Stablecoin issuers step into the Treasury demand China gave up

Stablecoin issuers have replaced 40% of the US Treasury demand lost by China, according to reporting on new central bank work^3,8. The San Francisco Fed estimates that issuers are becoming an increasingly important source of Treasury demand¹. The paper, released on 28 September, is titled Stablecoin Issuers’ Growing Appetite for Treasury Securities⁴. Issuers’ Treasury holdings are put at nearly $200 billion². The shift is beginning to alter the investor base underpinning the world’s largest government bond market³, with Tether and Circle identified as the issuers taking up the slack as foreign official holdings lose ground⁸.

The size of the sector is disputed within the same day’s coverage. Two reports put the stablecoin market above $310 billion^5,6, while another put it at $300.9 billion⁹. A fourth said market capitalisation has fallen by $14 billion since May and that the recovery remains weak⁷. Within the quarter, Tron added $5 billion of stablecoin supply while Ethereum’s supply declined by $4.9 billion⁹.

Why it matters to investors

The composition of the buyer base for short-dated government debt is changing, not just its size. Foreign official holdings are losing ground and private issuers are replacing part of that demand⁸, against a global debt stock reported at $365 trillion¹. A buyer whose holdings track token issuance behaves differently from a central bank: the demand grows and shrinks with retail and trading flows rather than with reserve policy^3,7.

Europe is moving the other way on access. The European Securities and Markets Authority has proposed ending EU custody and transfer services for non-compliant stablecoins².

What to watch

The clearest unresolved tension is between rising issuer Treasury holdings of nearly $200 billion and a token supply that one report says has shrunk by $14 billion since May^2,7. The reports do not reconcile the two, and the market-size figures themselves differ by roughly ten billion dollars depending on the source^5,9.

Three markers. Whether the issuance picture turns, with Tether relaunching USDT on the Bitcoin network and Circle launching cirBTC^5,6. Whether supply keeps migrating between chains as it did in the third quarter, when Tron gained and Ethereum lost⁹. And whether the ESMA proposal forces issuers to restructure the reserves they hold against euro-area users, which would change where the Treasury bills sit².