Financial giant Citigroup suggests that stablecoins could dramatically reshape demand for U.S. government debt, potentially adding over $1 trillion in demand if supportive regulations are enacted.
A recent analysis by the New York-based banking institution posits that establishing a clear regulatory framework in the U.S. could propel stablecoin issuers into the ranks of the largest holders of U.S. Treasuries by 2030.
This projected surge stems from the requirement that stablecoin issuers would need to back their tokens with secure assets. “The stablecoin issuers will have to buy U.S. Treasuries, or comparable low risk assets, against each stablecoin as a measure of having safe underlying collateral,” the report highlights, driving demand for dollar-based, risk-free assets both domestically and internationally.
Under Citigroup’s base scenario, the collective holdings of stablecoin issuers might surpass those of any single foreign jurisdiction currently holding U.S. Treasuries.
[Citigroup sees stablecoin issuers among top US Treasury holders by 2030 – 1]
This outlook depends heavily on navigating significant hurdles. The report acknowledges the inherent “run-risk” associated with stablecoins, warning that the collapse of a prominent issuer could trigger widespread financial instability. Underscoring this risk, Citigroup noted approximately 1,900 instances of stablecoins losing their peg in 2023 alone, with about 600 involving large-cap digital tokens.
Furthermore, geopolitical tensions could impede the global uptake of these digital assets. Citigroup warns that some international policymakers might perceive U.S. dollar-pegged stablecoins as tools reinforcing U.S. economic influence. Consequently, nations like China and European countries may prioritize developing their own central bank digital currencies (CBDCs) or stablecoins linked to their respective currencies.