The Not-So-Stablecoin | Aug ‘25

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865%. That is how much Circle, the company behind the USDC Stablecoin, grew from IPO to its peak back in June. It has since fallen by 55%. Perhaps Stablecoin isn’t as stable as the name suggests.

For those who are late to the party, Stablecoin is yet another variation of cryptocurrency that promises to maintain a stable value relative to a specified asset or a basket of assets. Perhaps drug lords have finally come to terms with the bottom-line impacts of Bitcoin’s volatility, or that Bitcoin’s fundamentals of “hopes and dreams” have eroded its former lustre… Regardless, its entry into the markets has drawn a far from insignificant amount of attention — and scrutiny.

As with most stablecoins in the market, their values are guaranteed by short-term U.S. government securities, with interest payments forming the bulk of the issuer’s revenue stream. As a result, profitability is directly dependent on the generosity of Uncle Sam, and as it turns out, Uncle Sam might be having some serious frustrations over the recent boom.

It is not as outlandish as it seems to conclude that a boom in stablecoin could drive up demand for American debt and pull down interest rates. Per The Economist, Tether, the biggest stablecoin, holds more Treasuries than all German investors combined. Citigroup expects stablecoin issuance to surge from $257bn today to $1.6trn by 2030. Standard Chartered is even more optimistic: it thinks the coins will be worth $2trn in just three years. Yet taking advantage of this boom will be very difficult for the Fed. If stablecoin grows big enough to meaningfully influence borrowing costs, it will threaten both America’s finances and the financial system.

The main concern of a stablecoin boom is its source of funding. Trillions of dollars in invested capital won’t be magicked into existence. If the capital came from money-market funds, the net effect seems to be negligible. After all, capital is merely transferred from one vehicle invested in short-term securities to another. If the capital were funded with bank deposits, that could put pressure on American lenders who extend credit to customers. In this case, the stablecoin boom would be enriching the public sector with funds from the private sector, slowing private-sector growth and consequently shrinking tax revenues. Demand coming from overseas, while less of a problem, will cause the demand for the dollar to surge, giving Americans more purchasing power, but making American-made goods more expensive when purchased from abroad. For Trump and his administration’s ever-persistent obsession with improving the trade balance, it seems to be a shot in the foot.

Fundamentally, stablecoin serves as an avenue for capital reallocation rather than capital creation. It creates an illusion of liquidity by transforming debt instruments into instantly redeemable cash-like tokens without yields for holders. For Uncle Sam, the suppression of yields caused by the stablecoin boom will need to be corrected with more debt issuance, increasing his reliance on short-term debt, and heightening debt rollover and interest rate risk. Stablecoins may feel like chips in a casino: liquid, instant, and safe — until the table collapses. When that happens, the question isn’t who cashes in, but who is left holding the bill.