Gate Research Institute: Will stablecoins be able to meet the marginal demand for US dollars as the US dollar weakens in 2026?

Summary:

• The devaluation of the US dollar results from a combination of declining real purchasing power, gradual monetary tightening driven by fiscal policy, and long-term changes in real interest rates and holding costs.
• The traditional banking system, constrained by regulation, capital requirements, and risk weights, creates a demand for dollar outflows, and stablecoins have precisely filled this demand gap.
• Due to differences in regulatory and business positioning, collateral structures vary among different stablecoins, and an implicit credit hierarchy has formed within them.
• The quality, transparency, and credibility of stablecoin collateral and issuers are becoming key factors in determining their price stability, liquidity priority, and long-term funding preferences.
• After reaching a certain scale, stablecoins have begun to become an important structural force influencing short-term US dollar interest rates.
• Looking ahead to 2026, stablecoins are more likely to serve as a “water reservoir” and distribution layer for the dollar, with their reserve assets providing stable demand for short-term US Treasuries, which in turn is affecting the dollar’s own pricing structure.

1. Introduction: The dollar is depreciating but not exiting

Recently, discussions around the dollar have become notably more complex. On one hand, the Fed has gradually shifted toward expectations of rate cuts starting in 2024, with real interest rates peaking and then declining; on the other hand, the fiscal deficit continues to widen, with persistent pressure on government bond supply and ongoing questions about long-term fiscal sustainability. Against this backdrop, narratives such as “dollar weakening,” “dilution of dollar credit,” and “de-dollarization acceleration” have frequently appeared, and market sentiment seems to be forming a consensus: the dollar is at a major structural turning point.

On the surface, this judgment is not unfounded. Inflation continues to erode the dollar’s real purchasing power, and the expansion of fiscal deficits and debt weakens the dollar’s role as a long-term store of value. Geopolitical frictions and frequent use of financial sanctions also prompt some countries and institutions to consciously reduce direct reliance on the traditional dollar system. From macro indicators to political and institutional environments, the dollar appears to be weakening.

However, if we shift our perspective from macro narratives to actual fund flows and usage structures, a less intuitive but critically important phenomenon emerges: the dollar has not been abandoned. On the contrary, globally, the dollar still firmly occupies the core position in pricing, settlement, and safe-haven assets. Notably, on-chain US dollar representations, such as stablecoins, have not contracted in recent years—in fact, they have continued to expand.

Whether in crypto asset trading, DeFi collateralization and liquidation, cross-border transfers, or daily payments in emerging markets, the usage frequency of the dollar has not declined with the discussions of dollar depreciation. Instead, it is increasingly bypassing traditional banking channels. This presents a core contradiction worth deeper exploration: if the dollar is depreciating, why is global demand and pursuit of the dollar still strong? If dollar credit is under pressure, why is dollar usage expanding—just in a different form?

This article aims to examine this contradiction, moving beyond simple binary judgments of “strong or weak,” “de-dollarization or retention,” to reassess the true flow of dollar demand in the context of 2026’s dollar depreciation. It will focus on how stablecoins, as an off-chain form of the dollar, are absorbing the marginal dollar demand that traditional finance structures are unable to serve.

1.1 Dollar depreciation is more than just a concept

When discussing dollar depreciation, the most intuitive understanding is that the dollar weakens against other currencies or the exchange rate declines. But in reality, this understanding is too narrow. Dollar depreciation is better viewed as a continuous structural process—it does not necessarily manifest as an immediate sharp decline in the dollar’s value, but rather as a slow, persistent change in the real cost of holding dollars, influenced by multiple factors.

The first layer is the decline in real purchasing power. Even if the dollar remains stable nominally or appreciates against some currencies at times, ongoing inflation erodes the real wealth of dollar holders. From an economic perspective, nominal stability does not equate to purchasing power stability. For example, one dollar might buy an apple in one country but a full meal in another.

The second layer involves a gradual strengthening driven by fiscal dominance. When a country runs persistent fiscal deficits and its government debt expands, monetary policy independence becomes structurally constrained. In such an environment, monetary policy increasingly serves debt sustainability, meaning rate cuts become a forced measure to lower financing costs and create room for fiscal operations. When monetary policy begins to support fiscal stability, the long-term value anchor of the dollar is naturally under pressure.

The third layer concerns long-term changes in real interest rates and holding costs. When nominal interest rates are low and inflation remains high, real interest rates tend to be low or even negative. This implies an implicit cost of holding dollars—savers are effectively subsidizing debtors. In this scenario, the dollar remains the world’s dominant currency, but the question of whether “holding dollars is worthwhile” becomes critical.

1.2 The Fed’s monetary policy and dollar trends: policy cycles providing space for stablecoins

The monetary policy determines the pace and channels through which the dollar depreciation mechanism transmits into the real economy. Different policy choices at various stages directly influence the dollar’s strength and usage costs.

• 2008–2014: Quantitative easing era, passive dollar weakening

  • After the global financial crisis, the Fed launched multiple rounds of QE, expanding its balance sheet and lowering interest rates to repair the financial system. During this period, dollar supply expanded rapidly, and real interest rates remained low, reducing dollar scarcity. At this stage, the dollar was more abundant but not necessarily “more usable,” with liquidity mainly concentrated in banks and financial assets.

• 2015–2018: Gradual rate hikes, structural dollar strengthening

  • As the economy recovered, the Fed began raising rates and shrinking its balance sheet, prompting global capital to flow back into dollar assets and putting pressure on emerging markets. During this phase, the dollar reasserted itself as a global anchor, with reduced availability and higher usage costs, strengthening its financial attributes.

• 2019: Policy shift to easing, dollar top begins to loosen

  • Amid global slowdown, the Fed preemptively cut rates, causing the dollar index to oscillate at high levels, with some weakening but no fundamental shift.

• 2020–2022: Post-pandemic aggressive rate hikes, dollar enters super-strong cycle

  • During the pandemic, the Fed implemented unlimited QE and zero interest rates, flooding liquidity. Subsequently, surging inflation forced the Fed to accelerate rate hikes, pushing the dollar index to a 20-year high and undermining confidence in the dollar’s long-term value.

• 2023–2025: Easing expectations rise, dollar enters a structural decline

  • As inflation recedes, markets have been pricing in rate cuts since 2023. Although the dollar remains high, the marginal tightening phase has ended, and fiscal deficits, debt levels, and long-term rates have begun to dominate the dollar narrative. A key change during this period is that the dollar remains needed, but its traditional system becomes slower, more expensive, and more constrained.

2. Traditional dollar slowdown, how stablecoins absorb spillover demand

As monetary policy shifts and fiscal constraints tighten, the traditional banking system, constrained by regulation, capital, and risk weights, actively shrinks its dollar asset-liability positions. Meanwhile, strict AML, cross-border compliance, and account access barriers exclude many non-core users and marginal funds from the traditional dollar system, creating a structural dollar outflow demand. Stablecoins precisely fill this gap, providing quasi-dollar liquidity with lower friction, becoming an important container for off-system dollar circulation.

2.1 Dollar depreciation ≠ decline in dollar usage; on-chain dollar expansion against the trend

A common intuition when discussing dollar depreciation is: if the dollar’s purchasing power declines and credit is questioned, its usage and demand should shrink accordingly. But the reality is the opposite. Over recent years, especially after rate hikes, bank risk exposures, and volatile risk assets, stablecoins—representing on-chain dollars—have not contracted; instead, they have shown signs of recovery and even expansion across multiple dimensions.

First, in total volume, the overall market cap of stablecoins has stabilized and rebounded after cyclical dips, reaching over $309 billion by early 2026, a new high. Despite structural shifts and changing market shares among different stablecoins, the aggregate dollar stablecoin market remains relevant. This alone indicates that market participants have not abandoned dollar-denominated tools due to long-term dollar outlook concerns.

Second, in usage, activity levels have surged. In 2025, total on-chain stablecoin transaction volume reached approximately $33 trillion, up about 70% year-over-year. USDT and USDC dominate these transactions, with USDC handling about $18.3 trillion and USDT about $13.3 trillion, accounting for most of the flow.

Monthly transfer volumes on major chains like Ethereum have reached around $85 billion, demonstrating their central role in trading, cross-chain liquidity, and pricing.

In other words, even as macro risk appetite shifts, stablecoins continue to serve as vital liquidity and settlement tools, not retreating to the periphery.

2.2 Stablecoins as “shadow dollars,” fulfilling demand squeezed out of banks

In recent years, cross-border dollar settlement frictions have increased, with dollar transfers involving multiple intermediaries, complex compliance, and high costs. Geopolitical risks, account freezes, payment disruptions, and sanctions compliance issues make dollar usage less neutral.

In this environment, stablecoins have begun to serve as a “shadow dollar,” not challenging the dollar’s pricing role but reducing institutional friction and meeting marginal demand. For many cross-border merchants, stablecoins’ appeal lies not in yield but in accessibility, transferability, and settlement certainty—no reliance on local bank accounts, 24/7 availability, and near-instant cross-border transfers.

It’s important to note that stablecoins are dollar liabilities issued by private entities. Their value does not directly depend on sovereign credit but on trust in the issuer’s balance sheet. To maintain this trust, major stablecoin issuers typically hold large amounts of short-term US Treasuries and repo assets collateralized by Treasuries.

In 2024, these stablecoins held about $40 billion in US Treasuries, comparable to the largest government money market funds and exceeding most foreign investors’ holdings.

This structure not only maintains the peg to the dollar but also extends the dollar’s settlement function outside the public financial system. Stablecoins are off-balance-sheet liabilities for issuers and a form of dollar holding and transfer that does not require bank accounts. This is not a disappearance of dollar credit but a migration of it.

It’s crucial to recognize that stablecoins are not necessarily safer than traditional dollars nor inherently less risky. They lack central bank backing and deposit insurance, and confidence shocks can still cause volatility or de-peg. From a usage perspective, however, stablecoins are often more convenient—lower barriers, faster transfers, fewer restrictions.

2.1.1 Collateral structure differences among stablecoins due to regulation and business positioning

At first glance, stablecoins differ greatly in their asset holdings: some are almost entirely backed by cash and short-term US Treasuries, others include loans, crypto assets, and non-standard collateral. These differences are the result of regulatory environment, business goals, and risk appetite over time.

Regulatory constraints are the key dividing line. For example, USDC, BUSD, USDP are issued by entities in highly regulated jurisdictions, limiting their asset choices to “clean,” easily verifiable assets.

Typically, their reserves mainly consist of cash, US Treasury-backed reverse repos, and ultra-short-term Treasuries. These assets are not the highest-yielding but are transparent, low-risk, and highly liquid, making it easier to demonstrate solvency under stress.

In contrast, USDT operates in a more offshore environment with less transparency and looser regulatory constraints. Its reserves historically included commercial paper, loans, and even non-stablecoin crypto assets, reflecting a more market-oriented approach.

Business positioning further influences structure: USDC and USDP aim to closely maintain the peg, prioritizing liquidity and transparency, often sacrificing yield. USDT emphasizes scale, availability, and global coverage, sometimes using reserves for lending, exchange support, or holding non-stablecoin crypto assets, functioning more like a shadow bank than a simple payment tool.

2.1.2 Stablecoins are not homogeneous; “security layering” now dominates pricing

In early crypto markets, stablecoins were viewed as interchangeable dollar proxies—just close to $1. This “homogeneity assumption” was rarely challenged during stable periods. But recent systemic shocks have gradually shattered this view.

The Terra event in 2022 was a watershed. The collapse of UST was not due to external shocks but structural failure under confidence reversal. It made markets realize that even nominally stable stablecoins can de-peg or become worthless if not backed by real, liquid assets. The key threshold for stability shifted from “has assets” to “has credible, realizable assets.”

Similarly, the FTX collapse in 2022 reinforced that asset backing alone is insufficient; transparency and issuer credibility matter. Although FTX was not a stablecoin issuer, its opaque fund management and liquidity crisis damaged trust in centralized intermediaries, affecting stablecoin risk pricing.

The most explicit delineation of “security layering” appeared in 2023’s Silicon Valley Bank (SVB) crisis. USDC, which held some reserves at SVB, briefly de-pegged to about $0.86. Meanwhile, USDT, perceived as less exposed, traded at a premium in some markets. This marked the first time the market explicitly distinguished “relatively safe” and “relatively risky” dollar assets via price.

This differentiation extends into DeFi: protocols like MakerDAO’s Peg Stability Module (PSM) link DAI to USDC at 1:1. When USDC de-pegs, arbitrageurs drain PSM liquidity, causing stablecoins like DAI and USDP to fluctuate even without direct exposure to SVB risk. Technical modules designed as connectors can become accelerators of risk under stress.

These events collectively show that the market no longer views stablecoins as a uniform dollar substitute but as a layered credit hierarchy. Collateral quality, transparency, and issuer credibility are now central to their price stability, liquidity priority, and long-term appeal.

3. Stablecoins are influencing short-term dollar rates from below

Some academic models propose a “hybrid monetary ecosystem,” where stablecoins are not just shadow assets outside the dollar system but are digital dollars issued by private entities, forming a layered dollar system alongside central bank money and commercial bank deposits. In this framework, stablecoins actively participate in liquidity distribution and payment systems through interactions with regulation, central bank policies, and traditional markets.

3.1 Data-driven conclusion: expanding stablecoin scale correlates inversely with short-term US Treasury yields

In this context, stablecoins do more than just facilitate payments—they influence the dollar system itself, especially in the short-term money markets. They are no longer just recipients of dollar liquidity but have evolved into a marginal force that can impact short-term US dollar rates.

Empirical evidence shows that major stablecoins like USDT and USDC hold large amounts of short-term Treasuries, repos, and cash—by design, to ensure liquidity and redemption. As stablecoin issuance expands, their holdings become a significant and stable buyer of short-term US debt.

Recent research confirms this: stablecoin issuers, especially USDT, are now among the largest non-sovereign holders of short-term US Treasuries globally. Moreover, the share of stablecoins in the US debt market has a measurable impact: a 1 percentage point increase in stablecoin holdings in the 1-month Treasury market correlates with a 14–16 basis point decline in the yield. By early 2025, the cumulative effect exceeds 20 basis points.

The chart illustrates a threshold regression model showing how USDT’s share in the short-term Treasury market nonlinearly affects the 1-month yield. The x-axis is USDT’s share of the Treasury market; the y-axis is the log of the 1-month yield. The model identifies an optimal threshold at about 0.97%, dividing the sample into low and high stablecoin share regimes. When USDT’s share exceeds this threshold, further increases are associated with a significant decline in short-term yields, indicating a scale-dependent impact.

3.2 Fed’s top-down vs. stablecoins’ bottom-up influence on rates

This evidence suggests stablecoins are not just “using dollars” but are actively reshaping the supply-demand structure of short-term dollar funding. As their scale grows, stablecoins absorb a persistent marginal demand for short-term Treasuries, exerting a downward pressure on short-term rates, relatively independent of macro policy.

This contrasts with traditional Fed policy: the central bank influences rates top-down—policy rate adjustments lead to market re-pricing and economic transmission. Stablecoins’ impact is bottom-up: on-chain dollar demand expansion → stablecoin reserve reallocation → money market rebalancing → rate decline.

Because of this, stablecoins are not simply policy tools; they are structural forces outside the banking system that influence dollar short-term funding and pricing. They serve as a bridge connecting on-chain dollar demand with the traditional dollar market.

3.3 Feedback loop: rate cuts → stablecoins → short-term rates → dollar reallocation

In a macro perspective, stablecoins participate in a dollar reallocation cycle. The starting point is a combination of rate cuts and fiscal pressures. When the Fed cuts rates, nominal financing costs fall, but this coincides with ongoing growth in fiscal deficits and debt, and tightening regulation on banks. As a result, banks tend to reduce risk exposure and limit dollar services to marginal clients.

Consequently, dollar supply does not vanish but shifts outside the banking system. Marginal dollar demand—cross-border payments, crypto trading, collateral, on-chain settlement—is pushed off-system. Stablecoins, capable of bypassing bank accounts, regional restrictions, and operating 24/7, absorb this demand.

As stablecoin scale expands, their reserves flow into short-term Treasuries and repos, providing a structural buy-side demand that pushes down short-term yields. This creates a feedback loop: rate cuts and fiscal pressures → bank system contraction → stablecoin demand outflow → reserve purchases of short-term debt → yield suppression → stablecoins as a dollar “water reservoir” reinforced.

4. Outlook for 2026: stablecoins in a declining dollar, de-dollarization narrative

Over a longer horizon, the dollar’s trajectory is not just about exchange rate fluctuations but reflects structural shifts amid rising long-term debt, low real interest rates, and easing monetary policy. The dollar’s role as a safe store of value is being reassessed.

By 2025, US debt surpasses $38 trillion, M2 reaches about $22.4 trillion—both record highs—indicating that, as fiscal resilience erodes, the dollar system relies more on liquidity expansion to hedge debt and financing pressures. These trends suggest that dollar credit is shifting from “given” to “needs to be validated.” In this environment, stablecoins serve as a channel for marginal dollar demand that the traditional system cannot fully cover. They do not create new dollar credit but reshape how dollars are accessed.

In scale, stablecoins remain small—about 1.3% of M2—but their direction is changing. They are not yet replacing the dollar but are increasingly serving as a spillover outlet. Their penetration in global payments, cross-border settlement, and store-of-value needs is still minimal, but the potential for growth is large. For example, USDC’s market share in M2 is only about 0.35%, indicating early-stage expansion. If stablecoins further penetrate these sectors, marginal dollar demand could migrate more into on-chain channels.

Looking ahead to 2026, stablecoins are more likely to be part of the dollar’s off-system structure rather than its erosion or de-dollarization leader. In an environment of tightening regulation, stablecoins provide a “water reservoir” and distribution layer, allowing some dollar demand previously limited by banks to persist and be effectively absorbed. As stablecoin scale continues to grow, their reserve assets’ stable demand for short-term Treasuries begins to exert a marginal downward pressure on short-term dollar rates, influencing the dollar’s own pricing structure.

Therefore, the strength or weakness of the dollar, in the medium to long term, remains a core macro issue; but how dollars are used, held, and circulated—its structural channels—are becoming more critical. Stablecoins are at the center of this shift, extending the reach of dollar usage and quietly reshaping the operation of short-term dollar markets.