The stablecoin market is projected to surge to $1.2 trillion by 2028, according to a recent analysis by Coinbase, potentially influencing the yields on U.S. government debt. This forecast reflects a major shift in the digital currency landscape, with stablecoins becoming increasingly intertwined with traditional finance.

How the Stablecoin Market Could Expand

Coinbase’s research arm, led by David Duong, used a stochastic modeling approach to estimate thousands of potential growth trajectories for the stablecoin sector. According to their Thursday report, this nearly fivefold jump from today’s $270 billion level hinges on gradual and policy-driven adoption curves compounding over time.

Stablecoins, often pegged to fiat currencies like the U.S. dollar, serve as a bridge between traditional and digital finance. Their predictable value makes them a reliable transaction medium and store of value in the crypto ecosystem.

Impact on U.S. Treasury Markets

A larger stablecoin market could have real-world effects on government debt markets. Issuers such as Circle, which backs the USDC token, and Tether, creator of USDT, typically hold substantial reserves in short-term U.S. Treasury bills to maintain the peg.

If the market reaches $1.2 trillion, these entities might need to invest an estimated $5.3 billion in Treasury bills every week. While seemingly modest, this consistent demand could push down three-month Treasury yields by 2-4 basis points over time. These shifts can have meaningful financial implications in the highly sensitive $6 trillion money market sector, where even small rate adjustments sway large institutional funding flows.

Projected stablecoin expansion to $1.2T may influence short-term Treasury yields.

Risks from Rapid Redemptions

While inflows could ease government borrowing costs, sudden outflows pose risks. A scenario detailed in the report highlighted that a redemption wave amounting to $3.5 billion in just five days could cause forced T-bill sell-offs. This could lead to tighter market liquidity, amplifying stress in the broader financial system.

To mitigate such shocks, Coinbase analysts emphasized the importance of policy safeguards, referencing newly enacted regulations.

GENIUS Act’s Role in Risk Mitigation

A key development shaping the sector is the GENIUS Act, a recently passed piece of legislation targeting stablecoins. Effective starting 2027, this law enforces strict rules on one-to-one asset reserves, mandates regular audits, and introduces bankruptcy protection measures for token holders.

Although the GENIUS Act does not grant direct access to Federal Reserve support facilities for stablecoin issuers, it significantly reduces the odds of destabilizing fund outflows. Coinbase’s report suggests these regulations could foster long-term resilience in the sector.

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Read more: Stablecoins, Tokenization Put Pressure on Money Market Funds: Bank of America