Recent disclosures from Tether reveal its holdings of U.S. Treasury bills have surpassed $120 billion, a figure that exceeds the holdings of sovereign nations like the United Arab Emirates and Germany. This positions the stablecoin issuer as the world’s 18th largest holder of U.S. debt, a development viewed by traditional finance as a significant structural shift in the global financial landscape.
Proponents see this as a novel extension of U.S. dollar hegemony, where stablecoins like USDT and USDC fortify the dollar’s dominance in international trade and digital assets through on-chain liquidity and global payment networks. Conversely, critics warn of potential financial instability, arguing that stablecoins could divert funds from traditional bank deposits—the essential liquidity for loans—thereby posing a risk to the credit system.
The stablecoin market is currently experiencing a period of robust growth. The total market capitalization has soared to a record high of $269.73 billion, according to data from stablecoins.asxn.xyz. A clear oligopolistic structure dominates the market, with Tether’s USDT ($164.49 billion market cap) and Circle’s USDC ($64.97 billion market cap) collectively commanding over 85% of the market share. Despite this concentration, market innovation persists, with the total number of stablecoins increasing to 282 in 2024, catering to new use cases from on-chain payments to cross-border settlements.
While both USDT and USDC maintain a 1:1 peg to the U.S. dollar, their strategic paths diverge significantly. Tether (USDT), issued by Tether Limited, has adopted a market-driven approach, becoming the most prevalent stablecoin in crypto trading, albeit amidst longstanding controversies regarding the transparency of its reserves. In contrast, Circle (USDC) pursues a compliance-first strategy. Operating as a regulated financial technology company under U.S. FinCEN oversight, Circle provides monthly, third-party audited attestations of its reserves, making it a favored choice for decentralized finance (DeFi) and institutional transactions.
The core business model for these issuers is based on cost-free deposit taking and stable interest yield. When users convert dollars for stablecoins, the issuers hold these funds as reserve assets. As stablecoins typically do not pay interest to holders, the issuers can invest these reserves in high-liquidity, low-risk assets like U.S. Treasuries and repurchase agreements, earning a reliable spread.
Tether’s portfolio is heavily weighted towards U.S. Treasuries and cash equivalents (over 80%), with additional exposure to Bitcoin (5%), corporate bonds, precious metals, and secured loans. By Q2 2025, its direct and indirect Treasury holdings reached $127 billion, surpassing South Korea’s total. Circle’s asset allocation is more conservative, with 44% in U.S. Treasuries, 44% in Treasury repo agreements, and 15% in bank deposits, totaling approximately $54 billion in government-backed assets as of June 30, 2025.
Financially, Tether reported a substantial net profit of $4.9 billion in Q2 2025, partly driven by valuation gains on its Bitcoin and gold holdings. Circle’s revenue model is more akin to a traditional financial institution, generating an estimated $1.9 billion in protocol revenue over the past year primarily from interest income, with minimal reliance on volatile assets.
The regulatory environment for stablecoins is evolving rapidly. The signing of the GENIUS Act in July 2025 marks a pivotal moment, signaling a U.S. effort to integrate stablecoins into its broader digital dollar strategy and bring the industry into the regulatory mainstream. This legislation presents an opportunity for compliant operators like Circle, while potentially challenging global entities like Tether to meet heightened transparency and compliance standards. Regardless of the outcome, stablecoins are undeniably becoming a powerful tool for extending dollar influence in the digital age, introducing a new and potent variable into the global financial system.
