Citis projections for stablecoin growth suggests that the repo market could be greatly influenced by increased interest in cryptoassets.

Preface

Can stablecoins actually impact the repo market? In my previous article I explored what the now-passed “GENIUS” act meant for repos. But in light of DTCC Treasuries being digitised and used as collateral to borrow USDC (Circle) outside of trading hours, I wanted to see how big this market could become. What is the link between stablecoins and repo markets relative to the overall market both today and in the future?

With most coin issuers statically holding U.S. Treasury bills (t-bills) in their reserves, as well as overnight reverse repos, stablecoin growth affects both the Treasury (by absorbing t-bills) and repo market. With Citi estimating that the total stablecoin market cap could rise to 3.7T$ (in their bullish case) by 2030, an over 13x increase from today, can we expect to see this growth impacting repos? Or will the repo market remain unaffected?

The Market Today

With cryptoassets like stablecoins an ever-confusing space, it is important we first understand their operation and backing. See my previous article here for an explanation of stablecoins in general.

Let’s start by taking a look at the current market cap of all stablecoins. Totalling roughly 271B$, of which 164B$ is USDTether (USDT), it is safe to say that they are miniscule in comparison to repos. In fact, repos stand almost 45x larger at an estimated 12T$.

Citi’s bullish 3.7T$ estimate assumes a 13x increase in capitalisation over a five year period, something that may seem reasonable if we look back to the past five years. We see during the August 2020-Present period a rough 18x increase in capitalisation.

It is easy for us to conclude that this trend cannot continue, but over the past year alone capitalisation has increased by 63%. Loosely extrapolating that to 2030, we land at a 3.1T$ cap — somewhere in between Citis bullish and base cases. While this figure is debatable, it makes Citis base 1.6T$ and bearish 0.5T$ cases seem much more conservative. But can this growth actually continue into 2030?

A Brief History of Stablecoins

A key factor to maintaining this growth is the regulatory landscape. Looking at stablecoin market share over time puts this into a much clearer perspective.

Stablecoin market dominance over time shows that USDT (teal) market share had clearly started to wain starting mid-2020, steadily declining over a two year period thereafter. Two new coins had been introduced to the market, USTC (purple-blue) and BUSD (yellow-green).

USTC was Terra’s answer to stablecoins, an algorithmic coin which suffered a so-called “depegging” event losing its peg to the dollar and collapsing almost instantaneously.

More interesting is BUSD, a binance backed stablecoin. It faced harsh regulatory scrutiny which led to a slow but certain decline in volume, and eventual discontinuation. It tells us that no coin is safe from a regulator, and that this market is very vulnerable to scrutiny.

So for growth to continue and for Citis capitalisation estimates to materialise, major stablecoin issuers have to carefully adhere to new legislation. Especially true for non yield bearing tokens, which as I discussed in-depth in my previous article fall under GENIUS.

This may provide useful immunity for newcomer tokens like USDe which can be staked for yield, so may be exempt from the GENIUS Act, as they operate within something of a regulatory grey area.

A Look at Tether’s Reserves

Both Tether (USDT) and Circle (USDC) lead the pack in stablecoin issuer transparency by offering reports of their reserve holdings. Seeing that Tether controls 61% of the stablecoin market with USDT, let’s start with them. Below is an Actrix visualisation of the largest components of their reserve from Dec 2022 to Q2 25.

That’s a lot of U.S. t-bill exposure! If we include repo exposure to t-bills as part of this, that is almost 129B$. Treating Tether as a country this would place them as the 17th largest t-bill holder just above Saudi Arabia according to the treasury. This is only going to increase, considering Tether were the 7th largest buyer of t-bills in 2024 just behind the UK.

Stablecoin issuers choose t-bills because they are so highly liquid, and virtually “guaranteed” not to lose value while still providing a steady yield for a stablecoin issuer, driving their revenue as coin popularity grows.

Looking Past T-Bill Holdings

Repo market impact can be isolated further when we look past static t-bill holdings and focus on the portion of reserves actively deployed in repos.

We notice that Tether has moved away from MMF’s in recent years, shifting most of this capital into overnight reverse repos. This implies Tether wants a more liquid reserve, something we can speculate might be an action to reduce pressure from regulators in response to the delisting of both USTC and BUSD.

Below shows that nearly 11% of Tethers holdings are repo reliant. This is quite significant for a coin that mainly focuses on t-bills, it is still bound in part by the repo market despite efforts to keep their use low.

Tethers reserve reports suggest that their 64.9% t-bill exposure is held statically. This means a significant and growing number of t-bills are being held without participating in the repo market. This could lead to tightness in repos, as supply shifts to the hands of stablecoin issuers.

Circle’s Reserve Holdings

Circle, the issuer of USDC, take a completely different approach to backing their coin. Despite a 60% smaller market capitalisation, their holdings of t-bill overnight reverse repos amount to some 26B$, which is significantly higher than Tether.

By Aug 2030, Citis estimate implies Tether (USDT) and Circle (USDC) could hold up to 1.39T$ in T-bills and a staggering 0.61T$ in overnight reverse repos. Giving them great influence in both the Treasury and reverse repo markets respectively, not to mention becoming the single largest holder of U.S. t-bills even above that of countries.

Above illustrates how USDT and USDC reverse repo influence could grow. Assuming the reverse repo market grows yearly at the same rate as it did between 20-24, that USDT and USDC’s market share remains the same, and that stablecoin cap growth remains consistent with 24-25, we can see these two issuers control of the reverse repo market may grow to almost 10% in only a five year period up from roughly 1% today.

While we know that this much extrapolation is not reliable, it points to a growing influence in both the reverse repo and Treasury markets. When we also know that both issuers reserves lean significantly on static holding of t-bills, where the repo market wants non-static holding, issuers may soon control the market that they themselves are tightening.

Conclusion

If Citis projections come even close to fruition, it is clear that stablecoins will shift to become pillars of both the repo and Treasury markets. Acting as a major cash provider for repos and a gatekeeper of t-bill availability.

However regulatory scrutiny could destabilise a coins volume and value at any time, and with growing competition in the market, it is by no means certain that reserve composition of key coins will remain the same. If they succeed in compliance, issuers are on track to cement themselves as one of the few central liquidity providers in the repo market.