Author: William Nuelle
Compiled by: Shenchao TechFlow
After experiencing an 18-month significant decline in the global stablecoin asset scale, the adoption of stablecoins is accelerating again. Galaxy Ventures believes that the re-acceleration of stablecoins is primarily driven by three long-term factors: (i) the adoption of stablecoins as savings tools; (ii) the adoption of stablecoins as payment tools; and (iii) DeFi as a source of higher-than-market yields, which absorbs digital dollars. Thus, the supply of stablecoins is currently in a phase of rapid growth, expected to reach $300 billion by the end of 2025 and ultimately reach $1 trillion by 2030.
The asset management scale of stablecoins is growing to $1 trillion, which will bring new opportunities to the financial markets and also bring new transformations. Some transformations we can currently predict, such as bank deposits in emerging markets soon shifting to developed markets, and regional banks turning to globally systemically important banks (GSIBs). However, there are also changes that we cannot foresee at this time. Stablecoins and DeFi are foundational rather than fringe 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 higher-than-market yields.
Trend One: Stablecoins as Savings Tools
Stablecoins are increasingly being used as savings tools, especially in emerging markets (EM). In economies like Argentina, Turkey, and Nigeria, the structural weakness of their local currencies, inflationary pressures, and currency devaluation have led to organic demand for dollars. Historically, as noted by the International Monetary Fund (IMF), the circulation of dollars has been restricted in many emerging markets and has become a source of financial stress. Argentina's capital control measures (Cepo Cambiario) further restrict 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 indicate that obtaining dollars is one of the primary reasons for emerging market users to use cryptocurrencies. A study conducted by Castle Island Ventures shows that two of the top five use cases are "saving in dollars" and "exchanging my local currency for dollars," with 47% and 39% of users respectively citing these as reasons for using stablecoins.
While it is difficult to understand 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 are in line with this trend, allowing consumers to spend their savings at local merchants through Visa and Mastercard networks.
Specific to the Argentine market, the fintech/crypto application Lemoncash reported in its 2024 crypto report that its $125 million in "deposits" accounts for 30% of the Argentine centralized crypto application market share, second only to Binance's 34%, and surpassing Belo, Bitso, and Prex. This figure implies that the asset management scale (AUM) of Argentine crypto applications is $417 million, but the actual asset management scale of stablecoins in Argentina may be at least 2-3 times the stablecoin balances in non-custodial wallets like MetaMask and Phantom. Although these amounts may seem small, $416 million accounts for 1.1% of Argentina's M1 money supply, with $1 billion accounting for 2.6%, and it is still growing. Then consider that Argentina is just one of the emerging market economies where this global phenomenon applies. The demand for stablecoins among consumers in emerging markets may horizontally expand across various markets.
Trend Two: 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 typically run in real-time within the country, but stablecoins offer a clear value proposition compared to traditional cross-border transactions that require more than one business day. As Simon Taylor pointed out in his article, over time, the functionality 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 volumes among the 31 companies surveyed (annualized at $36 billion). Through communication with custodians that handle most of these payment processes, Galaxy believes this figure annualizes to over $100 billion among all non-cryptocurrency market participants.
Crucially, Artemis's report found that between February 2024 and February 2025, B2B payment volumes grew fourfold year-on-year, demonstrating the scale growth required for sustained AUM growth. No studies have yet linked the velocity of money for stablecoins to total payment volumes, so we cannot connect total payment volumes to AUM data, but the growth rate of payment volumes indicates that AUM is also growing accordingly due to this trend.
Trend Three: DeFi Becomes a Source of Higher-than-Market Yields
Finally, for most of the past five years, DeFi has been generating structurally higher dollar-denominated yields than the market, allowing consumers with good technical skills to obtain returns of 5% to 10% with very low risk. This has already driven and will continue to drive the popularity of stablecoins.
DeFi itself is a capital ecosystem, one of the significant characteristics of which is that the underlying "risk-free" rates of Aave and Maker reflect the broader crypto capital market. In my paper (Risk-Free Rates in DeFi) from 2021, I noted that the supply rates of Aave (Note: an open-source, decentralized lending protocol allowing users to deposit crypto assets to earn interest or borrow assets), Compound (Note: one of the DeFi lending protocols that uses algorithms to automatically adjust interest rates), and Maker (Note: one of the earliest DeFi projects, with its core product being the DAI stablecoin, which is a decentralized stablecoin pegged 1:1 to the dollar) are responsive to underlying trading and other leverage demand. As new trades or opportunities arise—such as yield farming on Yearn or Compound in 2020, underlying trading in 2021, or Ethena in 2024—the foundational yield in DeFi rises accordingly as consumers need collateral loans to allocate to new projects and uses. As long as blockchains continue to generate new ideas, the foundational yields in DeFi should strictly exceed U.S. Treasury yields (especially in the case of launching tokenized money market funds that provide foundational layer yields).
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 interest rate spread between Aave and U.S. Treasuries requires stablecoins to expand into the DeFi space. As expected, during periods when the interest rate spread between Aave and U.S. Treasuries is positive, the total locked value (TVL) will grow, while during periods when the spread is negative, the TVL will decline (showing a positive correlation):
Issues with Bank Deposits
Galaxy believes that the long-term adoption of stablecoins for savings, payments, and yield generation is a major trend. The adoption of stablecoins could lead to the disintermediation of traditional banks, as they allow consumers to access dollar-denominated savings accounts and cross-border payments directly without relying on banking infrastructure, thereby reducing the deposit base traditional banks use to stimulate credit creation and generate net interest margins.
Alternative to Bank Deposits
For stablecoins, the historical model is that every $1 actually corresponds to $0.80 in Treasury bonds and $0.20 in deposits held by the stablecoin issuer's bank account. Currently, Circle has $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 repos later) Circle's cash deposits are primarily held at Bank of New York 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. The user has $20,000 worth of Argentine pesos deposited in Argentina's largest bank—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 mechanics of ARS disposal may impact the USD/ARS exchange rate, it is worth considering separately) Now, with USDC, the user's $20,000 Argentine pesos at BNA effectively become $17,500 in U.S. government short-term loans or repurchase agreements, and $2,500 in bank deposits spread among Bank of New York Mellon, New York Commercial Bank, and Cross River Bank.
As consumers and businesses shift savings from traditional bank accounts to stablecoin accounts like USDC or USDT, they are effectively moving deposits from regional/commercial banks to U.S. Treasuries 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 bonds backing these tokens will become more concentrated rather than dispersed across the traditional banking system, thus reducing the deposit base available for lending for commercial banks and regional banks, while making stablecoin issuers significant participants in the government debt market.
Forced Credit Tightening
Continuing with Argentina as an example, converting a $20,000 deposit into USDC would convert Argentina's local $24,000 in credit creation into $17,500 in UST/repurchase bonds and $8,250 in U.S. credit creation ($2,500 x 3.3 times). When the M1 supply accounts for 1%, this effect is hard to detect, but when the M1 supply accounts for 10%, this effect may become noticeable. At some point, regional bank regulators will be forced to consider shutting off this faucet to prevent credit creation and financial stability from being undermined.
Over-allocation of Credit to the U.S. Government
This is undoubtedly good news for the U.S. government. Currently, stablecoin issuers are already the twelfth-largest buyers of U.S. Treasuries, and their asset management scale is growing at the same rate as the stablecoin asset management scale. 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 all Treasury bonds to be supported either in the form of Treasury bond repurchase agreements or in the form of short-term Treasury bonds with maturities of less than 90 days. Both methods will significantly enhance the liquidity of key segments of the U.S. financial system.
When the scale is large enough (for example, $1 trillion), this could have a significant impact on the yield curve, as U.S. Treasuries with maturities of less than 90 days will have a large buyer that is insensitive to price, thus distorting the interest rate curve on which U.S. government financing relies. That said, repos have not actually increased demand for short-term U.S. Treasuries; they simply provide a liquidity pool available 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 collateralized by U.S. Treasuries. This market has a scale of $4 trillion, so even if the stablecoin reserves allocated to repos are $500 billion, stablecoins are still a significant player. All this liquidity flowing to U.S. Treasuries and U.S. bank borrowing 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 forced to replicate bank loan portfolios, including a mix of commercial credit and mortgage-backed securities, to avoid over-reliance on any one financial product. Given that the (GENIUS Act) provides a pathway for banks to issue "tokenized deposits," this outcome may be inevitable.
New Asset Management Channels
All of this creates an exciting new channel for asset management. In many ways, this trend parallels the ongoing transition from bank loans to non-bank financial institution (NBFI) loans following the Basel III Accord (which limited the scope and leverage of bank lending after the financial crisis).
Stablecoins are siphoning off funds from the banking system, effectively drawing funds from specific areas within the banking system (for example, emerging market banks and regional banks in developed markets). As noted in Galaxy's (Cryptocurrency Lending Report), we have already seen the rise of Tether as a non-bank lender (beyond U.S. Treasuries), and other stablecoin issuers may also become equally important lending institutions over time. If stablecoin issuers decide to outsource credit investments to specialized companies, they will immediately become LPs in large funds and open up new asset allocation channels (for example, insurance companies). Large asset management firms like 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 dollar and a value unit on-chain itself. USDC can be lent on-chain, and consumers will need yields priced in USDC, such as Aave-USDC, Morpho-USDC, Ethena USDe, Maker's sUSDS, Superform's superUSDC, and so on.
"Treasuries" will offer attractive yield opportunities on-chain for consumers, thus opening up another asset management channel. We believe that in 2024, the portfolio company Ethena is opening the "Overton Window" of on-chain yields priced in dollars by connecting basis trading (Note: the difference between the spot price and the futures price of a commodity at a specific time and place) to USDe. New treasuries will emerge in the future, tracking different on-chain and off-chain investment strategies, which will compete for USDC/T holdings in applications like MetaMask, Phantom, RedotPay, DolarApp, DeBlock, etc. Subsequently, we will create an "effective frontier of on-chain yields" (Note: helping investors find the best balance between risk and return), and it's not hard to imagine that some of these on-chain treasuries will be specifically designed to provide credit for regions like Argentina and Turkey, where banks are facing the risk of massive loss of this capability.
Conclusion
The integration of stablecoins, DeFi, and traditional finance represents not only a technological revolution but also the reconstruction of global credit intermediation, reflecting and accelerating the transition from bank to non-bank lending post-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 higher-than-market DeFi yields. Stablecoins will systematically siphon deposits from traditional banks and concentrate assets in 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; meanwhile, regional banks (especially in emerging markets) face credit tightening as deposits shift to stablecoin accounts. The ultimate result is a new asset management and banking model in which stablecoins will serve as a bridge to efficient digital dollar investment frontiers. Just as shadow banking filled the void 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.
