Programming note: As a reminder, paid subscribers get access to my podcast, Net Interest Extra. Coming episodes feature interviews with Goldman Sachs’ banking and financial sector analysts, and a discussion with one of the best macro strategists out there. If you haven’t already done so, you can subscribe here.
On Tuesday, a little before 9:00 am, a group of the world’s most senior bond market professionals filed into the Department of the Treasury in Washington. There was a lot to talk about. Market volatility had reached heightened levels with record trading volumes and this was their first opportunity to discuss it.
Although turbulent trading conditions still weighed heavily, it was just one item on the agenda. The group – known as the Treasury Borrowing Advisory Committee – comprises some of the most influential figures in fixed income markets. Led by Deirdre Dunn, Head of Global Rates at Citigroup, and including senior executives from PIMCO, BlackRock, Millenium, Bridgewater, Goldman Sachs and other financial powerhouses, this committee has been quietly shaping US debt management since 1972. Over the years, their recommendations have launched inflation-protected securities (TIPS), brought back the 30-year bond and, most recently, revived the Treasury’s buyback program that has already retired over $150 billion in debt.
Among the topics on the table that morning was one that marked an unexpected departure for the committee: stablecoins. We’ve talked about stablecoins here before – initially in My Adventures in CryptoLand and then in Reinventing the Financial System and In Search of Stability. Stablecoins are digital tokens designed to maintain a 1:1 value with an established currency, typically the US dollar. The two largest are Tether (USDT; $149 billion) and USD Coin (USDC; $62 billion). In total, there are around $240 billion of them in circulation – not a market size that would typically concern a committee focused on the $36 trillion Treasury market. But their growing adoption has captured the Treasury’s attention. In the past two weeks alone:
-
Mastercard revealed that it is collaborating with cryptocurrency platforms to allow consumers to spend stablecoins at more than 150 million Mastercard acceptance locations worldwide. Behind the scenes, it has enabled stablecoin settlement on the Mastercard network and the company is working with fintech acquirer, Nuvei, to enable the option to settle payments in stablecoins for their merchants.
-
Visa similarly flagged its seven-day a week stablecoin settlement system on its earnings call, highlighting that it recently surpassed $200 million in cumulative stablecoin settlement volume. It has also developed a platform to help banks issue stablecoins, with Spanish lender BBVA its pilot partner.
-
PayPal introduced the ability to earn rewards for holding its sponsored stablecoin, PYUSD. “This will increase the adoption and use of digital currencies for everyday commerce,” said its CEO, Alex Chriss.
-
Stripe announced that it is building a new stablecoin product powered by Bridge, a platform it acquired in February for $1.1 billion. “Room-temperature superconductors for financial services,” is how founder Patrick Collison described stablecoins, noting how rapidly adoption is exploding.
-
Bank of America CEO Brian Moynihan speculated that before long, customers will have access to a Bank of America stablecoin alongside their US dollar deposit, with the ability to transfer funds between them.
A common thread is that stablecoin adoption is decoupling from broader crypto market cycles. When I bought my first stablecoin four years ago, it was as a gateway into crypto. It now offers much more than that. While cryptocurrency trading volumes fluctuate with market sentiment, stablecoin usage is growing steadily, driven by practical applications rather than speculation.
Some members of the Treasury Borrowing Advisory Committee see a lot of upside. Citing research from Standard Chartered, they project stablecoin transactions could grow sevenfold by 2028, from today’s $700 billion monthly volume to around $6 trillion. They pin the forecast on one of stablecoins’ key use cases – facilitating international transfers – estimating that transactions grow to represent 10% of foreign exchange spot-market transactions, up from 1% today. Assuming velocity remains constant, this level of turnover would require stablecoin supply to expand to $2 trillion. Analysts at Citigroup forecast a potentially larger market size of up to $3.7 trillion by 2030.
To explore what’s propelling this explosive growth – and why it has Treasury officials’ full attention – read on.