The Brookings Institution report reveals that US stablecoin regulation under the GENIUS Act is affecting demand for US Treasuries, significantly influencing market liquidity and interest rates.
This regulatory shift could reshape financial markets, potentially lowering government borrowing costs while impacting bank lending activities, due to the increased stablecoin-backed demand for short-term Treasuries.
The Brookings Institution report outlines how new US stablecoin regulations, under the GENIUS Act, could reshape demand for US Treasuries. The act mandates stablecoins to hold 1:1 reserves backed by US Treasuries.
Key players include US Treasury Secretary Scott Bessent and Brookings researchers. The GENIUS Act, passed in July 2025, is transforming market dynamics and enhancing the use of Treasuries as collateral for stablecoins.
Stablecoins to Boost Short-Term Treasury Demand
The regulation could alter market dynamics by increasing demand for short-term Treasuries. Analysts project a substantial increase in stablecoin supply, significantly impacting market liquidity and borrowing costs.
Experts predict stablecoins may become a key driver of short-term Treasury bill demand. Projections show a potential $2 trillion stablecoin supply by 2028, with implications for financial flows and interest rates.
Stablecoin Reserves Influence Treasury Yields
Previous legislation paved the way for the GENIUS Act, which is the first federal framework for stablecoins. Earlier increases in Treasury bill issuance saw stablecoins absorb excess supply, affecting short-term yields.
Brookings analysts suggest stablecoin adoption trends will drive demand for Treasuries, influencing yields and liquidity. Historical data shows stablecoin reserves moving into Treasuries modulate interest rates by several basis points.
โWith increased stablecoin adoption anticipated over the future, the demand by stablecoin issuers for U.S. Treasury bills is expected to rise as well.โ โ Brookings Institution
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