolating the recent growth trend in stablecoin issuers' Treasury holdings over the next five years implies that Treasury demand from this source could double to approximately $400 billion. Other studies present even stronger growth expectations for stablecoin issuers' Treasury demand by 2030. This would make stablecoins an increasingly notable source of demand for U.S. debt instruments, although their scale would still remain far smaller than the U.S. government's financing needs.

This simple projection contains significant uncertainty. Growth in the stablecoin market will largely depend on the implementation of national regulations and the rollout of competing products (Bank for International Settlements 2026). Furthermore, banks may introduce new technologies to facilitate cross-border digital currency payments, potentially competing with the role stablecoins play in such transactions.

Conclusion

This letter examines the growth in Treasury demand by stablecoin issuers over the past five years, and how it has partially offset the declining demand from one of the largest foreign government holders—China. On shorter time horizons, the growth in stablecoin issuer holdings since 2023 has surpassed that of Japan, the largest non-U.S. holder. Our findings indicate that if the recent demand trend for Treasuries by stablecoin issuers continues, related demand could double to approximately $400 billion by the end of 2030. Although this incremental amount warrants closer attention, these holdings still represent only a small fraction of the U.S. government's financing needs.

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