Much ado has been made about U.S. President Donald Trump’s open-armed embrace of crypto.
One theory is that the White House’s friendliness toward digital assets is a favor to Silicon Valley donors, a gesture to innovation-friendly constituencies. Another is that it reflects an administrative belief in the efficiency gains that blockchain can bring to payments.
Both explanations may hold some truth. But they miss a more pressing, and under-analyzed, reason: America has a debt problem. And the challenge isn’t just how much the U.S. owes ($37 trillion and counting), either — it’s who will keep buying that debt.
Foreign buyers of U.S. Treasuries — long the dependable stalwarts of American borrowing — are pulling back. Among other examples, China’s holdings dropped to their lowest since 2009, while Japan, once the largest foreign holder, has been trimming too.
With interest rates still above 4%, Washington is scrambling for new sources of demand.
Treasury Secretary, Scott Bessent, who describes himself first and foremost as America’s bond salesman, believes he has found a steady source in crypto. His unlikely new customers: stablecoins.
Stablecoins as Treasury Buyers
Stablecoins — digital tokens pegged to the dollar — now represent one of the fastest-growing sources of U.S. debt demand.
To understand why this is significant, it’s important first to understand the math: every $1 deposited into stablecoins results in roughly $0.90 flowing into Treasuries. Compare that with U.S. bank deposits, where only ~11% of funds ultimately cycle into Treasuries. The difference is stark. Put another way, the game plan is quite simple: every dollar that flows out of a bank deposit and into a stablecoin yields about $0.79 in net new Treasury demand.
This explains how Tether, the largest stablecoin issuer, became a top-20 holder of Treasuries — with over $125bn in U.S. debt. Circle, which issues USDC, is not far behind. Together, they now hold more Treasuries than some sovereigns, ranking around the 18th largest holder worldwide.
In short: stablecoins are not just a tool for crypto traders. They’ve become a uniquely efficient channel for Treasury demand.
Clearing the Runway
It seems like no accident, then, that the Trump administration has cleared the runway for a domestic stablecoin boom.
The GENIUS Act, passed in July, requires stablecoins to be backed one-for-one with cash or short-term Treasuries — effectively channeling inflows into government debt. A companion Digital Asset Market Clarity Act promises the first federal rulebook for crypto investment. Bessent himself has not been shy about this topic, publicly calling stablecoins a way to boost demand for U.S. government debt and cement U.S. Dollar dominance globally.
Other steps from the administration seem to support this theory and strategy as well. A Strategic Bitcoin Reserve and broader U.S. Digital Asset Stockpile, seeded with crypto seized by law enforcement, signaled that the government views digital assets as part of its financial toolkit. Additionally, a recent executive order barred banks from blocking crypto transactions, lowering friction for both retail and institutions. Another rule change opened the door for 401(k) retirement savings to invest in digital assets, creating a powerful new capital channel.
Each initiative reduces the perceived risk of crypto, draws in new participants, and ultimately pushes more dollars into stablecoins — and by extension, into Treasuries.
Pitfalls and Risks
For all its momentum, Bessent’s strategy is not without hazards. Stablecoins are still small relative to the $50 trillion U.S. financial system, and their demand can be fickle. If sentiment turns or crypto adoption stalls, the Treasury bid could shrink just as quickly as it has grown, leaving Washington once again searching for buyers.
Even if growth continues, the mechanics of stablecoin reserves carry distortive effects. Because issuers are restricted to holding only cash and short-term Treasuries, their rise channels demand almost exclusively to the front end of the yield curve. That concentration tilts issuance away from longer-dated bonds and may reshape the maturity profile of U.S. debt in ways policymakers weren’t expecting.
Finally, banks are unlikely to cede ground quietly. Deposit flight into stablecoins is a direct threat to their business model, which depends on capturing the yield on U.S. dollars. That is precisely why the GENIUS Act prohibits issuers from offering yield-bearing tokens. But workarounds are already being explored, setting up a competitive fight over who earns the yield on the dollars backing the stablecoin.
Conclusion
The prevailing narrative is that Trump’s crypto pivot is about innovation or pandering to Silicon Valley. The reality looks more pragmatic — and more urgent. Stablecoins are being positioned as a Trojan horse for Treasury demand, one that channels global dollars into U.S. debt more efficiently than banks or foreign sovereigns.
Whether this gambit succeeds or inflates another bubble remains to be seen. But it reframes the crypto debate: in Washington’s eyes, stablecoins are not a sideshow. They may be the ballast keeping America’s debt machine afloat.
