Stablecoins and safe asset prices
(May 2025, revised in June 2026)
Summary
Focus
Stablecoins are digital assets designed to maintain a stable value relative to a reference asset, such as fiat currencies. The market is dominated by stablecoins that are pegged to the US dollar, with backing assets composed mostly of dollar-denominated short-term instruments such as US Treasury securities. As of December 2025, their combined assets under management exceeded $270 billion, surpassing the short-term US securities holdings of major foreign investors. In 2025, they purchased nearly $35 billion of US Treasury bills, similar to the largest US government money market funds and larger than most foreign purchases. Their rapid growth in recent years raises questions about the impact on the markets they invest in, with potential broader implications for monetary policy and financial stability.
Contribution
The paper highlights the growing interactions between stablecoins and traditional financial markets by analysing stablecoins' impact on short-term US Treasury yields. Using daily data from January 2021 to March 2026 and a granular instrumental variable approach to address identification concerns, it isolates the effect of stablecoin flows on three-month Treasury bill yields. Effects are state-dependent, increasing under Treasury market stress and with the scale of the stablecoin sector.
Findings
Inflows into stablecoins reduce three-month US Treasury bill yields by 0.71 basis points on impact and about 4 basis points within 10 days, with a trough of roughly 5 basis points reached at 13 days. The effects are concentrated in short-term Treasury securities, with no spillovers to longer-term maturities. The baseline effect masks substantial heterogeneity along two dimensions. First, the channel is amplified under Treasury-market intermediary stress. Second, the channel has strengthened with the maturation and scale of the stablecoin sector. These results suggest that stablecoins have already established themselves as significant players in Treasury markets. Their growth blurs the lines between cryptocurrency and traditional finance and carries implications for monetary policy, transparency of stablecoin reserves and financial stability – particularly during periods of market stress.
Abstract
This paper examines the impact of dollar-backed stablecoin flows on short-term US Treasury yields using daily data from January 2021 to March 2026. Using local projections and a granular instrumental variable exploiting idiosyncratic variation in stablecoin growth at the token-blockchain pair level, we find a $3.5 billion (2-standard deviation) inflow lowers 3-month Treasury bill yields by 0.71 basis points on impact, and up to 4 basis points within 10 days, with limited spillovers to longer tenors. Effects are state-dependent, increasing under Treasury market stress and with the scale of the stablecoin sector. Results carry implications for monetary policy transmission and financial stability.
JEL classification: E42, E43, G12, G23
Keywords: stablecoins, treasury securities, financial stability, safe assets
