Why are stablecoin reserves held in short-term T-bills rather than long-dated bonds?

Stablecoin reserves sit in short-term Treasury bills because the issuer has to redeem every token for a dollar on any given day. A bill maturing within 93 days barely moves when rates change and can be sold quickly without a meaningful loss. A long-dated bond yields more, but it loses value when rates rise, and a wave of redemptions would force the issuer to sell it exactly when it trades below par.

What did the Fed propose on September 24, 2026?#

The Federal Reserve released two proposed rules for the payment stablecoin issuers it supervises under the GENIUS Act. The first would require full backing with "permissible reserve assets", such as short-term Treasury bills and other high-quality liquid assets. Comments are open for 60 days after publication in the Federal Register.

The Board memo spells out the list: U.S. dollar cash, Federal Reserve Bank balances, demand deposits, Treasuries with a remaining maturity of 93 days or less, overnight repo and reverse repo backed by Treasuries, and shares of funds that invest only in those assets. The fair value of reserves must equal or exceed the par value of outstanding tokens at all times. These boundaries come from the GENIUS Act itself, which also requires issuers to publish their reserve composition monthly, including average tenor and where the assets are held in custody.

Why does maturity matter so much for a bond's price?#

A bond pays a fixed return until it matures. When market rates rise, new bonds pay more, so older ones only sell at a discount. The longer the time to maturity, the bigger the discount. The rule of thumb: price changes by roughly duration multiplied by the change in yield.

A simplified example: if rates rise by 1 percentage point, a three-month bill loses about 0.25% of its price, while a bond with a 4.5-year duration loses about 4.5%. For a stablecoin backed exactly 1:1, that gap is decisive. A 0.25% drawdown can be absorbed by capital; a 4.5% drawdown leaves roughly 95.5 cents of reserves behind each token.

A short bill has one more safeguard: it matures at par soon. If the issuer holds it instead of selling, the mark-to-market loss disappears within 93 days at most.

What did Silicon Valley Bank teach us in March 2023?#

Silicon Valley Bank held a large book of long-dated Treasury and agency securities. In its March 8, 2023 filing, the bank disclosed it had sold about $21 billion of securities at an after-tax loss of about $1.8 billion. The announcement triggered a deposit run, and regulators closed the bank two days later.

The shock spread to stablecoins. As a Fed staff note details, $3.3 billion (8%) of USDC's roughly $40 billion in reserves sat as uninsured deposits at SVB. USDC fell as low as 86 cents, and by March 15 Circle had redeemed $3.8 billion of tokens. The issue was not the quality of Circle's Treasuries but that part of the cash was out of reach over a weekend when primary redemptions were closed.

Both lessons show up in the new Fed proposal: maturity matters, and so does deposit concentration. The draft requires issuers to diversify reserves and limit concentration of uninsured deposits at one or a few banks, and it sets a 2% capital requirement on uninsured deposit claims and undercollateralized reverse repo.

How do short reserves tie into redemption speed?#

Under the Fed proposal, issuers must publish a redemption policy with a period of no more than two business days, unless a specific safe harbor applies. That promise is only credible if reserves turn into cash within hours or days: cash, overnight repo and bills with a deep market.

Money market funds have worked this way for years. After the SEC's 2023 reforms, they must hold at least 25% of assets in daily liquid assets and at least 50% in weekly liquid assets. Circle, for instance, keeps most of the USDC reserve in an SEC-registered government money market fund, with the rest in cash at large banks.

Where does this mechanism fail to protect holders?#

Short maturities cut interest rate risk, but they don't remove every risk:

• Operational failure. Reserves can be pristine, yet if redemptions are halted by a bank failure, a weekend or a process error, the secondary-market price can slip below a dollar, as USDC did in 2023.
• Counterparty concentration. Deposits above the insurance limit or repo with a single counterparty carry credit risk that has nothing to do with maturity.
• Limited scope. The Fed drafts cover only issuers it supervises. Stablecoins issued outside the U.S. or under other regulators may hold different assets, and you need to check their own reports.
• Not final yet. The 60-day comment period is running. Fed Governor Michael Barr specifically asked for feedback on whether interest rate and foreign-currency risks are adequately addressed, and said further work will be required.
• No yield for holders. The law bars issuers from paying interest solely for holding a token, so income from the bills stays with the issuer.

How can you check a stablecoin's reserves yourself?#

Open the issuer's monthly report and look at four things: the share of cash and overnight repo, the average maturity of Treasuries, how deposits are spread across banks, and the date of the latest audit or attestation. If a report doesn't disclose maturities, or is published less than monthly, treat the "1:1 backing" claim with more caution.