Stablecoins are quietly tying crypto liquidity to U.S. Treasury markets — and that link is prompting a heated debate among policymakers, market strategists and industry leaders.
The stablecoin sector has nearly doubled in a year to about $280 billion, with most major issuers holding short‑term Treasury securities as the backbone of their reserves. That arrangement makes crypto liquidity more sensitive to Federal Reserve policy: when rates or Treasury yields move, stablecoin issuers adjust reserves and investors react, creating an indirect channel between conventional money markets and crypto.
Coinbase analysts project the market could expand to roughly $1.2 trillion by 2028, implying about $5.3 billion of new Treasury purchases each week. In calm conditions those inflows could deepen liquidity and shave basis points off yields, but the mechanism runs both ways: redemption surges would force issuers to sell Treasury bills into tight markets, potentially draining liquidity and pushing yields higher.
That risk is at the center of the debate. UC Berkeley economist Barry Eichengreen warns stablecoins could recreate a money‑market style panic without the same regulatory backstops that steadied markets after 2008. Former U.S. Comptroller Brian Brooks counters that proposals such as the GENIUS Act — which would require one‑to‑one Treasury backing — act like historic banking reforms that increase safety while driving demand for government debt. Industry leaders, including OKX Singapore CEO Gracie Lin, say the rails are already built and the next step is market unification to deliver liquidity, efficiency and true utility.
Why readers should care: stablecoins are no longer a niche plumbing issue for crypto — they are a macro liquidity factor that can influence Treasury demand, investor flows and yield dynamics. For institutions and large traders, concentrated Treasury backing across stablecoin issuers may amplify moves in short‑dated debt during stress. For policymakers, the question is whether tighter rules and clearer reserve standards will steady the system or unintentionally concentrate risk.
Risk considerations: market participants should be mindful of potential liquidity squeezes during episodes of mass redemption, regulatory changes that could alter reserve composition, and the systemic implications of synchronized selling of short‑term Treasuries. Investors with exposure to yield-bearing or ‘convenience’ stablecoin products should demand transparent reserve reporting and contingency plans from issuers.
Source: CoinDesk. Read the original coverage for full details.