How Stablecoins Are Quietly Replacing Sovereign Buyers of U.S. Debt

Are stablecoins quietly becoming the main financiers of U.S. government debt?

During the 2024 electoral campaign, Donald Trump’s main campaign promise was to maintain the U.S. Dollar as the dominant global currency. This doesn’t necessarily mean a stronger fiat, however. In fact, the now-President argued in July of 2024 that the U.S. currency was “too strong,” suggesting it was hurting American exports and giving foreign competitors an edge.

The Dollar Index (DXY) is down by over 10% in 2025 alone. Analysts from Morgan Stanley anticipate an even weaker dollar next year. 

There are many reasons why the greenback has lost so much value this year. For starters, a softer labor market and record treasury issuance to fund Trump's Big Beautiful Bill flooded the markets with debt. But at the same time, demand for said debt by foreign nations is waning.

Historic foreign creditors like China and Japan have begun to reduce their exposure to U.S. assets, while most BRICS nations have started investing in gold reserves instead of American debt. By April of this year, Japan shed over $20 billion of its U.S. Treasury holdings, while China—the nation most impacted by Trump's tariffs—slashed its stockpile by nearly $26 billion in July alone, bringing its total holdings to the lowest level since 2008.

This doesn't mean a complete sell-off of U.S. bonds, however. Japan remains the largest foreign holder of U.S. Treasuries, and countries like the U.K. and Canada have actually increased their holdings in recent months. But what it does show is a slight weakening in global demand for American bonds. 

Nations buy American bonds because it's considered risk-free treasuries that generate yields. It also helps nations to maintain a weaker local currency compared to the dollar, supporting exports. Weakening foreign demand for US debt undermines Trump's promise of maintaining the Dollar as the dominant global currency.

Since President Nixon ended the gold standard in 1971, the U.S. Dollar began operating as a fiat currency. Instead of having an intrinsic gold value attached to the currency, the greenback became backed by the belief in a strong American economy.

But if that belief were to ever erode, the very foundation of the U.S. Dollar as the dominant financial force in the world could begin to collapse. 

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Stablecoins saw an incredibly easy path to regulatory legitimacy this year. The GENIUS Act, the bill that determined what a stablecoin is and how private companies could mint digital dollars in a completely regulated way, was an astounding success in both Congress and the Senate. 

The thing is, the U.S. Government has a lot to benefit from stablecoin treasuries. To maintain a 1:1 peg on a digital dollar, companies like Circle and Tether have to fully verify their reserves, which include mostly cash and short-term treasury bills. 

The stablecoin industry is already worth $316 billion today, and is expected to be valued at trillions of dollars over the next decade. This estimate almost guarantees that private companies will continue to mint billions of dollar-based stablecoins, which also means buying more U.S. debt. 

A recent post by Paolo Ardoino, CEO of Tether, highlights this dynamic. He revealed that Tether owns $135 billion in U.S Treasuries, more than nations like Germany, Saudi Arabia, and South Korea. 

Tether is currently the 17th largest holder of American debt in the world, and Ardoino expects to see his company surpass Brazil—the 9th largest economy in the world—soon.

And that's only one stablecoin issuer we're talking about. Aside from Tether, the other leading stablecoin firm, Circle, is believed to own around $30 billion in treasury notes. The industry is rapidly expanding, with other prominent crypto companies like World Liberty Financial, Ripple Labs, and Paxos investing in their own digital dollar. 

Given this trend, it's safe to assume that Stablecoins will continue to hoard American Treasuries, guaranteeing the U.S. government some relief in the unlikely scenario that traditional sovereign buyers switch from treasuries to gold.