Galaxy Digital Report: Stablecoins, DeFi, and Credit Creation
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Galaxy Digital Report: Stablecoins, DeFi, and Credit Creation
The growth in stablecoin supply is not merely a numerical increase, but rather a large-scale migration of funds from bank deposits in emerging markets to U.S. Treasuries and globally systemically important banks.
Navigating Web3 tides with focused insightsAuthor: William Nuelle
Compiled by: TechFlow
After 18 months of significant decline in the global stablecoin asset base, stablecoin adoption is accelerating once again. Galaxy Ventures believes this resurgence is driven by three long-term factors: (i) the adoption of stablecoins as a savings tool; (ii) their use as a payment instrument; and (iii) DeFi offering above-market yields, which absorbs digital dollars. As a result, stablecoin supply is now entering a phase of rapid growth, expected to reach $300 billion by the end of 2025 and ultimately scale to $1 trillion by 2030.
Growing stablecoin assets under management (AUM) to $1 trillion will bring new opportunities and transformations to financial markets. Some shifts are already foreseeable—such as deposits in emerging markets migrating toward developed-market institutions, and regional banks evolving into Global Systemically Important Banks (GSIBs). Others remain unpredictable. Stablecoins and DeFi are foundational, not marginal innovations, and may fundamentally reshape credit intermediation in entirely new ways.
Three Key Trends Driving Adoption: Savings, Payments, and DeFi Yields
Three interrelated trends are fueling stablecoin adoption: their use as a savings vehicle, a payment method, and a source of above-market returns.
Trend One: Stablecoins as a Savings Tool
Stablecoins are increasingly being used as a savings instrument, especially in emerging markets (EM). In economies like Argentina, Turkey, and Nigeria, structural weakness in local currencies—combined with inflationary pressures and currency depreciation—has created organic demand for the U.S. dollar. Historically, as noted by the International Monetary Fund (IMF), access to dollar liquidity in many emerging markets has been constrained, becoming a source of financial stress. Argentina’s capital controls (Cepo Cambiario) further restrict the availability of physical dollars.
Stablecoins bypass these limitations, enabling individuals and businesses to gain direct, internet-based access to dollar-backed liquidity. Consumer surveys show that accessing U.S. dollars is one of the top reasons EM users adopt cryptocurrencies. A study by Castle Island Ventures found that two of the top five use cases were “saving in USD” and “converting my local currency to USD,” cited by 47% and 39% of users respectively as motivations for using stablecoins.
While it's difficult to measure the full scale of stablecoin-based savings in emerging markets, we know the trend is growing rapidly. Businesses offering stablecoin-settled cards—such as Rain (portfolio company), Reap, RedotPay (portfolio company), GnosisPay, and Exa—are riding this wave, allowing consumers to spend their savings at local merchants via Visa and Mastercard networks.
In Argentina specifically, fintech/crypto app Lemoncash reported in its 2024 Crypto Report that its $125 million in "deposits" captured 30% of the centralized crypto app market share, second only to Binance’s 34%, surpassing Belo, Bitso, and Prex. This implies an AUM of $417 million across Argentine crypto apps. However, the true stablecoin AUM in Argentina could be 2–3 times higher when including non-custodial wallets like MetaMask and Phantom. While these figures seem modest, $416 million represents 1.1% of Argentina’s M1 money supply, and $1 billion would account for 2.6%—and the number continues to grow. And Argentina is just one of many emerging economies experiencing this phenomenon. Demand for stablecoins among EM consumers is likely to expand horizontally across markets.
Trend Two: Stablecoins as a Payment Instrument
Stablecoins have also become a viable alternative payment method, particularly competing with SWIFT in cross-border transactions. Domestic payment systems often operate in real time, but traditional international transfers can take over one business day. Stablecoins offer a clear value proposition here. As Simon Taylor noted in his article, over time, stablecoins may function more like a meta-platform connecting various payment systems.
Artemis released a report showing that B2B payments accounted for $3 billion per month ($36 billion annualized) across 31 surveyed companies. Based on discussions with custodians handling most of these flows, Galaxy estimates that the total annualized volume exceeds $100 billion when including all non-crypto market participants.
Critically, Artemis found that B2B payment volumes grew fourfold between February 2024 and February 2025, demonstrating the scale growth necessary to sustain rising AUM. There is currently no research on stablecoin velocity, so we cannot directly link total payment volume to AUM. However, the rapid growth rate of payments strongly suggests corresponding AUM expansion driven by this trend.
Trend Three: DeFi as a Source of Above-Market Yields
Finally, for much of the past five years, DeFi has consistently delivered structurally higher U.S. dollar-denominated yields, enabling technically savvy users to earn 5% to 10% returns with relatively low risk. This has been and will continue to be a major driver of stablecoin adoption.
DeFi itself functions as a capital ecosystem, where underlying “risk-free” rates on platforms like Aave and Maker reflect broader dynamics in the crypto capital market. In my 2021 paper, "The Risk-Free Rate in DeFi," I argued that lending rates on Aave (an open-source, decentralized lending protocol allowing users to deposit crypto assets to earn interest or borrow), Compound (a DeFi lending protocol using algorithmic rate adjustments), and Maker (one of the earliest DeFi projects, best known for DAI, a decentralized stablecoin pegged 1:1 to the U.S. dollar) respond dynamically to trading and leveraged demand. Whenever new opportunities emerge—such as yield farming on Yearn or Compound in 2020, spot trading in 2021, or Ethena in 2024—the base yield in DeFi rises as users draw loans to fund participation. So long as blockchains continue generating innovation, DeFi’s base yield should persistently exceed U.S. Treasury yields—especially with the emergence of tokenized money market funds offering base-layer yields.
Because DeFi’s native language is stablecoins rather than fiat dollars, any attempt to arbitrage this micro-market by providing low-cost dollar capital inevitably expands the stablecoin supply. Closing the yield gap between Aave and U.S. Treasuries requires stablecoins to grow within DeFi. As expected, periods when the Aave-Treasury spread is positive correlate with growth in total value locked (TVL), while negative spreads coincide with TVL contraction:
The Bank Deposit Challenge
Galaxy believes that long-term adoption of stablecoins for savings, payments, and yield generation is inevitable. This shift could disintermediate traditional banks by allowing consumers direct access to dollar-denominated savings and cross-border payments without relying on bank infrastructure—thereby eroding the deposit base banks use to fuel credit creation and net interest margin.
Deposit Displacement
Historically, each dollar of stablecoin represents approximately $0.80 in Treasury securities and $0.20 held as bank deposits by the issuer. Currently, Circle holds $8 billion in cash (0.125x) and $53 billion in ultra-short-duration U.S. Treasuries (UST) or repos (0.875x), backing $61 billion in USDC. (We’ll discuss repos shortly.) Circle’s cash deposits are primarily held at BNY Mellon, along with New York Community Bank, Cross River Bank, and other leading U.S. financial institutions.
Now imagine an Argentine user. This individual holds ARS equivalent to $20,000 in a local account at Banco Nación Argentina (BNA), the country’s largest bank. To hedge against inflation in the Argentine peso (ARS), they decide to convert their balance into $20,000 worth of USDC. (The mechanics of ARS disposal may affect the USD/ARS exchange rate and warrant separate analysis.) With USDC, those original $20,000 in BNA are now effectively $17,500 in U.S. government short-term debt or repo agreements and $2,500 in bank deposits split among BNY Mellon, New York Commercial Bank, and Cross River Bank.
As consumers and businesses shift savings from traditional bank accounts to stablecoins like USDC or USDT, they effectively move deposits from regional/commercial banks into U.S. Treasuries and deposits at major U.S. institutions. The implications are profound: while users preserve dollar-denominated purchasing power through stablecoins—and spending tools like Rain and RedotPay—the underlying bank deposits and Treasuries become more concentrated, reducing the pool available to regional and commercial banks for lending. Meanwhile, stablecoin issuers become major players in the government debt market.
Forced Credit Contraction
One key social function of bank deposits is enabling credit extension to the economy. Fractional reserve banking allows banks to lend multiples of their deposit base. The regional multiplier depends on local banking regulations, foreign exchange stability, reserve volatility, and the quality of lending opportunities. The M1/M0 ratio (broad money divided by central bank reserves and cash) reveals a banking system’s “money multiplier”:
Continuing the Argentina example, converting $20,000 in deposits to USDC transforms $24,000 in local credit creation into $17,500 in UST/repos and $8,250 in U.S. credit creation (based on a 3.3x multiplier applied to $2,500). At 1% of M1, this effect is negligible. But at 10%, it becomes material. Eventually, local regulators may be forced to intervene to prevent disruption to credit creation and financial stability.
Over-Exposure to U.S. Government Debt
This is undoubtedly good news for the U.S. government. Stablecoin issuers are already the 12th-largest buyers of U.S. Treasuries, and their AUM is growing rapidly. Soon, they could rank among the top five purchasers of U.S. Treasuries (UST).
New legislative proposals such as the GENIUS Act require treasury-backed reserves to be held either in T-bill repos or in short-dated bills maturing in less than 90 days. Either approach would significantly boost liquidity in critical segments of the U.S. financial system.
At sufficient scale—say $1 trillion—this could materially impact the yield curve, as sub-90-day Treasuries gain a large, price-insensitive buyer, distorting the interest rate curve on which U.S. government financing relies. That said, Treasury repos do not increase net demand for short-term T-bills; they simply provide a liquid pool for secured overnight borrowing. This repo market is primarily accessed by major U.S. banks, hedge funds, pension funds, and asset managers. For example, Circle effectively lends out most of its reserves overnight, using U.S. Treasuries as collateral. With a $4 trillion repo market, even $500 billion in stablecoin-linked repo activity makes stablecoins a significant participant. All this liquidity flowing into U.S. Treasuries and U.S. bank borrowing benefits U.S. capital markets—at the expense of global ones.
One hypothesis is that as stablecoin values exceed $1 trillion, issuers will be compelled to diversify into portfolios resembling traditional bank loans—including corporate credit and mortgage-backed securities—to avoid overexposure to a single asset class. Given that the GENIUS Act provides a pathway for banks to issue “tokenized deposits,” such an evolution may be inevitable.
New Asset Management Channels
All of this creates an exciting new channel for asset management. In many ways, this mirrors the ongoing shift from bank lending to non-bank financial institutions (NBFIs) following Basel III, which constrained bank lending scope and leverage after the financial crisis.
Stablecoins drain capital from the banking system—particularly from specific segments such as emerging market banks and regional banks in developed markets. As outlined in Galaxy’s *Crypto Lending Report*, we’ve already seen Tether rise as a non-bank lender—even surpassing U.S. Treasuries in some measures—and other stablecoin issuers may follow suit. If issuers choose to outsource credit investments to specialized firms, they could instantly become major limited partners (LPs) in large funds, opening new asset allocation pathways (e.g., insurance-linked products). Firms like Blackstone, Apollo, KKR, and BlackRock scaled significantly during the NBFI transition—and stablecoin ecosystems could follow a similar trajectory.
The Efficient Frontier of On-Chain Yields
Finally, it's not just basic deposits that are available for lending. Each stablecoin is both a claim on underlying dollars and a unit of value on-chain. USDC, for instance, can be lent on-chain, and users will demand USDC-denominated yields—from Aave-USDC and Morpho-USDC to Ethena USDe, Maker’s sUSDS, and Superform’s superUSDC.
“Treasuries” will offer attractive on-chain yield opportunities, creating another asset management channel. We believe Ethena, a portfolio company, opened the “Overton Window” for dollar-denominated on-chain yields in 2024 by linking basis trades (the difference between spot and futures prices of an asset) to USDe. Future treasuries will track diverse on- and off-chain investment strategies, competing for USDC/T holdings within apps like MetaMask, Phantom, RedotPay, DolarApp, and DeBlock. Over time, we’ll see the emergence of an “efficient frontier of on-chain yields,” and it’s easy to envision some of these on-chain treasuries extending credit directly to regions like Argentina and Turkey—precisely where traditional banks are losing this capacity:
Conclusion
The convergence of stablecoins, DeFi, and traditional finance represents not just a technological shift but a fundamental restructuring of global credit intermediation—one that reflects and accelerates the post-2008 migration from bank to non-bank lending. By 2030, stablecoin AUM is poised to approach $1 trillion, driven by their role as savings tools in emerging markets, efficient cross-border payment rails, and sources of above-market DeFi yields. Stablecoins will systematically divert deposits from traditional banks, concentrating assets in U.S. Treasuries and major U.S. financial institutions.
This transformation brings both opportunities and risks: stablecoin issuers will become pivotal players in government debt markets and potentially new credit intermediaries, while regional banks—especially in emerging markets—face credit contraction as deposits migrate to stablecoin accounts. The outcome will be a new model of asset management and banking, with stablecoins serving as bridges to the frontier of efficient digital dollar investing. Just as shadow banks filled the void left by regulated banks after the financial crisis, stablecoins and DeFi protocols are positioning themselves as the dominant credit intermediaries of the digital age—reshaping monetary policy, financial stability, and the future architecture of global finance.
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