Last week, the US Treasury announced an expansion of its long-term Treasury buyback program, funded by issuing additional short-term bills. In a CNBC interview, Treasury Secretary Bessent dubbed this move a "Treasury twist" - a strategy designed to ease pressure on the bond market by lengthening short-end supply while compressing long-end pressure.

But Bessent's ambitions extend beyond this maneuver. He is also banking on an emerging source of demand: the dollar stablecoin.

Why must stablecoins buy Treasuries?

Under the Genius Act passed in the US last year, stablecoins issued domestically and pegged to the dollar must be backed by specific assets, including short-term Treasuries maturing within 93 days. In other words, every dollar of stablecoin issued requires nearly an equivalent amount of short-term Treasury holdings. This stands in stark contrast to banks - for every dollar of assets held, banks allocate only about 8 cents to short-term Treasuries on average, whereas roughly 80 cents behind each dollar of stablecoin is in short-term debt.

Stablecoins are, by nature, natural "buyers" of short-term Treasuries.

How large is the market?

Currently, the global stablecoin market capitalization stands at approximately $300 billion. Compared to the nearly $8 trillion US money market fund industry, this figure remains modest. However, Bessent has cited projections suggesting the stablecoin market could grow to nearly $4 trillion, explicitly stating: "This will lower government borrowing costs."

Citi Institute offers a "bull case" scenario: if the stablecoin market reaches $4 trillion, its short-term Treasury holdings could account for about a quarter of all outstanding short-term bills by 2030. A report prepared by the Brookings Institution's Hutchins Center on Fiscal and Monetary Policy for the Aspen Economic Strategy Group also notes that stablecoins could generate "substantial net new demand" for short-term Treasuries - particularly when funds flow from bank accounts into stablecoins or are purchased by foreigners. The report highlights that significant demand could come from savers in countries with unstable currencies who cannot open US bank accounts but can hold dollar stablecoins.

The Clarity Act: The next catalyst

Further expansion of stablecoins also depends on the passage of another piece of legislation - the Clarity Act - which aims to regulate the broader crypto asset market. Currently, the bill is stalled amid negotiations between the banking sector and crypto companies. The core dispute centers on interest returns available to stablecoin holders, which banks view as direct competition with deposit rates.

Last week, Trump met with crypto industry executives at the White House, personally urging progress on the bill. The SEC simultaneously proposed a new regulatory framework for crypto assets. TD Cowen analyst Bryan Bergin wrote in a recent report that passage of the Clarity Act "would reduce friction through a more defined regulatory environment," but he also noted that stablecoin adoption is already advancing even without it.

The market has already responded. Stablecoin issuer Circle Internet Group and Coinbase Global, which offers rewards on USDC holdings, both surged over 20% last week.

Significant potential, but a long road ahead

TD Securities rate strategists wrote in an October 2025 report that stablecoin growth could "influence Treasury debt management decisions, leading to a shorter weighted average maturity in issuance." The Treasury's own committee of bankers and investor advisors also informed the department last year that "increased stablecoin issuance could create a new source of demand for short-term bills."

Still, this remains an early-stage story. According to data tracker DefiLlama, the total stablecoin market cap has recently plateaued, showing little change since October of last year. The Brookings report also raises a critical question: is the Treasury demand generated by stablecoins stable or volatile? This is crucial for the Treasury in designing an optimal debt maturity structure.

Additionally, the commercial prospects of stablecoin companies face competition - not just from other stablecoins, but also from new forms such as tokenized deposits and digitized short-term Treasuries. Bergin noted in an email that "AI agent commerce will be a potential long-term catalyst for stablecoin usage," with cross-border payments and business-to-business transactions serving as nearer-term drivers.

Bessent's strategy is logically sound, but realizing it will take time. As one major financial publication pointed out, the day stablecoins truly influence government borrowing costs "will follow a path far longer than a single presidential term."