Citigroup: Stablecoins Set to Rule the U.S. Treasury Market by 2030

Currently, stablecoin issuers hold over $120 billion in U.S. Treasury notes, according to data cited by Business Insider. Tether, the issuer behind USDT, holds approximately $91 billion, while Circle, which issues USDC, controls around $29 billion. Collectively, these holdings already place stablecoin firms as the 18th largest holders of U.S. sovereign debt, higher than many individual countries.

If growth continues on its current trajectory, Citigroup predicts stablecoin issuers could surpass Japan and China, traditionally among the largest foreign holders of U.S. Treasuries. This would mark a historic shift in the global financial landscape, where private companies, rather than nation-states, become major financiers of U.S. government borrowing.

The report suggests that much of this explosive growth could be fueled by regulatory developments. In particular, the potential passage of the GENIUS Act, a bipartisan bill introduced in Congress, could establish a regulatory framework for dollar-backed stablecoins. Analysts believe the legislation would boost trust in stablecoins, encouraging mainstream adoption by banks, fintech companies, and even public institutions.

Regulatory clarity would be a game-changer, Citigroup notes, predicting that it could spark a "ChatGPT moment" for blockchain-based finance as early as 2025. Much like how artificial intelligence crossed into mass adoption seemingly overnight, blockchain infrastructure, especially for payments, could experience a similar surge once legal uncertainties are resolved.

Stablecoins have become crucial to the crypto economy because they act as bridges between digital assets and fiat currencies. They also serve as low-volatility stores of value, enabling rapid settlement across borders. Yet behind every token is a need for collateral and U.S. Treasuries, prized for their liquidity and safety, are the collateral of choice.

As stablecoin market caps balloon, issuers must increase their reserves, driving higher purchases of short-term government debt. This new dynamic offers both opportunities and risks for U.S. financial markets.

On the positive side, the growing demand from stablecoin issuers could help support Treasury auctions, providing a steady and reliable source of funding at a time when the U.S. faces rising deficits. It could also reinforce the dominance of the dollar in global finance, as stablecoins linked to the greenback gain traction around the world.

However, the Citigroup report also highlights vulnerabilities. Despite their reputation for stability, stablecoins are not immune to stress. In 2023 alone, according to DeFi Planet, stablecoins experienced around 1,900 de-pegging incidents, where tokens temporarily fell below their intended $1 value. Such instability could ripple into broader markets if issuers are forced to liquidate large amounts of Treasuries during a crisis.

Moreover, geopolitical factors could complicate the picture. Some countries, wary of U.S. financial influence, may resist the spread of dollar-denominated stablecoins. Instead, they could promote their own central bank digital currencies or local stablecoin alternatives, limiting the global reach of U.S. Treasury-backed tokens.

Despite these hurdles, Citigroup’s research underscores the transformational potential of blockchain technology and digital assets in reshaping global finance. Stablecoins, once dismissed as niche financial tools, are rapidly evolving into key pillars of the traditional financial system.

If Citigroup's projections hold true, by 2030, stablecoin issuers may become indispensable players in sustaining U.S. government financing, an outcome few could have imagined just a few years ago.