Stablecoins are often sold as crypto’s big escape plan.
Borderless money. Always on. No banks needed.
But the reality is starting to look very different.
In a recent paper, the International Monetary Fund (IMF) gave a much calmer take. Its message was simple: stablecoins aren’t replacing the dollar. They’re becoming a new way to distribute it.
Most stablecoins today are backed by short-term U.S. government debt. That means the “stablecoin era” is starting to look less like a financial revolution and more like a private pipeline for U.S. dollars.
And it’s a very concentrated pipeline.
About 97% of all stablecoins are pegged to the dollar. Two tokens — USDT and USDC — make up roughly 90% of the entire market.
That concentration matters. When a few massive issuers hold huge amounts of U.S. Treasury bills and Treasury-backed repo, they start touching the same parts of the system regulators care about: bank deposits, money markets, cross-border flows, and financial stability.
In other words, this isn’t just a crypto story anymore.
Stablecoins Now Look a Lot Like Money Market Funds
The IMF points out a clear trend: stablecoin issuers are moving into safer, more liquid assets. Mostly short-term U.S. Treasuries and repo agreements backed by Treasuries.
Circle says USDC reserves sit in cash, short-term Treasuries, and overnight Treasury repo. It even publishes portfolio reports through BlackRock.
Visa’s research shows the same pattern. By mid-2025, USDC reserves were heavily placed in reverse repos and Treasury bills, with only a smaller chunk sitting in bank deposits.
Tether has also leaned into this strategy. In early 2026, it said it held about $141 billion in exposure to U.S. Treasuries, plus billions in extra reserves.
At this point, stablecoins don’t look like some wild crypto experiment. They look a lot like money market plumbing.
Big Enough to Move Markets?
Here’s where it gets interesting.
If stablecoin reserves are pouring into Treasury bills, can that actually move the market?
A paper from the Bank for International Settlements (BIS) suggests yes — at least a little.
Using data from 2021 to 2025, researchers found that when stablecoins see large inflows, three-month Treasury yields tend to fall slightly within about 10 days. When money flows out, yields rise — and they rise more than they fall during inflows.
We’re not talking about massive swings. But the effect is measurable.
That means stablecoins are becoming real buyers of short-term U.S. government debt. They’re no longer just tools for trading crypto. They’re starting to matter in core dollar markets.
If stablecoins keep growing, heavy demand for Treasury bills could push short-term yields lower. And during stress, fast redemptions could push them higher.
That’s exactly the kind of ripple effect regulators watch closely.
The Policy Battle Is About Payments — and Deposits
In the U.S., lawmakers are starting to frame stablecoins as payment tools, not speculative assets.
The GENIUS Act sets up rules for “payment stablecoins,” focusing on backing assets, disclosures, and oversight. The idea is simple: if a token promises stable value, there need to be clear rules behind it.
But the real tension isn’t about transparency anymore. It’s about competition.
Banks are worried about deposits.
If stablecoins start offering rewards or “yield,” they begin to compete directly with bank accounts. And that’s where things get sensitive.
Standard Chartered has warned that U.S. banks could lose up to $500 billion in deposits by 2028 if stablecoins become a mainstream cash alternative.
That’s not small change. That’s a shift in where people park their money.
China Says No
China is taking a much harder stance.
In a joint notice on February 6, the People’s Bank of China and other regulators repeated that crypto-related business is illegal in China. They also banned unauthorized offshore stablecoins pegged to the yuan.
For China, this isn’t just about payments. It’s about control. Stablecoins are seen as a direct challenge to monetary sovereignty.
Europe Is Nervous About Dollar Dominance
Europe has a different concern.
The European Central Bank has openly warned that dollar-backed stablecoins are reshaping global finance. Almost all stablecoins are dollar-based. Euro stablecoins barely register.
If stablecoins become the default “internet cash,” Europe fears that cash will be in dollars, not euros.
That raises questions about monetary power and financial stability in the region.
So What’s Really Happening?
Stablecoins were pitched as an alternative to traditional finance.
But what they’re becoming is something else: Treasury-backed digital dollars that move faster and operate online.
They offer speed and access. But they also tie directly into banking competition, government debt markets, and global capital flows.
The big question now isn’t whether stablecoins will replace the dollar.
It’s who controls the rails — and who gets to regulate the next version of digital dollars.
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