This post was originally published on this site.
An analysis of the Treasury’s latest assessment on digital money and what it means for banks, investors, and the dollar’s global dominance
The U.S. Treasury’s Borrowing Advisory Committee recently delivered a comprehensive analysis that should have every banker, investor, and policymaker paying attention. Hidden within the technical jargon of a routine TBAC presentation lies a roadmap for one of the most significant transformations in American finance since the creation of money market funds.
The headline number? Stablecoins could grow from today’s $234 billion market to $2 trillion by 2028 — an 8.3x increase that would fundamentally alter how Americans save, banks fund themselves, and the Treasury finances government operations.
What Are Stablecoins, Really?
Think of stablecoins as digital dollars that live on blockchain networks. Unlike volatile cryptocurrencies like Bitcoin, these tokens are designed to maintain a stable $1.00 value by backing each token with real dollars, Treasury bills, or other high-quality assets.
Today’s stablecoin market is dominated by just two players: Tether (USDT) with $145 billion in circulation and Circle (USDC) with $60 billion. Together, USD-pegged stablecoins represent over 99% of the entire stablecoin market, making this fundamentally a story about digital dollars rather than exotic cryptocurrencies.
The appeal is straightforward: stablecoins offer the stability of dollars with the speed and efficiency of digital payments. You can send $10 million across the globe in minutes, settle trades instantly, and operate 24/7 without traditional banking intermediaries.
The Regulatory Reckoning
The elephant in the room is regulation. The GENIUS Act, which passed the Senate Banking Committee in March 2025 and has since. been signed into law, creates the first comprehensive regulatory framework for U.S. stablecoins.
The rules are surprisingly conservative:
- No yield allowed: Unlike money market funds, stablecoins couldn’t pay interest to holders
- Strict backing requirements: Every dollar of stablecoins must be backed by actual dollars, Treasury bills under 93 days, or other ultra-safe assets
- Public blockchains only: No private networks allowed
- Federal oversight: All issuers would face bank-like regulation and supervision
This conservative approach reflects lessons learned from money market fund reforms after 2008, when “breaking the buck” nearly caused a systemic crisis.
The Banking Disruption
Here’s where things get interesting for traditional banks. The Treasury’s analysis identifies $5.7 trillion in “at-risk” deposits — money that could potentially migrate to stablecoins if they offered better utility or competitive features.
The most vulnerable deposits are transactional accounts (checking accounts and non-interest-bearing deposits) totaling about $3.8 trillion. Since these already don’t pay interest, the appeal of stablecoins would come from enhanced functionality: instant settlement, 24/7 availability, and programmable payments.
But there’s a catch. Under the current proposed rules, stablecoins can’t pay interest. This creates an odd dynamic where banks might actually be protected in the near term, since they can still offer yield on deposits while stablecoins cannot.
The real disruption may come from tokenized money market funds—essentially MMFs that exist as blockchain tokens. These hybrid products combine the yield of traditional money funds with blockchain functionality, potentially offering the best of both worlds.
Treasury Market Transformation
Perhaps the most significant macroeconomic impact would be on Treasury markets. Stablecoin issuers already hold over $120 billion in Treasury bills, and this could grow to nearly $1 trillion if stablecoins reach $2 trillion in size.
This represents a massive new source of demand for short-term government debt, but with a crucial constraint: regulations would require stablecoin reserves to be invested only in Treasury bills with less than 93 days to maturity.
The result? A significant shift in demand toward the very front end of the yield curve, potentially affecting how the Treasury finances government operations and how short-term interest rates behave during stress periods.
The Dollar’s Digital Future
From a geopolitical perspective, the growth of USD-stablecoins could strengthen dollar dominance globally. The Treasury notes that stablecoin growth could drive “currently non-USD liquidity holdings into USD,” effectively expanding the dollar’s role as the world’s reserve currency into digital ecosystems.
This is particularly relevant in emerging markets, where stablecoins provide dollar access without traditional banking infrastructure. For countries with unstable currencies, USD-stablecoins offer a digital savings account that operates outside local banking systems.
The Interest-Bearing Wild Card
The most intriguing aspect of the Treasury’s analysis is its consideration of what happens if stablecoins become interest-bearing in the future. While current legislation prohibits this, the document explores scenarios where stablecoins could compete directly with bank deposits and money market funds.
Interest-bearing stablecoins would represent a fundamental shift — essentially creating federally-regulated, blockchain-based deposit alternatives that could operate 24/7 with instant settlement. This could force banks to raise deposit rates to compete or find alternative funding sources, potentially increasing their cost of funds and affecting lending rates throughout the economy.
What This Means for Investors
For individual investors, the implications are significant:
Opportunities:
- Enhanced payment capabilities and cross-border transfers
- Potential access to Treasury yields through tokenized money funds
- New investment products combining traditional finance with blockchain efficiency
Risks:
- Regulatory uncertainty as frameworks develop
- Potential deposit insurance gaps compared to traditional banks
- Market concentration risk with only a few major stablecoin issuers
Strategic Considerations:
- Banks may need to innovate rapidly to compete with blockchain-based alternatives
- Treasury bill demand could increase significantly, potentially affecting yields
- New financial products may emerge combining traditional and digital features
The Road Ahead
The Treasury’s analysis reveals a financial system at an inflection point. While $2 trillion in stablecoins might seem speculative, the underlying trends are already visible: institutional adoption of digital assets, regulatory clarity emerging, and traditional financial institutions launching blockchain-based products.
BlackRock’s tokenized money fund (BUIDL) attracted over $240 million in its first week. Franklin Templeton has tokenized government money funds operating across multiple blockchains. Major banks are experimenting with tokenized deposits and blockchain-based payment systems.
The question isn’t whether digital money will transform finance, but how quickly and in what form. The Treasury’s analysis suggests that transformation could be more rapid and comprehensive than many expect.
For policymakers, the challenge is crafting regulations that maintain financial stability while allowing innovation. For financial institutions, it’s about adapting to a world where money moves at digital speeds. For investors, it’s about understanding how these changes might affect everything from deposit rates to Treasury yields to the dollar’s global role.
The $2 trillion stablecoin projection isn’t just a number—it’s a glimpse into a future where digital and traditional finance converge, potentially reshaping one of the world’s most important financial systems in the process.
Wade Peery, the chief innovations officer at FirstBank in Nashville, is one of the speakers at Banking Exchange’s virtual conference “Stablecoins for Bankers” on Jan. 13. Please join us by registering here.
This article originally ran on his blog, “Bankers on Chain.” It is republished here with his permission.