- A bank run on a major stablecoin issuer could trigger rapid sell-offs in short-term U.S. Treasuries, according to new research.
- Researchers found stablecoin issuers already have a measurable impact on the Treasury market in normal conditions.
- Outflows from stablecoins increase yields on three-month Treasuries up to three times more than inflows decrease them.
- Former President Donald Trump recently stated that stablecoins strengthen the U.S. dollar and national security.
- The effect of stablecoin movements on Treasuries is small today, but could grow in extreme market events, the paper warns.
A new working paper from the Bank of International Settlements (BIS) warns that a sudden withdrawal, or bank run, from a leading stablecoin like Tether (USDT) or Circle (USDC) could lead to rapid and widespread selling of short-term U.S. Treasuries. Researchers say this scenario could create “potential fire sales” in the world’s largest bond market.
The paper notes that stablecoin issuers, which collectively manage around $268 billion in assets, already have a measurable effect on the price of Treasuries, even under stable market conditions. The researchers based their analysis on years of relatively calm markets, suggesting that current impact estimates are likely conservative.
According to the BIS paper, the pricing impact that stablecoins have on U.S. Treasuries is currently “modest,” measured at around 2 to 2.5 basis points (less than 0.03%). However, the researchers emphasize that these effects could escalate quickly and non-linearly during times of severe stress, such as a major redemption event. They state, “non-linear effects could quickly emerge and cascade into a ‘potential fire sale’ for three-month Treasuries.”
The study found that outflows from stablecoins—when customers redeem or cash out their holdings—have up to three times more impact on increasing Treasury yields than inflows have on lowering them. In other words, selling off stablecoins puts more pressure on the Treasury markets than new investments coming in.
Donald Trump recently highlighted the positive aspects of stablecoins’ role, claiming in a speech on July 18 that they support the U.S. dollar’s global standing and boost national security.
Currently, the U.S. Treasury market stands at about $29 trillion in outstanding securities, dwarfing the stablecoin market. Treasuries refer to all tradable debt instruments issued by the U.S. Department of the Treasury, including bills, notes, TIPS, and bonds.
While jumps in stablecoin redemptions have not yet caused major disruptions, the BIS warns that the imbalance between inflows and outflows highlights a risk if a large-scale liquidation event were to ever occur. Researchers continue to track the evolving relationship between digital assets and traditional finance, as their impact becomes more intertwined.
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