The Brookings Institution has released a report detailing how new US stablecoin regulations, specifically under the GENIUS Act, are influencing the demand for US Treasuries. This regulatory shift is significantly impacting market liquidity and interest rates.
The core of the GENIUS Act mandates that stablecoins must hold reserves backed 1:1 by US Treasuries. This requirement is expected to reshape financial markets by potentially lowering government borrowing costs and influencing bank lending activities, largely due to the anticipated increase in stablecoin-backed demand for short-term Treasuries.
Key Players and Regulatory Framework
The report highlights the involvement of key figures such as US Treasury Secretary Scott Bessent and researchers from the Brookings Institution. The GENIUS Act, which was enacted in July 2025, represents the first federal framework specifically designed for stablecoins. This legislation is actively transforming market dynamics and is enhancing the role of US Treasuries as collateral for stablecoins.
Increased Demand for Short-Term Treasuries
The new regulations are projected to alter market dynamics by substantially increasing the demand for short-term Treasuries. Analysts anticipate a significant expansion in the overall supply of stablecoins, which will, in turn, have a notable impact on market liquidity and government borrowing costs.
Experts in the field predict that stablecoins will emerge as a primary driver for the demand in short-term Treasury bills. Current projections suggest that the stablecoin supply could reach as much as $2 trillion by the year 2028, with far-reaching implications for financial flows and prevailing interest rates.
Stablecoin Reserves and Treasury Yields
The GENIUS Act builds upon previous legislative efforts, establishing the first comprehensive federal framework for stablecoins. In the past, periods of increased Treasury bill issuance have seen stablecoins absorbing excess supply, which subsequently affected short-term yields.
Brookings analysts propose that the ongoing trends in stablecoin adoption will directly influence the demand for US Treasuries, thereby impacting yields and overall market liquidity. Historical data indicates that the movement of stablecoin reserves into Treasuries has a modulating effect on interest rates, often by several basis points.
"With increased stablecoin adoption anticipated over the future, the demand by stablecoin issuers for U.S. Treasury bills is expected to rise as well." - Brookings Institution