A US Treasury-backed stablecoin is a type of cryptocurrency designed to maintain a stable value, typically pegged 1:1 to the U.S. dollar, by being collateralized primarily with United States Treasury securities and other high-quality liquid assets. These digital assets function as a main bridge between the traditional financial system and the digital asset economy, serving as a reliable medium of exchange, store of value, and settlement asset on various blockchain networks. Their stability is derived from holding reserves composed of low-risk, dollar-denominated assets, distinguishing them from uncollateralized algorithmic stablecoins. ^{[1] [2]}​

Mechanism and Reserve Composition

US Treasury-backed stablecoins maintain their peg to the U.S. dollar through a full-reserve model. For every stablecoin token issued, the issuer holds at least one dollar's worth of assets in a designated, segregated reserve fund. ^{[1] [3]}​

The general operational flow involves a user depositing U.S. dollars with the stablecoin issuer. The issuer then mints a corresponding amount of stablecoin tokens and simultaneously uses the deposited funds to purchase approved reserve assets. For redemptions, the holder returns the stablecoins to the issuer, who "burns" or destroys the tokens and returns the equivalent U.S. dollar value from the reserves. ^[3]​

Based on regulatory guidance and issuer reports, reserves are concentrated in short-duration, low-risk assets to mitigate interest rate risk and ensure liquidity to meet redemption requests. Common reserve assets include:

• U.S. Treasury Bills (T-bills): Short-term government debt securities, often with maturities of 90 days or less. This is the most common reserve asset.
• Reverse Repurchase Agreements (Repos): Overnight agreements collateralized by U.S. Treasury securities, providing short-term liquidity.
• Cash and Cash Equivalents: Funds held in U.S. dollar demand deposit accounts at insured depository institutions.
• Government Money Market Funds (MMFs): Shares in funds that invest in the aforementioned Treasury securities and repo agreements. ^{[1] [3]}

As of late 2024 and early 2025, the reserve compositions of major issuers highlighted this conservative approach. For instance, Tether (USDT) held approximately 65.7% of its reserves in U.S. T-Bills, while PayPal's PYUSD reserves were composed of 95.8% reverse repo agreements and 4.2% cash. Circle's USDC reserves are held in a dedicated fund that invests primarily in T-bills, cash, and repo transactions. ^[1]​

Market Overview and Key Players

The market for U.S. Treasury-backed stablecoins has experienced significant growth, driven by institutional adoption and expanding use cases in decentralized finance (DeFi). As of October 2024, it was estimated that over 80% of all cryptocurrency transactions involved a stablecoin as one leg of the trade. ^[2]​

Key market data includes:

• Total Market Capitalization: Approximately $234 billion as of April 2025 for the broader stablecoin market. ^[1]
• Treasury Holdings: Stablecoin issuers were estimated to hold over $120 billion in U.S. Treasuries as of October 2024, making them a significant class of investor in U.S. government debt. ^[2]
• Growth Projections: A 2025 Standard Chartered report cited by the Treasury Borrowing Advisory Committee (TBAC) projected the stablecoin market could reach a market capitalization of approximately $2 trillion by 2028, assuming the establishment of regulatory clarity. ^[1]

Major issuers and their stablecoins include:

• Tether (USDT): The largest stablecoin, with a market capitalization of $145 billion as of April 2025.
• Circle (USDC): A major regulated stablecoin with a market cap of $60.2 billion as of April 2025, widely used by institutions.
• PayPal (PYUSD): A stablecoin issued by a major traditional payment company, indicating growing mainstream adoption.
• First Digital USD (FDUSD): A fiat-backed stablecoin launched in 2023 by Hong Kong-based First Digital Trust and backed by cash and U.S. Treasuries. ^[7]
• Frax USD (frxUSD): A stablecoin from Frax Finance that originated with a hybrid fractional-algorithmic model but has since shifted its backing mechanism to reduce algorithmic reliance. ^[8]
• Pax Dollar (USDP) and Gemini Dollar (GUSD): Early stablecoins regulated by the NYDFS, known for their transparent reserve management. ^[3]

In addition to these established players, new projects continue to enter the market. The CoinGecko category for "US Treasury Backed Stablecoin" tracks a narrower set of projects, some of which are yield-bearing, like Ondo US Dollar Yield (USDY). This category had a total market cap of approximately $800 million as of January 2026. ^[4]​

Role and Economic Implications

Use Cases and Adoption

The adoption of Treasury-backed stablecoins is driven by their utility. In cryptocurrency markets, they serve as a vital source of liquidity, a primary form of collateral in DeFi protocols, and a stable asset for traders moving in and out of more volatile positions. ^[2]​

Beyond crypto, they are increasingly used for cross-border payments, offering a faster and cheaper alternative to traditional remittance systems. They also function as a financial hedging tool in emerging markets, allowing individuals to protect savings from local currency depreciation and high inflation. Despite being pegged to the U.S. dollar, stablecoin usage is predominantly international, with a 2025 study finding that over 80% of transactions occur outside the United States. ^[5]​

Interaction with U.S. Treasury Markets

The growth of stablecoins has created a new and significant source of structural demand for short-term U.S. government debt. An increase in stablecoin supply directly translates into an increase in purchases of reserve assets, primarily T-bills. This demand is heavily concentrated at the front end of the yield curve, as issuers and regulators prefer short-duration assets to minimize risk. ^[1]​

The U.S. Treasury has taken note of this dynamic. The TBAC noted in October 2024 that Treasury issuance should "on the margin lean to a higher proportion of T-bills" to meet this growing demand. A TBAC analysis projected that a 900 billion in incremental demand for T-bills alone. ^{[2] [1]}​

Impact on Traditional Finance

Treasury-backed stablecoins present both a competitive force and an opportunity for the traditional financial sector. As a non-interest-bearing but highly functional payment instrument, they could attract transactional deposits away from traditional bank accounts. There is also a growing convergence with tokenized money market funds (e.g., BlackRock's BUIDL), which offer yield on-chain. While stablecoins are optimized for payments, tokenized MMFs serve as low-risk, yield-generating investments, creating a dynamic relationship between the two. ^[1]​

On a macroeconomic level, USD-pegged stablecoins extend the reach and utility of the U.S. dollar into the global digital economy. They provide a frictionless way for individuals and businesses worldwide to access, hold, and transact in a dollar-denominated asset, which could reinforce the dollar's status as the world's primary reserve currency. ^[1]​

Regulatory Landscape

Regulation is a critical factor shaping the future of stablecoins, with frameworks emerging at the state, federal, and international levels to address risks and provide clarity.

State-Level Regulation: New York DFS

The New York Department of Financial Services (NYDFS) established one of the first comprehensive regulatory frameworks with its guidance issued on June 8, 2022. Key requirements for regulated issuers include:

• Full 1:1 Backing: The market value of reserve assets must be at least 100% of the outstanding stablecoin value.
• Permissible Reserves: Reserves must be segregated and consist of low-risk assets like U.S. Treasury bills (with maturities of three months or less), certain reverse repos, and deposits at U.S. chartered institutions.
• Redeemability: Issuers must grant holders the right to redeem stablecoins for U.S. dollars at par, in a timely manner.
• Monthly Attestations: Reserves must be audited monthly by an independent Certified Public Accountant (CPA), with the report made public. ^[3]

Federal Legislation (U.S.)

In the U.S., the Guaranteed and Tethered Stable Economic and Uniformity in Securities (GENIUS) Act was enacted into law in 2025, establishing a comprehensive federal framework for "payment stablecoins." Key provisions of the act require issuers to maintain 1:1 backing with high-quality liquid assets, such as cash and U.S. T-bills with maturities of 93 days or less. It permits both banks and licensed non-bank entities to issue stablecoins, mandates monthly public disclosure of reserve assets, requires issuance on public blockchains, and prohibits these stablecoins from being interest-bearing. ^[1]​

Another significant legislative effort was the Financial Innovation and Technology for the 21st Century Act (FIT21), which passed the House of Representatives in 2024. ^[2]​

International Regulation

The European Union implemented its Markets in Crypto-Assets (MiCA) regulation in 2024, creating one of the first comprehensive legal frameworks for crypto-assets, including clear rules for stablecoin issuance, reserve management, and consumer protection. ^[2]​

Notable Projects and Developments

Citrea USD (ctUSD)

On January 15, 2026, financial payment infrastructure provider MoonPay announced the upcoming launch of Citrea USD (ctUSD), a U.S. dollar-pegged stablecoin issued natively on Citrea, a Bitcoin layer-2 network that utilizes zero-knowledge (ZK) proofs. The stablecoin is backed 1:1 by short-term U.S. Treasury bills and cash. ^[6]​

The project aims to create a native liquidity standard for the growing Bitcoin DeFi ecosystem. Orkun Mahir Kilic, co-founder of Chainway Labs (the developer behind Citrea), stated that this native issuance model is designed to solve the liquidity fragmentation caused by bridged assets from other blockchains. He said, "Fragmentation is a symptom of bridging, and we solve it by design: ctUSD is natively issued on Citrea. There are no bridged versions to fracture liquidity; there is only one canonical asset." ^[6]​

Reflecting on the regulatory environment, Kilic also noted the shift in Washington D.C.'s approach: "The narrative in Washington is shifting from ‘ban it’ to ‘regulate it,’ and institutions entering the crypto ecosystem are ultimately searching for assets that eliminate counterparty ambiguity." ^[6]​

Ondo US Dollar Yield (USDY)

​Ondo US Dollar Yield (USDY) from Ondo Finance is a tokenized note secured by a portfolio of short-term U.S. Treasuries and bank demand deposits. Unlike traditional stablecoins pegged 1:1, USDY is a yield-bearing asset designed to accrue value over time. As of January 2026, it was the largest project in CoinGecko's "US Treasury Backed Stablecoin" category, with a market capitalization of over $678 million. ^[4]​

OpenEden OpenDollar (USDO)

OpenEden OpenDollar (USDO) is a stablecoin issued by OpenEden, backed by tokenized U.S. Treasury bills. It is designed to be a yield-bearing asset, allowing holders to earn a return from the underlying T-bills. As of January 2026, it had a market capitalization of approximately $75 million. ^[4]​

Noble Dollar (USDN)

Noble Dollar (USDN) is a stablecoin natively issued on the Noble blockchain, an application-specific chain within the Cosmos ecosystem designed for asset issuance. This native issuance model facilitates its use across the inter-blockchain communication (IBC) network. As of January 2026, it had a market capitalization of approximately $38 million. ^[4]​

Solayer USD (sUSD)

Solayer USD (sUSD) is a U.S. Treasury-backed stablecoin from the Solayer project. Like some other assets in this category, it appears to be yield-bearing, with its market price trading above the 5.7 million. ^[4]​

MANTRA USD (MANTRAUSD)

In early January 2026, the MANTRA project launched MANTRA USD (MANTRAUSD), a stablecoin associated with its ecosystem for tokenized Real-World Assets (RWAs) on the MANTRA EVM chain. The project aims to provide a stable asset for its RWA-focused platform. ^[4]​