Author: William Nuelle
Translated by: Deep Tide TechFlow
After a significant decline in the scale of global stablecoin assets over the past 18 months, the adoption of stablecoins is accelerating again. Galaxy Ventures believes that three long-term drivers are primarily responsible for the renewed acceleration of stablecoins: (i) adoption of stablecoins as a savings tool; (ii) adoption of stablecoins as a payment tool; and (iii) DeFi as a source of returns above market rates, which absorbs digital dollars. Therefore, the supply of stablecoins is currently in a phase of rapid growth, expected to reach $300 billion by the end of 2025 and ultimately $1 trillion by 2030.
The growth of stablecoin asset management to $1 trillion will bring new opportunities to financial markets and will also bring about new transformations. Some transformations we can currently predict, such as the shift of bank deposits in emerging markets towards developed markets, and regional banks transitioning to globally systemically important banks (GSIBs). However, there are also changes that we cannot currently foresee. Stablecoins and DeFi are fundamental, not marginal innovations, and they may fundamentally change credit intermediation in entirely new ways in the future.
Three major trends driving adoption: savings, payments, and DeFi yields
Three adjacent trends are driving the adoption of stablecoins: using them as savings tools, using them as payment tools, and using them as sources of returns above market rates.
Trend 1: Stablecoins as savings tools
Stablecoins are increasingly being used as a savings tool, especially in emerging markets (EM). In economies such as Argentina, Turkey, and Nigeria, structural weakness in their local currencies, inflationary pressures, and currency devaluation have created an organic demand for dollars. Historically, as noted by the International Monetary Fund (IMF), the circulation of dollars in many emerging markets has been restricted, becoming a source of financial stress. Argentina's capital control measures (Cepo Cambiario) further limit the circulation of dollars.
Stablecoins bypass these restrictions, enabling individuals and businesses to easily and directly access dollar-backed liquidity via the internet. Consumer preference surveys show that obtaining dollars is one of the primary reasons for emerging market users to use cryptocurrencies. A study conducted by Castle Island Ventures indicates that two of the top five use cases are 'saving in dollars' and 'converting my local currency to dollars', with 47% and 39% of users citing these as reasons for using stablecoins, respectively.
While it is difficult to gauge the scale of stablecoin-based savings in emerging markets, we know that this trend is growing rapidly. Stablecoin settlement card businesses like Rain (portfolio company), Reap, RedotPay (portfolio company), GnosisPay, and Exa have followed this trend, allowing consumers to spend their savings at local merchants through Visa and Mastercard networks.
Specifically for the Argentine market, the fintech/crypto application Lemoncash reported in its 2024 crypto report that its $125 million in 'deposits' accounted for 30% of the Argentine centralized crypto application market share, second only to Binance's 34%, and outperforming Belo, Bitso, and Prex. This figure implies that the asset management scale (AUM) of Argentine crypto applications is $417 million, but the actual stablecoin AUM in Argentina may be at least 2-3 times the stablecoin balances in non-custodial wallets like MetaMask and Phantom. While these amounts seem small, $416 million represents 1.1% of Argentina's M1 money supply, $1 billion represents 2.6%, and is still growing. Considering that Argentina is just one of the emerging market economies to which this global phenomenon applies, the demand from emerging market consumers for stablecoins may spread horizontally across various markets.
Trend 2: Stablecoins as payment tools
Stablecoins have also become a viable alternative payment method, especially competing with SWIFT in cross-border use cases. Domestic payment systems often operate in real-time within the country, but stablecoins have a clear value proposition compared to traditional cross-border transactions that take over a day. As Simon Taylor pointed out in his article, over time, the function of stablecoins may resemble that of a meta-platform connecting payment systems.
Artemis released a report showing that B2B payment use cases contributed $3 billion in monthly payment volume among the 31 companies surveyed (annualized at $36 billion). Through communication with custodial institutions that handle most of these payment processes, Galaxy believes that this figure annualizes to over $100 billion across all non-crypto market participants.
Importantly, Artemis’s report found that B2B payments grew fourfold year-over-year from February 2024 to February 2025, demonstrating the scale growth needed for continued growth in AUM. There has yet to be a study on the velocity of money circulation for stablecoins, so we cannot correlate total payment amounts with AUM data, but the growth rate in payment amounts indicates that AUM is also growing correspondingly due to this trend.
Trend 3: DeFi as a source of returns above market rates
Over the past five years, DeFi has consistently generated structural returns above market dollar-denominated rates, allowing tech-savvy consumers to achieve returns of 5% to 10% with very low risk. This has already driven and will continue to drive the adoption of stablecoins.
DeFi itself is a capital ecosystem, one of its significant characteristics being that the underlying 'risk-free' rates from platforms like Aave and Maker reflect broader crypto capital markets. In my 2021 paper (Risk-Free Rates in DeFi), I pointed out that the supply rates from Aave (a decentralized lending protocol that allows users to deposit crypto assets to earn interest or borrow assets), Compound (one of the DeFi lending protocols that uses algorithms to automatically adjust interest rates), and Maker (one of the earliest DeFi projects with its core product being the DAI stablecoin, a decentralized stablecoin pegged 1:1 to the dollar) are responsive to underlying trading and other leverage demands. As new trades or opportunities emerge—like yield farming on Yearn or Compound in 2020, basis trading in 2021, or Ethena in 2024—the underlying yield rates in DeFi rise as consumers need collateral to allocate to new projects and uses. As long as the blockchain continues to generate new ideas, the underlying yield rates in DeFi should strictly exceed U.S. Treasury yields (especially with the launch of tokenized money market funds providing underlying yield rates).
Since the 'native language' of DeFi is stablecoins rather than dollars, any arbitrage attempt to provide low-cost dollar capital to meet this specific micro-market demand will have the effect of expanding the supply of stablecoins. Narrowing the spread between Aave and U.S. Treasuries requires the expansion of stablecoins into the DeFi space. As expected, during periods when the spread between Aave and U.S. Treasuries is positive, total value locked (TVL) will grow, while during periods when the spread is negative, TVL will decline (showing a positive correlation).
Bank deposit issues
Galaxy believes that the long-term adoption of stablecoins for savings, payments, and yield generation is a major trend. The adoption of stablecoins may lead to the disintermediation of traditional banks, as it allows consumers to directly access dollar-denominated savings accounts and cross-border payments without relying on banking infrastructure, thereby reducing the deposit base traditional banks use to stimulate credit creation and generate net interest margins.
Bank deposit alternatives
For stablecoins, the historical model is that every $1 is effectively backed by $0.80 of Treasury securities and $0.20 of bank account deposits from the stablecoin issuer. Currently, Circle holds $8 billion in cash ($0.125), $53 billion in ultra-short-term U.S. Treasury securities (UST) or Treasury repurchase agreements ($0.875), while USDC stands at $61 billion. (We will discuss repurchase agreements later) Circle's cash deposits are primarily held at BNY Mellon, along with New York Community Bank, Cross River Bank, and other leading U.S. financial institutions.
Now imagine that Argentine user in your mind. That user has $20,000 worth of Argentine pesos at the largest bank in Argentina, the Banco de la Nación Argentina (BNA). To avoid inflation of the Argentine peso (ARS), the user decides to increase their holdings to $20,000 in USDC. (Since the specific mechanism for disposing of ARS may affect the exchange rate between the dollar and ARS, it is worth considering separately) Now, with USDC, that user's $20,000 in Argentine pesos at BNA is actually $17,500 in short-term loans or repurchase agreements from the U.S. government, and $2,500 in bank deposits, which are distributed among BNY Mellon, New York Bank, and Cross River Bank.
As consumers and businesses transfer savings from traditional bank accounts to stablecoin accounts like USDC or USDT, they are effectively moving deposits from regional/commercial banks to U.S. Treasury securities and deposits at major financial institutions. The implications are profound: while consumers maintain dollar-denominated purchasing power by holding stablecoins (and through card integrations like Rain and RedotPay), the actual bank deposits and Treasury securities backing these tokens will become more concentrated rather than dispersed across the traditional banking system, thereby reducing the deposit base available for lending by commercial and regional banks, while making stablecoin issuers significant players in the government debt market.
Forced credit tightening
One of the key social functions of bank deposits is to lend to the economy. The fractional reserve system—the practice by which banks create money—allows banks to lend multiples of their deposit base. The total multiplier for a region depends on factors such as local banking regulation, foreign exchange and reserve volatility, and the quality of local lending opportunities. The M1/M0 ratio (the money created by banks divided by central bank reserves and cash) tells us about the 'money multiplier' of a banking system.
Continuing with the example of Argentina, converting a $20,000 deposit to USDC would transform $24,000 in local Argentine credit creation to $17,500 in UST/repurchase bonds and $8,250 in U.S. credit creation ($2,500 x 3.3 times). This effect may be hard to detect when M1 supply is at 1%, but when M1 supply is at 10%, the effect may become noticeable. At some point, regional bank regulators will be forced to consider closing this tap to avoid damaging credit creation and financial stability.
Over-allocation of credit to the U.S. government
This is undoubtedly good news for the U.S. government. Currently, stablecoin issuers are the twelfth largest buyers of U.S. Treasuries, and their asset management scale is growing at the same rate as stablecoin assets. In the near future, stablecoins may become one of the top five buyers of U.S. Treasuries (UST).
New proposals similar to the (GENIUS Act) require that all Treasury securities be supported either in the form of Treasury repurchase agreements or short-term bonds with maturities of less than 90 days. Both methods would significantly enhance the liquidity of critical segments of the U.S. financial system.
When the scale is large enough (e.g., $1 trillion), it could have a significant impact on the yield curve, as U.S. Treasuries with maturities of less than 90 days would have a large buyer that is insensitive to price, distorting the interest rate curve that the U.S. government relies on for financing. That said, the repo market does not actually increase demand for short-term U.S. Treasuries; it merely provides a liquidity pool for secured overnight borrowing. The liquidity in the repo market is primarily borrowed by major U.S. banks, hedge funds, pension funds, and asset management companies. For example, Circle actually uses most of its reserves for overnight loans secured by U.S. Treasuries. The size of this market is $4 trillion, so even if $500 billion of stablecoin reserves are allocated to repos, stablecoins will still be a significant player. All of this liquidity flowing to U.S. Treasuries and U.S. bank borrowings benefits U.S. capital markets while harming global markets.
One hypothesis is that as the value of stablecoins grows to exceed $1 trillion, issuers will be compelled to replicate a bank loan portfolio, including a mix of commercial credit and mortgage-backed securities, to avoid excessive reliance on any single financial product. Given that the (GENIUS Act) provides a pathway for banks to issue 'tokenized deposits', this outcome may be inevitable.
New channels for asset management
All of this creates an exciting new channel for asset management. In many ways, this trend mirrors the ongoing transformation from bank loans to non-bank financial institution (NBFI) loans following the Basel III accords (which limited the scope and leverage of bank lending after the financial crisis).
Stablecoins are siphoning off funds from the banking system, effectively drawing capital from specific areas within the banking system (such as emerging market banks and developed market regional banks). As discussed in Galaxy's (Cryptocurrency Lending Report), we have already seen Tether emerge as a non-bank lender (beyond U.S. Treasuries), and other stablecoin issuers may become similarly important lending institutions over time. If stablecoin issuers decide to outsource credit investments to specialized companies, they will immediately become LPs in large funds, opening up new channels for asset allocation (like insurance companies). Large asset management companies such as Blackstone, Apollo, KKR, and BlackRock have achieved scale expansion in the context of transitioning from bank loans to non-bank financial institution lending.
Effective frontier of on-chain yields
Finally, what is available for lending is not just the underlying bank deposits. Each stablecoin is both a claim on the underlying dollars and a unit of value on-chain. USDC can be lent on-chain, and consumers will need yield denominated in USDC, such as Aave-USDC, Morpho-USDC, Ethena USDe, Maker's sUSDS, Superform's superUSDC, and so on.
"Treasuries" will offer on-chain yield opportunities to consumers at attractive rates, thus opening up another channel for asset management. We believe that in 2024, our portfolio company Ethena will unlock on-chain yields denominated in dollars by connecting basis trading to USDe, creating an 'Overton Window' for dollar-denominated on-chain yields. New treasuries will emerge, tracking different on-chain and off-chain investment strategies that will compete for USDC/T holdings in applications like MetaMask, Phantom, RedotPay, DolarApp, and DeBlock. Subsequently, we will create an 'effective frontier for on-chain yields', and it is not hard to imagine that some of these on-chain treasuries will specifically provide credit for regions like Argentina and Turkey, where banks are at risk of losing this capability on a large scale.
Conclusion
The integration of stablecoins, DeFi, and traditional finance not only represents a technological revolution but also signals a reconstruction of global credit intermediation, reflecting and accelerating the shift from bank to non-bank lending that has been underway since 2008. By 2030, the asset management scale of stablecoins is expected to approach $1 trillion, driven by their application as savings tools in emerging markets, efficient cross-border payment channels, and DeFi yields above market rates. Stablecoins will systematically siphon off deposits from traditional banks and concentrate assets into U.S. Treasuries and major U.S. financial institutions.
This transformation brings both opportunities and risks: stablecoin issuers will become significant players in the government debt market and may become new credit intermediaries; while regional banks (especially in emerging markets) will face credit tightening as deposits migrate to stablecoin accounts. The ultimate result is a new model of asset management and banking in which stablecoins will serve as a bridge to an efficient frontier for digital dollar investments. Just as shadow banking filled the gap left by regulated banks after the financial crisis, stablecoins and DeFi protocols are positioning themselves as the dominant credit intermediaries of the digital age, which will have profound implications for monetary policy, financial stability, and the future architecture of global finance.