As should be clear by now to readers of Stablecoin State, the last 18 months have seen the new US administration move rapidly to place USD-denominated stablecoins under a defined regulatory framework, with a view to legitimising them and growing their use.

To that end, it has:

Why?

The reasons behind this push are obvious, at least to anyone who has spent a career looking at macro themes, specifically the role of the US dollar and sovereign debt dynamics.

The rise of US stablecoins solve at least two major strategic goals for the US:

REMINISCENCES OF A BOND OPERATOR

Bond market veterans are typically at pains to point out that their market has typically moved earlier to signal key turning points than the smaller but better-known equity market, most notably when high yield credit spreads blew wider in 1999 before the Dotcom peak and in 2007 before the Global Financial Crisis.

However, structural changes in the bond market since 2008 have dampened the price signals it generates.

Why?

After the GFC, the world’s bond markets were not left alone to rise and fall undisturbed - Central Banks became a permanent player in the market.

Since 2008, they have intervened directly in the bond markets (through quantitative easing and tightening) first in government bond markets and then later in 2020 through the SMCCF and PMCCF to buy corporate debt. This has had the effect of suppressing volatility and has obscured the price signals that historically existed for bond portfolio managers and traders to interpret and position around.

The rise of stablecoins promises to be the next major structural shift in rates markets, through five channels.

1. US T-BILL DEMAND

The GENIUS Act (2025) does something most legislation does not: it creates a buyer.

A structural buyer for US government debt, arriving as the fiscal position deteriorates.

Every US-regulated issuer must hold reserves in cash and short-duration Treasuries, dollar for dollar, against every token in circulation.

GENIUS mandates that the reserves behind these newly minted stablecoins flow straight into the front end of the US Treasury curve, at 93 days or less. Every token minted is a bid for short-dated government paper, placed regardless of price.

The scale is already there. Circle's USDC reserves run close to $75 billion, with around 84 per cent linked to Treasuries through direct holdings and repo. Issuers of dollar-backed stablecoins bought $33 billion of T-bills in 2025, second only to Fidelity's government money market fund and ahead of Japan, Belgium and Saudi Arabia.

And it is early. Treasury Secretary Scott Bessent has put the market at $3 trillion by 2030, roughly ten times current levels. Citi's bull case runs to $4 trillion.

Azzimonti and Quadrini model what that does once the system settles.

In an economy where stablecoins are in widespread use and fully backed by US securities, they find as much as 40 basis points of downward pressure on interest rates. Fed Governor Stephen Miran put the number in front of the market last November, framing it as pressure on the neutral rate: if r* falls and policy does not follow it down, the stance turns contractionary without anyone choosing it.

This is a steady-state result, not a flow effect.

Not what the bill does when money moves this week, but where the resting rate sits once stablecoins are structural rather than marginal. Miran's own caveat travels with it: the result turns on the share of reserves held in Treasuries, and at a low enough share the sign reverses. GENIUS makes a low share impossible.

The Fed does not set r*. It hunts for it.

GENIUS moves the target.

2. DEPOSIT FLIGHT / BANK FUNDING COSTS

A bank deposit is, structurally, a loan the customer makes to the bank, usually at close to zero cost. That arrangement has funded the entire model of commercial banking for two centuries. As a bank treasurer, this is typically the key plank of your funding strategy: the sticky deposits that are priced like short term liabilities but behave like medium term ones.

Two major banks have done modelling on this and gone public with their findings.

Standard Chartered's Geoff Kendrick has built the most granular model of the mechanism.

Applied to Standard Chartered's own base case of a $2 trillion stablecoin market by the end of 2028, that works out to roughly $500 billion leaving developed-market banks, with another $1 trillion fleeing emerging-market banks over the same period.

Bank of America's own CEO has put a larger number on the domestic side of this. Brian Moynihan has warned that up to $6 trillion, close to a third of all US commercial bank deposits, could migrate to stablecoins if regulators eventually permit them to pay interest.

The spectre of this deposit flight threat has a profound effect on how the credit creation function would operate in the economy as well the extent to which banks would have to replace funding through more-expensive wholesale bond issuance.

3. EMERGING MARKET MONETARY POLICY

Every central bank sets policy against a model of the world it can actually observe and act on.

In a growing number of emerging economies, that assumption is quietly failing.

The IMF gave this phenomenon a name in its December 2025 paper, "Understanding Stablecoins": cryptoization.

It's the digital-era successor to old-fashioned dollarization, except faster, more accessible, and far harder to see coming. Where classic dollarization meant residents hoarding physical dollar notes under the mattress, cryptoization means residents holding dollar stablecoins on a smartphone:

The mechanism matters as much as the scale.

When a household in a high-inflation economy shifts savings from local currency into a dollar stablecoin, two things happen simultaneously:

First, demand for the local currency falls, adding to the depreciation pressure the household was trying to escape in the first place.

Second, and more structurally, that household starts to exit the reach of domestic monetary policy.

Nigeria is the sharpest live example available. Stablecoin purchases there now equal roughly 4.3% of GDP, the highest ratio anywhere in the world, against a naira that has lost around 80% of its value since 2018 and inflation that ran near 65% in 2024.

This is not speculative trading. It's a population making a rational, individually sound decision to exit a currency their own central bank cannot defend, at a speed and scale no capital control was designed to contain.

For a developed-market bond desk, this channel can look like someone else's problem, a Lagos or Buenos Aires story rather than a New York or London one. That reading understates the point. Every dollar that flows from a depreciating local currency into a stablecoin becomes, almost immediately, demand for short-duration US Treasuries, the reserve backing that dollar.

The loss of sovereignty in Lagos shows up, eventually, as a basis point move lower in Washington.

4. DURATION DEMAND / CURVE DYNAMICS

Every bank runs a duration trade, whether it thinks of it that way or not.

Deposits, in the way banks have always modelled them, are treated as stable, so banks have historically felt comfortable holding longer-dated assets against them: mortgages, longer Treasuries, loans that don't mature for years.

That match between a liability and a long-dated asset is what has quietly funded the long end of the yield curve for decades.

Stablecoins break this relationship on both sides at once.

On the liability side, deposits that migrate to stablecoin rails don't just leave the bank, they leave in a form that no longer behaves like a long-dated, sticky liability anywhere in the banking system.

On the asset side, the reserves backing those stablecoins are, by GENIUS Act design, overwhelmingly short-duration, cash and T-bills, not the ten and thirty-year paper a deposit base would traditionally have supported.

As adoption scales, the structural demand that used to sit at the long end of the curve, banks buying duration to match their deposit base, quietly retreats. What replaces it, dollar for dollar, is demand concentrated entirely at the front end.

That combination is, definitionally, a steepening pressure on the curve, not because anyone is choosing to steepen it, but because the buyer base for each segment is changing in opposite directions simultaneously.

Silicon Valley Bank is the preview, already run at speed, of what this looks like when it goes wrong. SVB's failure in March 2023 is often told as a bad-assets story: it wasn't. Its Treasury and agency MBS holdings were, credit-wise, close to risk-free.

The asset quality wasn’t the problem. The mismatch between how long the assets were held and how long the funding actually stayed was.

We covered this in issue 8: Runs.

Stablecoin-driven duration migration is the same mechanism, running system-wide, in slow motion rather than a bank run compressed into 48 hours. No single institution needs to fail for the effect to matter to a rates desk. As the banking system's aggregate demand for long-dated Treasuries structurally shrinks, someone else has to show up to buy the long end, and at a different clearing price.

THIS means a structurally steeper US yield curve.

5. THE PARALLEL RATE STRUCTURE

A bank doesn't need to lose a deposit to lose money on it.

Yield-bearing stablecoins already pay holders a return derived from the same short-duration Treasury yields backing the GENIUS Act's reserve-mandated coins. Ethena's USDe and Sky's USDS are the largest examples. Neither is a GENIUS-compliant payment stablecoin, and that's not incidental. The Act bans interest payments to holders outright. Yield-bearing stablecoins exist specifically outside that perimeter, built to do the one thing the compliant coins are legally barred from doing.

For a bank, the effect is the same either way. There is now a dollar-denominated, instantly accessible instrument paying a market-linked rate, one tap away from a deposit account paying considerably less.

The deposit doesn't have to leave. It just gets expensive to keep.

Channel 2 was about deposits walking out the door. This is about what it now costs to stop them walking.

A bank facing this competition can't quietly under-pay on operational and retail balances the way it always has. It has to raise what it pays, on every balance it wants to retain, regardless of whether a single dollar actually moves.

Two effects, two different bank line items. Channel 2 shows up in the balance sheet, as outflows. This shows up in the margin, as compression that's already happened by the time anyone notices it.

That's structural NIM pressure. Not cyclical: structural.

Five channels. One market growing underneath all of them.

A structural bid at the front end that doesn't care what yield does.

A funding cost that rises even when the deposit stays.

A central bank losing sight of populations already living in dollars.

A curve steepening because the buyer who used to hold the long end no longer has the deposit base to justify it.

A margin compressed by competition that never shows up as an outflow.

None of these five is, on its own, a crisis.

Together, they are a market being quietly re-priced by a buyer, and a competitor, that didn't exist five years ago and now sits at $310 billion, on a path most serious estimates put somewhere between $2 and $4 trillion by 2030.

The $130 trillion bond market has absorbed structural shifts before. It absorbed central banks becoming permanent players after 2008.

It will absorb this one too.

What it will not do is absorb it invisibly. Every channel above shows up somewhere, in a spread, in a curve, in a margin, as the financial plumbing of the world’s most important market gets rebuilt.

-Thanks for reading.

Mark McKendry

Founder, AdaptXion

P.S. If you would like to contact our team just reply to this email - we read every response.

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