How a stablecoin boom could pressure bank loans | PaymentsSource

Banks have been concerned about stablecoin issuers coming for their deposits, but the growing popularity of the digital asset could have wider implications, including a reduction in available credit. 

While stablecoins are still early in their evolution, they are bound to scale massively, Rajeev Bamra, associate managing director, head of strategy, digital economy at Moody’s Ratings, told American Banker. This scale could impact traditional lending, investment products and marketwide risk as the use of Treasuries as stablecoin reserves impacts other sectors of finance.

“Stablecoins’ role in the plumbing of financial markets … is making them more systemically important,” Bamra said. 

A bigger role

Stablecoins have been growing at a fast clip, with circulation doubling from January 2024 to July 2025, accounting for $30 billion of transactions daily, or less than 1% of global money flows, according to McKinsey and Company. 

That growth is not expected to slow anytime soon. Today, the stablecoin market is just over $250 billion, with Tether and Circle’s stablecoins making up the lion’s share at $165 billion and $67 billion, respectively.  

Stefan Jacewitz, assistant vice president and economist at the Federal Reserve Bank of Kansas City, believes that the stablecoin industry will eventually grow large enough to boost demand for Treasury bonds, but that growth comes at a cost as the role of Treasuries declines elsewhere in banking. 

Presently, the role of Treasuries in the stablecoin market is limited. Stablecoin issuers such as Circle and Tether favor U.S. Treasuries as a backing for their stablecoins in circulation because they are low risk and highly liquid. Both issuers hold about half of their assets in U.S. treasury notes: As of June 30, Circle held just less than half of its total $61 billion in assets, $27 billion, in Treasuries, and Tether held $105 billion in Treasuries to back its USDT stablecoin, according to the two company’s respective transparency reports. 

“If all issuers held a similar proportion of their assets as Treasuries, they would hold around $125 billion in Treasury bills — less than 2% of the $6 trillion in outstanding Treasury bills,” Jacewitz wrote in a research bulletin. “While this sum is not negligible, the stablecoin industry is not as yet considered a major part of the Treasury-bill market, and issuer behavior likely has a limited effect on overall Treasury liquidity.”

The stablecoin industry would need to grow to about $900 billion to reach the size of the next smallest category of U.S. Treasury owners, which are private pension funds that hold a little more than $450 billion in Treasuries. By comparison, the largest private holders of T-bills are mutual funds, at $4.5 trillion, according to Jacewitz. 

A looming risk

But as stablecoin issuers grow their share of coins in circulation, so too will the demand for T-bills, Jacewitz said. JPMorganChase has estimated that the market will grow to $500 billion by 2028, and Standard Chartered estimated the stablecoin market would grow to $3 trillion by 2028. Analysts at Bernstein are also bullish, and predicted the market could grow to $4 trillion by 2035. 

“This potential flow of funds from bank deposits into stablecoins could increase Treasury demand but also could reduce the supply of loans in the economy,” Jacewitz said.  

“Assuming the stablecoin market grows from $250 billion to $900 billion … the $650 billion in growth could represent a shift from bank deposits to stablecoins,” Jacewitz said. “This shift would represent a 1% decrease in both bank assets and bank lending — that is, a $325 billion reduction in bank loans to the economy.” 

Not just loans

Stablecoin issuers’ penchant for Treasuries could pressure other areas of the financial system, Moody’s Bamra said. 

“That will also put some pressure or have a direct impact on markets like money market funds or other short term investment vehicles,” Bamra said. 

“If stablecoins end up crowding the [money market funds], they can easily alter demand for things like commercial paper, repos, short-term bank debts,” he said. “Changes in demand like this could potentially shift the risk profile of some non-bank financial institutions that are assessed in the traditional markets.”

Lack of diversification in the assets backing stablecoin issuances could also increase stablecoins’ systemic risk, he said. 

“If stablecoin issuers continue to focus and buy Treasury bills as reserves besides diversifying into other stable assets, that may in the short term lower sovereign borrowing costs,” Bamra said, but noted that over-relying on Treasuries will introduce a major concentration risk to the Treasury market. 

“It’s a cycle that may turn over its head if that diversification of assets backing the stablecoins doesn’t happen, especially by the bigger players like Tether and Circle, because they literally own the majority of those Treasury bills considering their size.”