Author: Chairman Rabbit/tuzhuxi
This week, President Trump and the crypto industry will have their first major legislative victory in the cryptocurrency space: Republicans in the U.S. House of Representatives are ready to accept the Senate's new stablecoin regulation bill (the Global Crypto Innovation Safeguarding Act, also known as the GENIUS Act). This is the first time the United States has introduced a stablecoin regulatory framework, and one of the core contents is that it requires stablecoin issuers to ensure that the tokens are pegged to the U.S. dollar at a 1:1 ratio, and to reserve or invest the funds raised from the issuance of tokens in highly liquid U.S. dollar assets, including cash, bank deposits and U.S. Treasury bonds. The signing of the Stablecoin Act will inject a shot in the arm for the crypto industry and related markets, while supporting the fiscal needs of the United States and maintaining the status of the US dollar (US dollar hegemony), which can be said to be "killing two birds with one stone". The cryptocurrency industry has been wandering in the fringe and gray area for many years and has never been able to integrate into the mainstream; its supporters have always hoped to obtain legislative recognition from the US government and operate under a dedicated regulatory framework, which can further open the door for the participation of traditional/mainstream financial institutions and enhance the breadth and depth of the cryptocurrency market. Earlier, the crypto industry had lobbied Congress for many years, but it has not waited for the right time, and there is also a dispute over the route of central bank digital currency (CBDC). Last year, they bet on Trump in the general election, and finally waited for the right time after Trump won the election, and were able to promote relevant bills and become the biggest beneficiaries of Trump's second administration.
The cryptocurrency/stablecoin industry itself is of course seeking development, but other conditions are required to gain political recognition and government endorsement in the United States. The so-called “the right time, the right place, and the right people”, an important background for the launch of the regulatory framework is:The United States faces serious fiscal sustainability issues, and the status of the US dollar is under unprecedented threat.
1.US fiscal deficit
The US fiscal deficit for fiscal year 2025 is expected to reach $1.9 trillion, accounting for 6.2% of GDP. This figure has increased significantly compared with previous years and is the result of the expansion of US fiscal policy. The "Big and Beautiful Act" recently promoted by the Trump administration is expected to increase the deficit by another $3.4 trillion in the next 10 years, further worsening the situation. Market opinion leaders such as Elon Musk in the business community, Ray Dalio in the investment community, and Jamie Dimon of JPMorgan Chase in the financial community have pointed out that the US government's finances are unsustainable in the long term and are bound to cause a catastrophic crisis in the future. 2. U.S. fiscal reliance on U.S. debt How did the fiscal unsustainability of the U.S. federal government trigger the economic and financial crisis? The core is to focus on U.S. Treasury bonds, that is, the financing capacity of the U.S. government. In the case of a deficit, the way for the U.S. government to meet its fiscal needs is through Treasury bonds - including new issuance and refinancing. At present, the balance of U.S. Treasury bonds has exceeded 36 trillion U.S. dollars, and 80% will mature in the next four years (about 7 to 10 trillion U.S. dollars mature each year). More than 80% of investors are market-oriented institutions, and issuance needs to enter the market, which has substantial refinancing pressure.
Some people say that U.S. debt can't be sold? What are the risks? The answer is that U.S. debt can certainly be sold, but the pricing of U.S. debt is highly market-oriented, and common sense in economics tells us that prices are determined by supply and demand. Assuming that the market demand for U.S. debt remains unchanged, then when the supply of U.S. debt increases and exceeds the market's willingness to buy, interest rates will have to rise when other conditions are equal. The U.S. government wants to attract investors to invest in and hold U.S. debt through higher interest rates.
And interest rate increases will only bring one result: increase the financing cost of the U.S. government, while pushing up the overall interest rate in the market, increasing the financing cost of everyone, and thus damaging the economy, and not only the U.S. economy, but the global economy. Everyone needs to pay for the irresponsibility of the U.S. fiscal policy. This is another side effect of the dollar hegemony.
So, when we analyze the unsustainability of the US government's finances, we ultimately analyze US debt,how the US government can maintain a larger issuance volume at a lower interest rate. There are only two ways to do this: either reduce the issuance volume or allow more people to buy. (Reducing the issuance volume is from the perspective of GDP. Assuming that the fiscal deficit remains unchanged and GDP increases, it is equivalent to reducing the relative issuance volume) 3. The root cause of damaging the status of the US dollar and worsening the supply and demand situation of US debts So, can the supply and demand problem of US debts be solved? I am afraid it is not possible under the existing framework. The issuance volume continues to increase, while the demand continues to shrink. Let's do a brief analysis below.
1)Fiscal revelry and deficit politics in the United States.The "Big and Beautiful" bill promotes large-scale tax cuts, but without corresponding spending cuts, it will certainly worsen the fiscal deficit. The reasonable logic is: the government's revenue and expenditure match, tax cuts must reduce benefits; and increasing benefits requires increasing taxes. This is a basic truth. However, the United States is an electoral politics that follows the interests and will of voters and interest groups. Out of self-interest, everyone supports tax cuts and will find various high-sounding reasons for tax cuts (including the right-wing "trickle-down economics" that has been fully falsified by history). At the same time, most people are against welfare cuts out of their own interests, and left-wing politicians want to increase welfare. Right-wing politicians also know that they can at most play the nationalism and racism card and slightly cut welfare for illegal immigrants and ethnic minorities, but it is impossible to cut welfare for most people (this move will inevitably bring heavy political costs). Therefore, the choice of politicians, in the final analysis, reflects the choices of countless individuals. Everyone is willing to overdraw the future or pass the problem on to others for their own short-term selfish interests. Such a system actually encourages moral hazard and will inevitably lead to unrestrained fiscal carnival and "deficit politics". This problem exists not only in the United States, but also in many other developed Western economies. In theory, developing the economy and making the pie bigger can also solve fiscal problems. The problem is that most developed economies have already fallen into a bottleneck of development. Further development requires a lot of industrial policies and infrastructure construction (following the Chinese model), which will inevitably require more fiscal expenditures, which will increase fiscal risks. For ordinary countries, they may eventually have to return to adhering to fiscal discipline. But the United States is different. First, American politics is completely torn apart. The two parties can hardly reach an agreement on any issue. Taxation and welfare issues are the fundamental ideological differences. Second, the United States has the "right to mint coins" and can pass the problem on to others by printing money.
2)Trump/MAGA factor.In addition to the aforementioned structural factors, there are also some new factors since Trump's second term, including Trump's personalized politics, "America First" and right-wing populist economics, as well as changes in international politics. These factors all play a role: further weakening confidence in the US economy and weakening demand for the US dollar. Specifically include:
a) Economic policy: Trump's trade war has unclear goals, confusing logic, capriciousness, frequent changes in orders, and chaotic execution. As a result, international supply chains have been disrupted, consumer prices have been under pressure, traditional alliance relations have been damaged, and industries have fallen into a wait-and-see state. The US policy is bound to reduce its share in global trade, thereby reducing the demand for the US dollar by all parties. Other measures, such as expelling immigrants, cracking down on universities (affecting the US's ability to attract and retain talent), and cutting industrial policies, have greatly increased the uncertainty of the US economic outlook. These factors have led to a general decline in investors' enthusiasm for investing in the United States (except for a few technology sectors). Many international investors believe that the era of "American exceptionalism" is over and are seeking diversification and investing in alternative assets. b) Undermining the independence of the Federal Reserve: The prospect of Trump politicizing the Federal Reserve during his tenure is basically a foregone conclusion (by removing Powell, pushing his personal confidants to power, and forcing interest rate cuts). Countries and markets are worried that the Fed will lose its independence and public nature, and that US monetary policy will begin to be dominated by political rather than economic factors
c)The expansion of US political divisions and the logic of deficits:Since Trump's return to the White House, the US political division has further intensified, and it has fallen into a civil war without gunpowder; all countries have seen that it is impossible for the United States to actually solve the fiscal deficit problem in its own country, and it can only continue to increase the debt ceiling and solve the deficit problem through debt. So, will the government default? How will the debt be repaid in the end? The answer is that the US government does not need to default - it has the "right to mint coins", and printing money can solve the problem. But printing money comes at a cost, which will eventually reduce investors' returns and make investors pay for the debt. Investors are not fools, and these expectations have been reflected in the yield of long-term US bonds. The increase in interest rates will lead to one result: increasing the overall financing cost of the market and affecting the economy
d)Volatility and "weaponization" of U.S. debt:In the past few months, the bond market has often fluctuated with the Trump administration, and the market has also known that U.S. debt is a weapon to constrain Trump. There are several concerns here. First, the bond market has become a policy game field, increasing volatility and uncertainty; second, other countries can game the U.S. government by selling bonds. This is also a negative result of the U.S. government owing too much debt: the market and counterparties use U.S. debt to constrain the U.S. government. Of course, this phenomenon is not what U.S. debt investors want to see.
e)Europe's independence from the United States:Trump is reshaping the transatlantic relationship, including threatening to cancel defense commitments to NATO/European allies, waging a trade war with the EU, and intervening in European domestic politics. Europeans are well aware that behind Trump, there is a more radical MAGA "America First" and isolationism as a backing, and the United States resetting its relationship with Europe is a medium- to long-term trend. Based on this, Europe can no longer feel at ease and expect the United States to fulfill its historical commitment to its defense, and cannot rely entirely on the economy and technology, but must pursue independence. With the rise of Europe, even the pursuit of deficit financing (such as supporting national defense) will also bring about an improvement in the status of the euro. The euro will become an important force in the multipolar monetary system
f)Bitcoin issue:In addition to stablecoins, Trump's cryptocurrency agenda also includes Bitcoin.TrumpThe government has also been proposing to use Bitcoin as a reserve currency. Unlike stablecoins pegged to the US dollar (such as Tether), the growth of Bitcoin will dilute the relative position of the US dollar. The Trump administration's promotion of Bitcoin will actually harm the hegemony of the US dollar.
g)"Weak dollar" economics:Many Trump administration aides have always held the view that the strong dollar has affected the development of the US industry. The strong dollar is the result of the United States as an international reserve currency: all countries want to hold dollars, which naturally pushes up the value of the dollar, and the United States needs to pay for it (of course, those who hold this view do not mention the benefits of the US "coinage right"). Trump himself has echoed this view and complained that the United States is at a disadvantage. For the market, the US government's own proposal of a "weak dollar" policy is a wake-up call - the US market has been volatile in the past few months, and many people even believe that this is intentional by the Trump administration (the "Mar-a-Lago Agreement" conspiracy theory) 3) International geopolitical environment a) Weaponizing the status of the US dollar: In the past few years, the United States has imposed a large number of economic sanctions and blockades on Russia, China and other countries. Economic sanctions have become a common means of US diplomacy, and this means is used by both parties. Trump's second administration continues to exert extreme pressure on various countries, and does not distinguish between traditional allies and opponents, further undermining international rules and order. Countries are increasingly worried that the US government will use the dollar's status as the world's reserve currency (accounting for about 60% of global foreign exchange reserves) and the main currency for international trade (about half of transactions are denominated in US dollars) to weaponize the dollar and impose sanctions on other countries - means include cutting off SWIFT access, freezing US dollar assets, and implementing various secondary sanctions. This has also forced countries to begin to explore "de-dollarization" and find alternative payment systems (such as China's CIPS)
b)International geopolitics and multipolar monetary system:Early before Trump's second term, international geopolitics had become more diverse and was moving towards a multipolar order. This trend is not shifted by the will of individual countries, individual governments, or individual leaders, but is a natural development result. In fact, Trump himself has also given up the "peace under American rule" after World War II and accepted a certain version of a multipolar order. What matches a multipolar political order cannot be a monetary system dominated by the U.S. dollar, but must be a multipolar monetary system. Therefore, from the perspective of geopolitical trends, the diversification of monetary systems is the only way forward, and an inevitable result of the diversification of monetary systems is the decline of the status of the U.S. dollar. c) The emergence of optional investment assets: Everyone knows the structural problems in the United States and hopes that investments will be more diversified and not be placed in the U.S. "basket", but the key is to have alternative options. Since the beginning of this year, the price of U.S. bonds has soared, and the U.S. dollar has weakened (depreciated by 10% against a basket of currencies). However, the prices of investment products that hedge the risks of the U.S. economy have risen sharply, including Bitcoin (up about 25% this year) and gold (up about 10% this year). In addition, investors have found that China can invest in growth (the revaluation of Chinese assets brought about by DeepSeek has made countries re-examine the achievements of "Made in China 2025"); Europe can invest in defense (Europe will introduce more deficit financing, and the issuance of European bonds will expand euro investment assets). These factors are reducing the market's enthusiasm for investing in U.S. dollar assets and, in turn, reducing demand for the U.S. dollar. The result is a weakening of the U.S. dollar index)
4)Finally, finance is based on expectations and confidence. Based on the above economic, financial and geopolitical factors, all parties have weakened confidence in the US economy and the US dollar, and even become bearish. They also estimate that others will make the same judgment, which will form a superimposed "float effect" or "herd effect", accelerating the decline of the US dollar. 4. US fiscal dilemma and catastrophic crisis Let's take a look at the US fiscal dilemma. The existing several roads are all blocked: The first method: reduce the fiscal deficit - it can't be done. Reducing the fiscal deficit and repaying historical debts are the fundamental solutions to the repayment problem. As analyzed above, the electoral systems of many developed economies ultimately led to fiscal revelry and deficit politics. Given the current political situation in the United States, which is completely torn apart, lacks basic consensus, and all issues have been politicized and "civil war-like", there is no need to expect to solve the fiscal deficit problem through political means. Every political party that comes to power will aggravate the deficit - for example, the Democratic Party is currently planning to increase welfare, increase overseas aid and various industrial policies. If the Democratic Party comes to power and can implement its own policies, the fiscal problem will only become more serious. It can basically be judged that the US deficit will continue to grow.
The second method: The economic growth rate is faster than the deficit expansion rate - it can't be done
. This is the way to make the pie bigger and then reduce the proportion of debt to GDP and interest expenditure to fiscal expenditure. The numbers speak for themselves: in the past five years (2020-2024), the average US deficit growth rate was about 7.5%, and GDP growth was about 2.5%; in the next ten years (2025-2035), the average deficit growth was 3.5%, and GDP growth was 1.8%. The deficit growth is much higher than GDP growth. Dalio and others believe that the US debt level will rise from about 100% of GDP now to 130% in 2035. The third method: increase investors' demand for US debt - it can't be done. The US fiscal crisis is a "gray rhino" that everyone can see: it will not happen immediately, but it is destined to come, and its arrival is not in the form of default, but in the form of printing money - a significant dilution of the value of the US dollar. At this time, the US government needs to attract investors through higher yields. Therefore, the "gray rhino" of the US fiscal crisis is reflected in the high yield of long-term US Treasury bonds: in July 2025, the yield of the US 10-year Treasury bond was about 4.41%, which fully reflects the market's concerns about deficits and inflation.
Different professionals use different methods to assess fiscal deficit risks, and many methods compare government debt interest with the government budget. Financial historian Nial Fergusson has a so-called "Ferguson Rule" that combines finance and geopolitics. He believes that the most effective criterion for judging the unsustainability and risk of a country's debt is whether the country's expenditure on debt interest exceeds its defense spending. In fiscal year 2024, the US Treasury debt interest expenditure has reached 1.1 trillion US dollars, exceeding the total defense budget of about 900 billion US dollars that year. Ferguson believes that almost all countries that violated the "Ferguson Law" in history eventually lost their "powerful" status in the financial market and geopolitical fields. The trigger point may be a military conflict or a gradual decline, and the United States is on this path.
Bond investors do not need to know the "Ferguson Law", but they know how to price U.S. bonds, which is enough.
The above is the crisis brought about by the unsustainable fiscal situation in the United States. Due to the status of the US dollar, it not only affects the United States, but also the global economy. The irresponsible fiscal policy of the United States is paid by the world.
The previous analysis is "static", that is, it only considers the supply and demand relationship under the existing framework, but does not consider the "dynamic" factors.
The so-called "dynamic" factors are to try to introduce new mechanisms to allow more people to buy U.S. debt. If there is more demand, wouldn't that solve the problem?
At this time, stablecoins made their debut. When we say stablecoins, we mainly refer to Tether (USDT).
According to different calibers, the global stablecoin scale is about 250 billion US dollars, most of which are pegged to the US dollar, reflecting the dominant position of the US dollar in global finance. The total market value of Tether is about 160 billion US dollars, which is absolutely dominant. As the earliest large-scale US dollar stablecoin, Tether was originally designed to solve the problem of price fluctuations of traditional cryptocurrencies (such as Bitcoin and Ethereum) by pegging it 1:1 with the US dollar, and to create a safer digital asset ("digital dollar") that is not affected by market fluctuations and is suitable as a medium of exchange and a tool for storing value.
Therefore, each Tether is worth 1 US dollar, (claimed) backed by the equivalent amount of US dollars or other equivalent assets (such as US Treasury bonds) held by Tether Company as reserves to ensure a 1:1 peg. Users can trade, hedge and transfer on the blockchain network without relying on traditional financial institutions.
Without the endorsement and "intervention" of the US government, Tether also has a very "beautiful" business model:
1.User side:
Tether has multiple benefits: anchored to the US dollar, stable price, and value preservation function; transaction security; high efficiency; low cost (much lower than traditional payment methods); transaction anonymity, which can maximize privacy protection. Most importantly, the monetary system of many countries is weak, and investors want to hold US dollars to avoid the risk of depreciation of their own currencies, and Tether is the best choice. This functional advantage enables Tether to play both positive and negative roles.
The positive role is inclusive finance:In countries with high inflation rates such as Argentina and Nigeria, stablecoins have become the lifeline for people to preserve their assets. Locals directly exchange their wages for stablecoins to resist the depreciation of their own currencies; through local encrypted applications, they can directly pay rent, daily consumption and complete traditional remittances. In these developing countries, the demand for US dollars has been suppressed.
Negative effect is a channel for crime:
International criminal groups soon discovered that Tether is an excellent means to transfer drug funds across borders, evade sanctions, and create a closed-loop chain for money laundering, and it can also significantly reduce money laundering commissions. In addition, due to the huge demand for dollar-pegged assets among the public, it is conceivable that Tether/stablecoin will greatly promote illegal fundraising and financial fraud activities.
As a tool, Tether/stablecoin itself is "neutral", but its emergence will seriously affect the monetary sovereignty and financial sovereignty of various countries. 2. Platform side (stablecoin issuer) The stablecoin model ensures that the issuer can generate huge profits. For Tether, this is a great deal: users exchange real dollars for digital dollars issued by the company, and Tether will invest the raised dollars to generate interest and take all the profits, because unlike banks or money funds, the platform has no obligation to pay interest to users. Tether's circulation in 2024 is about 160 billion US dollars, and the company has only more than 100 employees, but it has achieved a profit of 13 billion US dollars, making it one of the companies with the highest per capita revenue in history. Tether puts most of its money into the safest investment, U.S. Treasuries. In January 2025, Tether reportedly held $113 billion in U.S. Treasuries. If Tether were a country, it would be the seventh-largest foreign holder of U.S. debt, between South Korea and the United Arab Emirates. That’s where U.S. Treasuries come in. Stablecoins are linked to U.S. fiscal sustainability and the hegemony of the dollar.
Since Trump's second administration, the US fiscal crisis, the decline of the US dollar's status, the domestic political division in the United States, and the collapse of the US-led international order have become more acute. Washington politicians are deeply aware that measures must be taken to deal with future crises. Everyone knows that the US political arena is no longer able to solve the increasingly serious problem of fiscal sustainability (that is, the government's solvency problem) - the will of voters and the division between the two parties have made it difficult to carry out fundamental reforms such as raising taxes or cutting benefits. In contrast, shifting the crisis overseas is a very "convenient" option: by inducing the world to use US dollar assets more widely, new channels can be opened up for US debt financing.
Stablecoin is the "key move". The U.S. Congress passed legislation to give stablecoins legal status, requiring them to be pegged to the U.S. dollar and guiding the issuing companies to invest the raised funds in U.S. bonds, thereby linking the entire stablecoin ecosystem to the U.S. treasury, significantly increasing the demand for U.S. bonds, making up for the growing U.S. fiscal deficit, and maintaining U.S. bond interest rates at a low level.
Behind this are countless participants in countless economies around the world - the world is paying for the U.S. deficit together.
This is an open plot, not a conspiracy. When U.S. Treasury Secretary Scott Bessant called for the passage of stablecoin legislation on the X platform last month, he said: "This is a win-win solution for all parties: the private sector, the Treasury and consumers can all benefit."
Stablecoins, in addition to expanding the size of U.S. debt, can also help consolidate the global status of the dollar by being pegged to the U.S. dollar, which is indeed "killing two birds with one stone."
It should be noted that this plan was not proposed by Bessant himself: As early as the Biden era, Yellen's Treasury Department had proposed such a suggestion - to be precise, this is a core component of the cryptocurrency regulatory framework recognized by all parties.
It's just that the current situation is more severe than a few years ago, which has accelerated the promotion of the regulatory agenda.
The Tether Company played an important role in this.CEO Paolo Ardoino is an Italian who lobbyists everywhere,
emphasizing the practicality of Tether as a debt financing tool and a means of power for the United States. He warned American politicians that "China is planning to launch its own cryptocurrency" and "it may be linked to the price of gold and used for international trade settlement, thereby shaking the status of the US dollar."
Ardoino said the popularity of Tether would help "fend off this threat." In March, he told Bloomberg: "We represent the most important application scenario of the US dollar's global hegemony. We are rooted in emerging markets and build infrastructure for the US dollar system from scratch... Tether is the last bastion supporting the US dollar." This statement is certainly very impressive for American politicians who are overwhelmed by fiscal deficits and China's challenges. However, the access of stablecoins has only expanded the demand side and allowed more institutions to participate in the purchase of US debt, but it has not fundamentally solved the US fiscal deficit problem. In other words, it is essentially using liquidity to solve the solvency problem. This means, of course, the United States abuses its "coinage power" and the status of the US dollar, which may further increase the "moral hazard" of the US government in terms of finance, and will be even more unrestrained in the future.
Observers can use various terms and concepts to describe this strategy. For example, some people say that this is "reconstructing the Bretton Woods system." But the author believes that this approach is more like a "Ponzi scheme" of the monetary system, or "the Evergrandeization of the monetary system." The essence of the so-called "Evergrandeization" is that the existing stakeholders work together to constantly deceive and introduce new funding parties ("leeks") to enrich the original plate so that the plate can continue to turn.
Pay attention to the two key links in this big chess move.
The first is Trump. It is a key link. He himself is indifferent to cryptocurrency, and even quite negative. But his two sons are big into cryptocurrencies, bringing the family into this industry. Trump himself launched the TRUMP meme coin in 2025, and his wife Melania also launched the MELANIA meme coin, which attracted widespread attention. It is known that cryptocurrencies have exceeded real estate in the Trump Group's revenue. Once the Trump family has interests, this matter will be easy to promote. As a result, Trump took the lead in promoting relevant legislation. Since last year's election, the efforts of the cryptocurrency industry have not been in vain. And Trump Jr. is the most critical key figure in it.
The second is the Republican Party. Before stablecoins, there was another "competitive" route: central bank digital currency (CBDC), both of which compete for a share of the digital payment market. If stablecoins are issued by the private sector, emphasizing market flexibility, deregulation, and decentralization, CBDCs are led by central banks and focus on monetary sovereignty and regulation. Biden was cautious about CBDC, but the Democratic Party was more concerned about financial risks rather than government control; the Republican Party was completely opposed to CBDC. Compared with stablecoins, the most important consideration was political and ideological: the Republican Party believed that CBDC was government-led, gave the government too much control, "threatened personal privacy", "weakened market freedom", and was a "socialist" mechanism. In the end, Trump's Republican government chose stablecoins. In January 2025, Trump signed an executive order banning the issuance of CBDCs and favored the development of stablecoins. Treasury Secretary Bessant said in May 2025 that "strong currency countries do not need to issue central bank digital currencies, and the private sector is more suitable for developing digital assets." It can be seen that Trump's family interests and the ideology of the Republican Party are indispensable factors in determining the launch of the stablecoin regulatory framework in the United States.
The issue of monetary sovereignty
If the US Congress passes legislation, it will endorse the "compliant" US dollar stable currency and accelerate its "conquest" in emerging markets. In some countries with violent currency fluctuations and weak monetary systems (such as Argentina, Nigeria, Turkey, etc.), stable currency is rapidly replacing the function of the local currency. In Argentina, workers have converted their savings into Tether, used encrypted applications to pay rent, and even scanned the code with Tether to buy Coke in the supermarket; the US dollar stable currency deposits of Nigerian payment platform Juicyway surged tenfold in one year to US$64 million, and this is just the beginning.
This "bottom-up dollarization" is extremely corrosive - when people embrace stablecoins because they lose confidence in their own currencies, the governmenthas actually lostthe ability to regulate monetary policy. Capital can flow freely across borders through stablecoins, which may instantly impact fragile economies and amplify financial fluctuations. The Bank for International Settlements (BIS) has warned that unregulated stablecoin flows may trigger destructive capital flight. Second-tier stablecoins have penetrated into payments, salary payments, and even commodity trade (Tether now holds a controlling stake in agricultural giant Adecoagro). Once a run or credit crisis occurs, it may trigger financial risks in the entire market. Finally, it should be noted that stablecoins are pegged to the US dollar, anchored to the US economy, US finance, US politics, and US social issues. The result is that all countries lose their monetary and financial sovereignty and are further bound by the United States, sharing all the political and economic problems of the United States (such as fiscal unsustainability).
Crime issues
The anonymity and cross-border convenience of stablecoins have made them a haven for money laundering. Foreign media reported that a very complex and mature cross-border money laundering network has been developed internationally, and the handling fee is very low (about 3%, far lower than the 10% cost of traditional criminal money laundering). Although Tether, the number one stablecoin company, claims to have cooperated with the US government in law enforcement and has frozen $2.5 billion in illegal assets, the vast majority of its nearly 500 million users worldwide have not undergone strict identity verification, and there are tens of millions of new users every quarter. TetherThe company has only more than 100 people in total, and its "Financial Crime Investigation Department" has only 20 to 30 people. It can't be said that it is in name only, but it is also a drop in the bucket. In order to evade supervision, Tether itself was registered in El Salvador (this bill does not cover this issue), forming a huge regulatory vacuum.
And because people yearn for high-quality investment assets, stablecoins can easily become a means of illegal fundraising and financial fraud because of the gimmick of cryptocurrency. Once a government fails to supervise, it may lead to criminal cases, trigger major economic and social risks, and even endanger stability. This problem should be a headache for regulators in various countries in the next few years. The core is that the operation of stablecoins such as Tether is completely beyond the scope of national sovereignty. Governments can only request them to provide information, but cannot force them to cooperate. Tether is also not low-key, considering itself a promoter of US dollar hegemony and a kind of spokesperson for the US government. When CEO Ardoino spoke abroad, he was already a head of state, thinking about which country to "ally" with. He said in a recent interview, "We mainly cooperate with US law enforcement agencies and usually do not cooperate with law enforcement agencies in authoritarian countries." - This is a blatant and open disregard for the sovereignty of other countries.
Stablecoins are not only used by the US government to solve fiscal problems, but also a tool for geopolitical competition. The current bill requires compliant issuers to customize products for the US market, while allowing them to expand overseas. Tether has announced that it will issue stablecoins separately for US users, while the original product continues to replace local currencies in emerging markets, weakening the financial sovereignty of other countries.
If you look into its essence, you can see that the US stablecoin bill is still essentially at the expense of the monetary sovereignty of other countries ("薅羊毛"), in exchange for breathing space for its own fiscal irresponsibility and unsustainability, while continuing to promote the hegemony of the US dollar by tying up other economies.
For emerging market countries, if they do not sit idly by and give up their monetary and financial sovereignty, they need to take defensive measures to limit the use of stablecoins in their local areas and guard against the impact of disorderly capital flows. China is a country with capital controls and naturally has a monetary sovereignty barrier. For many countries, the financial lifeline is actually in the hands of others.
In the medium and long term, we must see the geopolitical and economic logic behind the dollar's counter-trend advancement, continue to explore CBDC, or build a stablecoin system anchored to a basket of currencies and serving the multipolar monetary system to hedge against the dollar stablecoin.
Finally, under the Trump administration, the Republican-led Congress in the United States puts America first and American interests first when introducing such legislation, and will not consider the rights and interests of other countries, let alone the risks, costs and global financial governance of spillovers. This also requires all countries to work together to build a cross-border regulatory framework, fill the loopholes in offshore stablecoins, curb criminal capital flows, and prevent financial risks. Otherwise, when the crisis comes, it will be too late.
In Yuanbi Technology's view, the Hong Kong dollar stablecoin will not compete with the US dollar stablecoin for the market in the future, but will work with various stablecoins to broaden the application scenarios of stablecoins and expand the overall market in the process of grafting Web2 and Web3.
JinseFinanceWith the popularity of stablecoins, their security and compliance, especially anti-money laundering (AML) issues, have become core issues in the development of the industry.
JinseFinanceTaking into account the EU’s decades of experience in the field of electronic money and the improvements brought by other countries, effective stablecoin regulation should be built around three pillars: the granting of non-bank licenses, direct access to central bank accounts, and bankruptcy protection for backing assets.
JinseFinanceThe bill provides a huge opportunity for non-bank institutions such as Ripple.
JinseFinanceEthereum's Optimistic Outlook: Draft bill fosters stablecoin legitimacy, but concerns linger. Diverse stablecoin ecosystem anticipated.
Huang BoStablecoins gain prominence in 2023, with global regulatory efforts and market growth highlighting their evolving financial impact.
AlexLicensed platforms in Hong Kong are currently limited to facilitating the trading of Bitcoin (BTC) and Ethereum (ETH).
DavinDante Disparte hinted the U.S. could take a leading role in stablecoin regulation in an effort to “avoid trans-Atlantic or global misalignment."
CointelegraphThe U.S. continues to be a global leader in regulating and embracing the cryptocurrency industry, but the Stablecoin TRUST Act may set up some barriers for newcomers.
CointelegraphThe stablecoin report, to be released this week, is also expected to clarify the regulatory authority of the U.S. Treasury Department and CFTC over stablecoins.
Cointelegraph