Citigroup: Issuers of stablecoins may become the largest holders of US Treasury bonds

Additional demand for Treasury bonds may appear due to the growth of the stablecoin market, Citigroup explained. If the U.S. government adopts a legislative framework to regulate such cryptocurrencies, then they will stimulate interest in dollar-denominated risk-free assets within the United States and abroad. Issuers will have to buy U.S. Treasuries as the underlying collateral for each stablecoin.

However, Citigroup analysts noted that stablecoins are subject to liquidity outflow risks. In 2023, they lost their peg to fiat currency 1,900 times, with around 600 tokens having large market capitalization. This could be “contagious” for other stablecoins. As a result, liquidity in the crypto market may be weakened, provoking automatic liquidations and impairing the ability of trading platforms to fulfill redemptions.

Geopolitical risks may also slow down the adoption of stablecoins at the international level. The report states that if the world continues to move towards a multipolar financial system, the authorities in China and Europe will seek to promote their own central bank digital currencies (CBDC) or stablecoins tied to their national currency. Many politicians may view stablecoins as a tool for the hegemony of the dollar.

Citigroup analysts expect that by 2030, the majority of stablecoins (90%) will be backed by the US dollar.

According to a recent study conducted by Bitwise, in 2024 the volume of transactions with stablecoins increased to $14 trillion, surpassing the payment system Visa by $1 trillion for the first time.