Stablecoins and safe asset prices
(May 2025, revised in February 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 March 2025, their combined assets under management exceeded $200 billion, surpassing the short-term US securities holdings of major foreign investors. In 2024, they purchased $40 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 2021 to 2025 and an instrumental variable approach to address identification concerns, it isolates the effect of stablecoin flows on three-month Treasury bill yields. By breaking down the contributions of individual stablecoin issuers, the paper offers insights into stablecoins' growing role in safe asset markets and their implications for monetary policy transmission and financial stability.
Findings
Inflows into stablecoins reduce three-month US Treasury bill yields by 2.5–3.5 basis points. The price impact is state-dependent: effects are insignificant in periods of ample bill supply but increase to 5–8 basis points during periods of bill scarcity. The effects are concentrated in short-term Treasury securities, with limited to no spillovers to longer-term maturities. Given its relative size, Tether (USDT) contributes the most to estimated effects, followed by Circle (USDC). 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 shortterm US Treasury yields using daily data from 2021 to 2025. Using local projections and an instrumental variable approach that exploits idiosyncratic cryptocurrency market price variation purged of traditional financial market correlations, we find that a 2-standard deviation inflow into stablecoins lowers 3-month Treasury bill yields by 2.5-3.5 basis points (bps), with limited to no spillover effects on other tenors. The price impact is state-dependent: effects are statistically insignificant in periods of ample bill supply but increase to 5-8 bps during periods of bill scarcity, as measured by Federal Reserve reverse repo facility growth and debt ceiling standoffs. Stablecoins' influence on Treasury yields may thus be particularly pronounced during periods of market stress or supply constraints, with implications for monetary policy transmission, stablecoin reserve transparency and financial stability.
JEL classification: E42, E43, G12, G23
Keywords: stablecoins, treasury securities, financial stability, safe assets
