US Treasury's Largest Holders: 'Stablecoins'...Concerns Over Potential Sell-Offs During a 'Coin Run'

The International Financial Center has projected that as US dollar-denominated stablecoins enter the institutional financial system, demand for US short-term Treasuries (T-bills) could reach $800 billion. While the market expects this inflow of demand to help stabilize short-term interest rates, there are also concerns that the likelihood of mass Treasury sell-offs could increase if a 'coin run' occurs.

According to a report released on the 30th by the International Financial Center titled 'Inspection of US Treasury Demand Driven by Stablecoin Growth,' the market expects that, with the passage of the GENIUS Act, the issuance of stablecoins could expand to $1–2 trillion. The US Department of the Treasury and Standard Chartered Bank estimate $2 trillion, Citi projects $1.6–3.7 trillion, and ARK suggests $1.4 trillion. The current balance of issued stablecoins is about $250 billion, so this would mean an increase of more than fourfold.

However, JPMorgan projects that stablecoin issuance will only double from current levels, reaching $500 billion. JPMorgan notes, "Stablecoin demand is primarily focused on cryptocurrency trading," and points out, "General payment use accounts for just 6%."

An increase in stablecoin issuance is expected to significantly boost demand for US Treasuries, as stablecoin issuers hold Treasuries as reserves. Currently, these issuers hold about $200 billion in short-term Treasuries, equivalent to 80% of the outstanding stablecoin supply. If issuances grow to $1 trillion by 2028, demand for short-term Treasuries could increase to $800 billion. This amount exceeds the $756.3 billion held by China, the largest current holder of US Treasuries.

This surge in US Treasury demand exerts downward pressure on short-term interest rates. Stablecoin issuance could stabilize rates and improve liquidity. Morgan Stanley analyzed, "The growth of stablecoins will gradually support US Treasury demand centered on short-term securities," and added, "It can provide flexibility to the US Treasury's issuance strategy and expand its ability to respond to fiscal deficits."

The issue, however, is that as stablecoin issuers increase their Treasury holdings, the risk of large-scale sell-offs also rises. The US Department of the Treasury and the Bank for International Settlements (BIS) have highlighted the 'fire sale risk' for Treasuries as a potential hazard.

If a 'coin run' occurs, with mass demand to redeem coins for cash due to problems faced by issuers, the issuers may have to rapidly liquidate Treasuries to secure redemption funds, potentially causing a sharp jump in short-term interest rates. The BIS has analyzed that, if there is a net outflow of capital due to stablecoin sell-offs, the resulting rise in rates could be up to three times greater than the rate decline observed during net inflows.

Reporter: Jinkyu Kang, josep@hankyung.com