The Stablecoin Discount: Evidence of Tether's U.S. Treasury Bill Market Share in Lowering Yields

TL;DR

This study shows that Tether's significant holdings in U.S. Treasury bills have a measurable impact on lowering yields, especially once its market share exceeds a critical threshold, leading to substantial interest savings for the U.S. government.

Contribution

The paper provides empirical evidence of how stablecoin market share influences Treasury bill yields and identifies a nonlinear threshold effect in this relationship.

Findings

A 1% increase in Tether's market share reduces yields by 3.8% on average.

Above a 0.973% market share threshold, the yield reduction accelerates to 6.3%.

Tether's holdings save the U.S. government approximately $15 billion annually in interest.

Abstract

Stablecoins represent a critical bridge between cryptocurrency and traditional finance, with Tether (USDT) dominating the sector as the largest stablecoin by market capitalization. By Q1 2025, Tether directly held approximately $98.5 billion in U.S. Treasury bills, representing 1.6% of all outstanding Treasury bills, making it one of the largest non-sovereign buyers in this crucial asset class, on par with nation-state-level investors. This paper investigates how Tether's market share of U.S. Treasury bills influences corresponding yields. The baseline semi-log time trend model finds that a 1% increase in Tether's market share is associated with a 1-month yield reduction of 3.8%, corresponding to 14-16 basis points. However, threshold regression analysis reveals a critical market share threshold of 0.973%, above which the yield impact intensifies significantly. In this high regime, a 1% market share increase reduces 1-month yields by 6.3%. At the end of Q1 2025, Tether's market share placed it firmly within this high-impact regime, reducing 1-month yields by around 24 basis points relative to a counterfactual. In absolute terms, Tether's demand for Treasury Bills equates to roughly $15 billion in annual interest savings for the U.S. government. Aligning with theories of liquidity saturation and nonlinear price impact, these results highlight that stablecoin demand can reduce sovereign funding costs and provide a potential buffer against market shocks.