Stablecoin issuers have become a growing source of demand for US Treasury securities and have partly offset China's retreat from the market, according to a study by the Federal Reserve Bank of San Francisco. The finding reframes a debate over whether dollar-pegged tokens represent a meaningful structural bid for US government debt, or a marginal one concentrated in one corner of the curve.

The San Francisco Fed researchers identify an important compositional mismatch at the center of the story. Stablecoin issuers favor short-term Treasury debt, while China's holdings have declined mostly in longer-dated securities. The offset, in other words, is partial rather than like-for-like: the demand that dollar-token issuers add sits at the front end of the curve, while the demand Beijing has withdrawn has come largely from the belly and long end.

That distinction carries consequences for market structure. Front-end bills are already the most liquid segment of the Treasury market, anchored by money-market funds and a deep repo ecosystem. If stablecoin reserves recycle into bills, they reinforce demand where it is least scarce. Duration-heavy segments of the curve — where China's selling has been concentrated — do not automatically find a replacement buyer in a stablecoin issuer whose reserves must remain liquid and redeemable on demand.

Who buys stablecoins determines the net effect

The study's most consequential caveat concerns the source of stablecoin demand itself. The authors say the additional Treasury demand generated by the sector depends on who buys stablecoins.

The logic runs through the balance sheet. If a stablecoin's new buyer is a US money-market fund investor shifting cash from Treasury bills into a token, the net new demand for government debt is close to zero — the same dollar of savings simply changes wrapper. If the buyer is a crypto-native user converting Bitcoin or Ether into a dollar-pegged token, or an overseas user dollarizing savings for the first time, the reserve expansion translates into genuine incremental Treasury demand.

This compositional question has grown more urgent as the stablecoin sector scales. USDC issuer Circle completed a public listing on the New York Stock Exchange in June 2025, and Tether, the largest issuer by circulation, has reported billions of dollars in quarterly profits driven largely by interest income on its Treasury-heavy reserve portfolio. Legislative momentum has followed: the GENIUS Act, signed into law in July 2025, established a federal framework for payment stablecoins, mandating high-quality liquid reserves and opening the sector to bank and non-bank issuers under a regulated perimeter.

Against that backdrop, the San Francisco Fed study provides a more sober read than much of the industry's framing. Stablecoin reserves do absorb Treasury supply — but the study's findings suggest the aggregate effect on government borrowing costs is bounded by both maturity concentration and the identity of the marginal stablecoin buyer.

Why the maturity mismatch matters

The mechanics of a stablecoin reserve portfolio explain the tilt toward short-dated paper:

• Redemption risk: issuers must meet token-holder redemptions at par, on demand, which pushes reserves toward bills and overnight instruments
• Regulatory expectations: the GENIUS Act's reserve standards favor high-quality liquid assets with minimal duration and credit risk
• Interest-rate exposure: longer-dated holdings would expose issuers to mark-to-market losses that could impair parity during rate shocks — the dynamic that broke regional banks in 2023

Each of these constraints points the sector's Treasury demand toward the front end, limiting how much of China's duration exit it can realistically absorb.

What this means for Treasury market structure

For the Treasury Department and for market participants modeling future demand, the study's implications are twofold. First, projections that treat stablecoin growth as a broad-based replacement for foreign official buyers overstate the effect; the substitution operates largely in bills. Second, the marginal-buyer question makes stablecoin-driven Treasury demand cyclical and demographic — tied to crypto adoption and emerging-market dollarization — rather than a stable, policy-insensitive bid.

The debate will sharpen as regulated issuance scales under the GENIUS Act framework and as more issuers disclose reserve compositions. Whether stablecoin demand matures into a durable pillar of Treasury financing, or remains a bills-specific phenomenon layered on top of existing money-market demand, is likely to become clearer as the sector's first full year under federal regulation plays out.