Stablecoin issuers have become major buyers of U.S. Treasury securities, with holdings surpassing those of South Korea and the UAE
Stablecoin issuers have become significant participants in the U.S. Treasury market, holding approximately $182 billion in U.S. Treasury bonds, ranking 17th on the national holder list, surpassing South Korea and the UAE. This substantial bond holding is primarily due to major stablecoin issuers such as Tether, Circle, First Digital, and Paxos.
Among them, Tether's USDT dominates, with its first-quarter financial report showing holdings of U.S. Treasury bonds amounting to $120 billion. Its CEO, Paolo Ardoino, revealed in an interview at the end of May that this figure has exceeded $125 billion and continues to grow. Circle's USDC also holds substantial assets, with a May accountant's report listing $28.7 billion in Treasury bonds and $26.5 billion in overnight repurchase agreements, totaling $55.2 billion supporting USDC.
As of the end of May, approximately 78% of First Digital's FDUSD reserves, equivalent to $1.3 billion, are held in the form of U.S. Treasury bonds. Paxos's PYUSD is primarily allocated through overnight reverse repurchase agreements, with 97% of collateral being U.S. Treasury securities. As of April data, these four issuers collectively hold $182.4 billion in U.S. Treasury bonds and related assets.
These issuers prefer the T+0 settlement characteristics of short-term Treasury bonds and current annualized yields exceeding 5%, which meet the liquidity needs of stablecoins while also achieving asset appreciation. As Ardoino stated, the stablecoin model has created a new source of demand for U.S. debt that does not rely on the traditional banking system.
At the same time, the asset allocation of stablecoins is influenced by regulation, with U.S. and European legislators proposing to limit their reserves to cash and short-term Treasury bonds, prohibiting diversified investment allocations such as gold or corporate bonds.
Additionally, the GENIUS Act, passed in the U.S. Senate in June, and the European MiCA regulation restricting euro stablecoin currency trading, reflect this trend.
However, although the stablecoin rules enacted align with the investment paths of most stablecoin issuers, if investments become too concentrated in a single asset class, then the liquidity of stablecoins may be affected by the Federal Reserve's funding conditions.
What are your thoughts on stablecoin issuers becoming significant holders of U.S. Treasury securities? What impact does this have on the global financial market?