This month, the supply of stablecoins climbed to more than $320 billion. Demand for digital dollars on blockchain infrastructure is now approaching the scale of the largest government money market funds (Exhibit 1).
Government money market funds invest primarily in short-term US Treasuries and closely related assets (e.g., repurchase agreements). They are designed to have low credit risk, high liquidity, and maintain a stable $1 net asset value, or NAV.
Most stablecoins work in a similar way.1 Stablecoin issuers hold US Treasury bills and related instruments in reserve to back a digital token designed to remain “stable” at $1. The GENIUS Act, passed by Congress last year, mandates specific reserve requirements and auditing rules for US stablecoins that resemble the practice used by government-only money market funds. One key difference: stablecoins do not pay interest, so higher interest rates may have a meaningful impact on issuer revenue.
Key Takeaway: As stablecoin demand grows, stablecoin issuers like Tether and Circle have become increasingly important players in US money markets.
Exhibit 1: Stablecoins are approaching the size of the largest government money market funds
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