Behind the Stablecoin: Why Washington loves the US dollar stablecoin so much

Author: Sumanth Neppalli, Decentralised.co Author; Translation: Golden Finance xiaozou

In July 1944, representatives from 44 Allied nations gathered in the rural ski town of Bretton Woods, New Hampshire, to redesign the global monetary system. They pegged their currencies to the dollar, while the United States pegged the dollar to gold. This system, designed by British economist Keynes, ushered in an era of stable exchange rates and frictionless trade.

Let's imagine that summit as a GitHub project: the White House forked the code base, the Treasury Secretary submitted a pull request, and the finance ministers of various countries quickly clicked merge, hard-coding the dollar into every future trade cycle. Stablecoins are that merge submission for today's digital age - while the rest of the world is still debugging its own code base, trying to build a future without the dollar.

Within 72 hours of his return to the Oval Office, Trump signed an executive order with a directive that sounds more like Crypto Twitter (CT) fan fiction than fiscal policy: “Promote and protect the sovereignty of the dollar, including through globally legal, dollar-backed stablecoins.”

Congress then introduced the GENIUS Act (Guidance and Establishment of a National Innovation for Stablecoins in the United States Act) — the first bill to set ground rules for a stablecoin framework and encourage global use of stablecoin payments.

The bill has been debated and sent to the Senate for a vote, which could come this month. Staff believe that the Democratic coalition’s recommendations have been incorporated into the latest draft and the bill is expected to pass.

But why is Washington suddenly so fond of stablecoins? Is this just political showmanship, or is there a deeper strategic layout behind it?

IWhy overseas demand is still crucial

Since the 1990s, the United States has outsourced manufacturing to China, Japan, Germany and the Gulf countries, and each batch of imported goods has been paid for with newly issued US dollars. Because imports have long exceeded exports, the United States continues to maintain a huge trade deficit. The trade deficit is the difference between a country's total imports and total exports.

These dollars put exporting countries in a dilemma: if they convert dollars into their own currencies, the exchange rate will rise, weakening the competitiveness of their products and damaging their own exports. Therefore, central banks choose to absorb dollars and switch to U.S. Treasury bonds to realize the circulation of funds without disrupting the foreign exchange market. This move can not only obtain the income of Treasury bonds, but its credit risk is almost the same as holding idle dollars.

This mechanism forms a self-reinforcing cycle: export to the United States to earn dollars → invest in U.S. bonds to earn interest → maintain the weakness of the local currency to continue to expand exports. This "supplier financing loop" with exporting countries contributes about a quarter of the US's $36 trillion debt, locking in a key advantage. If the cycle is broken through a long-term trade war, the cheapest financing channel for the United States will gradually dry up.

Deficit financing mechanism:The US government's spending continues to exceed tax revenue, forming a structural budget deficit. The deficit pressure is shared by selling Treasury bonds overseas: short-term Treasury bonds (T-bills) mature within one year, and long-term Treasury bonds have a maturity of 20-30 years.

Low interest rate effect:High demand for Treasury bonds has pushed down yields (interest rates). When major buyers such as China push up Treasury prices, yields fall, which in turn reduces the financing costs of governments, companies and consumers. This low-cost funding not only maintains economic growth, but also provides support for expansionary fiscal policies.

Dollar hegemony cornerstone:The dollar's reserve currency status depends on global confidence in US assets. Foreign holdings of U.S. debt symbolize trust in the U.S. economy and ensure that the dollar maintains its dominance in international trade, oil pricing and foreign exchange reserves. This privilege allows the United States to raise funds at very low cost and exert economic influence around the world.

If this demand is lost, the United States will face soaring financing costs, a depreciation of the dollar exchange rate and a decline in geopolitical influence. The crisis warning has already appeared. When Warren Buffett left office, he admitted that he was most worried about the imminent dollar crisis. For the first time in a century, the United States lost its AAA credit rating from the three major rating agencies - this is the "gold certification" in the bond market, which means that the debt safety level has reached its peak. After the downgrade, the U.S. Treasury has to raise yields to attract buyers, and interest expenses will also rise as the national debt continues to soar.

If traditional buyers start to withdraw from the Treasury market, who will absorb the trillions of dollars of newly issued debt? Washington’s bet is that regulated, fully-reserve stablecoins will open up new channels. The GENIUS Act forces stablecoin issuers to buy short-term Treasury bonds, which explains why the government is embracing digital dollars while taking a tough stance on trade.

Second, the Enlightenment of the Eurodollar System

Such financial innovations are not new to the United States. The $1.7 trillion Eurodollar system has also experienced a process from total resistance to total acceptance. Eurodollars refer to U.S. dollar deposits deposited in overseas banks (mainly in Europe) and are not subject to U.S. bank supervision.

The Eurodollar was born in the 1950s when the Soviet Union deposited dollars in European banks to circumvent US jurisdiction. By 1970, its market size had reached $50 billion, a fifty-fold increase in ten years. The United States was initially skeptical, and French Finance Minister Giscard d'Estaing once called it a "Hydra monster." After the 1973 oil crisis, when OPEC's actions quadrupled global oil trade in a few months, these concerns were temporarily shelved - the world needed the dollar as a stable trade medium.

The Eurodollar system has strengthened the United States’ ability to project influence without force. The system continued to expand as international trade and the Bretton Woods system solidified the dollar’s ​​hegemony. Although Eurodollars are only used for payments between foreign entities, all transactions must be settled by U.S. banks through a global network of correspondent banks.

This creates a powerful lever for U.S. national security goals: officials can not only block transactions within the United States, but also kick bad actors out of the global dollar system. Because the United States acts as a clearinghouse, it can track capital flows and impose financial sanctions on countries.

ThreeStablecoins: Digital Upgrade of the US Dollar

Stablecoins are contemporary European dollars equipped with public blockchain browsers. The US dollar is no longer stored in a London vault, but is "tokenized" through the blockchain. This convenience brings real scale: the on-chain US dollar token settlement amount will reach US$15 trillion in 2024, slightly exceeding the Visa network. Of the US$245 billion in stablecoins currently in circulation, 90% are fully collateralized US dollar stablecoins.

As investors look to lock in returns and avoid cyclical market fluctuations, the demand for stablecoins is growing. Unlike the violent market cycles of cryptocurrencies, the continued growth of stablecoin activities shows that their uses have far exceeded the scope of transactions.

The earliest demand appeared in 2014, when Chinese cryptocurrency exchanges needed a non-bank dollar settlement solution. They chose Realcoin (later renamed Tether), a dollar token based on the Bitcoin Omni protocol. Tether initially connected its fiat currency channel through the Taiwan banking network until Wells Fargo terminated its agency relationship with these banks due to regulatory pressure. In 2021, the U.S. Commodity Futures Trading Commission (CFTC) fined Tether $41 million for false reporting of reserves and accused its tokens of not being fully collateralized.

Tether's operating model is a classic banking method: absorb deposits → invest in float → earn interest rate spreads. It converts about 80% of its issued reserves into U.S. Treasury bonds. With a short-term Treasury bond yield of 5%, the annual income of $120 billion can reach $6 billion. In 2024, Tether achieved a net profit of $13 billion, while Goldman Sachs' net profit was $14.28 billion during the same period - but the former has only 100 employees (earning $130 million per person), while the latter has 46,000 employees (310,000 per person).

Competitors try to build trust through transparency. Circle publishes a monthly USDC audit report, detailing the minting and redemption records. Even so, the industry still relies on the credit endorsement of the issuer. In March 2023, the collapse of Silicon Valley Bank trapped Circle's $3.3 billion reserves, and USDC fell to $0.88 until the Federal Reserve intervened to restore the anchor.

Washington is working on establishing a system of rules. The GENIUS Act explicitly requires:

100% of reserves must be high-quality liquid assets (HQLA) such as government bonds/reverse repurchases;

Real-time audit verification through licensed oracles;

Regulatory interface: issuer-level freezing function, FATF rule compliance;

Compliant stablecoins can obtain the Fed's main account and reverse repurchase liquidity support.

A graphic designer in Berlin now holds US dollars without a US account, German banks or SWIFT documents - as long as Europe does not force the implementation of the digital euro, a Gmail account plus a KYC selfie can be completed. Funds are flowing from bank ledgers to wallet applications, and the companies that control these applications will be like global banks without branches.

If the bill takes effect, existing issuers will face a choice: either register in the United States to accept quarterly audits, anti-money laundering reviews and proof of reserves, or watch U.S. trading platforms switch to compliant tokens. Circle, which has placed most of its USDC collateral in SEC-regulated money funds, is clearly in a more advantageous position.

But Circle will not enjoy this blue ocean alone. Technology giants and Wall Street have every reason to join the game - imagine Apple Pay launching "iDollars": recharge $1,000 to earn income and spend in all scenarios that support contactless payment. The yield on idle funds far exceeds the existing card swipe fees, while completely bypassing traditional middlemen. This may be the reason why Apple terminated its cooperation with Goldman Sachs credit card: when payments are completed in the form of on-chain dollars, the original 3% transaction fee will be reduced to a blockchain network fee calculated by cents.

Large banks such as Bank of America, Citigroup, JPMorgan Chase and Wells Fargo have begun exploring the joint issuance of stablecoins. The GENIUS Act prohibits issuers from distributing interest income to users, which has relieved the banking lobby. This model essentially becomes a super cheap checking account: instant, global and never interrupted.

It is not surprising that traditional payment giants are rushing to lay out: Mastercard and Visa have launched stablecoin settlement networks, PayPal has issued its own stablecoin, and Stripe has completed its largest crypto acquisition to date (acquisition of Bridge) this year. They are well aware that change is coming.

Washington is also well aware of this. Citigroup predicts that under the baseline scenario, the size of the stablecoin market will increase sixfold to $1.6 trillion by 2030. A study by the U.S. Treasury Department shows that the figure may exceed $2 trillion in 2028. If the GENIUS Act requires 80% of the reserve to be allocated to government bonds, the "stable dollar" will replace China and Japan as the largest holder of U.S. debt.

FourAs "US dollar stablecoins" become popular, they will become the liquidity driving the entire token economy. Once cash is tokenized, people will perform regular off-chain operations at Internet speed (not bank speed): savings, lending, and mortgages. This never-ending flow of liquidity will continue to find the next tokenized target, bringing more "real world assets" (RWA) to the blockchain and giving them the same advantages.

24/7 Settlement: Traditional T+2 settlement cycles will become completely obsolete, and blockchain validators will be able to confirm transactions in minutes (not days). For example, a Singaporean trader can buy a tokenized New York apartment at 6 pm local time and get ownership confirmation before dinner.

Programmability: Smart contracts embed behavioral logic directly into assets. This makes complex financial operations possible: coupon payments, distribution rights, and asset-level compliance parameters can all be automatically executed.

Composability: Tokenized treasury bonds can be used as loan collateral and the interest income can be automatically distributed among multiple holders. An expensive beach house can be split into 50 shares and rented out to a hotel operator who manages bookings through Airbnb.

Transparency: The 2008 financial crisis was partly caused by the opacity of the derivatives market. Regulators can now monitor on-chain collateralization rates, track systemic risks, and observe market dynamics in real time without waiting for quarterly reports.

The main obstacle is regulation. The protection mechanisms of traditional exchanges are all painful lessons, and investors know what kind of protection they can get. Take "Black Monday" in 1987 as an example: the Dow Jones Industrial Average plummeted 22% in a single day, just because price fluctuations triggered automatic selling programs, triggering a chain reaction. The SEC's solution is a circuit breaker mechanism - suspending trading to allow investors to reassess the situation. Today, the New York Stock Exchange stipulates that trading will be suspended for 15 minutes if the decline reaches 7%.

Asset tokenization is not technically difficult. The issuer only needs to guarantee the real asset rights and interests corresponding to the token. The real challenge is to ensure that the underlying system can enforce all the rules that apply offline: this includes wallet-level whitelisting, national identity verification, cross-border KYC/AML, citizen holding limits, real-time sanctions screening and other functions that must be written into the code.

Europe's Crypto-Asset Market Regulation Act (MiCA) provides a complete regulatory framework for digital assets, and Singapore's Payment Services Act is the starting point for Asia. But the global regulatory landscape remains fragmented.

This process is almost bound to advance in waves. The first phase will prioritize the on-chaining of highly liquid, low-risk financial instruments, such as money market funds and short-term corporate bonds. The operational benefits of instant settlement are immediate, and the compliance process is relatively simple.

The second phase will move to the high end of the risk-return curve, covering high-yield products such as private credit, structured financial products and long-term bonds. The value of this phase lies not only in efficiency improvements, but also in unlocking liquidity and composability.

The third phase will achieve a qualitative leap and expand to illiquid asset classes: private equity, hedge funds, infrastructure and real estate mortgage debt. To achieve this goal, it is necessary to achieve universal recognition of tokenized assets as collateral and establish a cross-industry technology stack that can serve these assets. Banks and financial institutions need to custody these real-world assets (RWA) as collateral while providing credit.

Although the pace of on-chaining varies for different asset classes, the direction of development is clear. Each wave of new "stable dollar" liquidity is pushing the token economy to a higher stage.

（1）Stablecoin Landscape

The US dollar-pegged token market presents a duopoly, with Tether (USDT) and Circle (USDC) accounting for 82% of the market share. Both are fiat-collateralized stablecoins - the euro stablecoin operates on the same principle, with each token in circulation backed by euros stored in banks.

In addition to the fiat currency model, developers are exploring two experimental solutions to try to achieve decentralized anchoring without relying on off-chain custodians:

Crypto-collateralized stablecoins: Using other cryptocurrencies as reserves, usually over-collateralized to resist price fluctuations. MakerDAO is the flagship in this field, having issued $6 billion in DAI. After the bear market in 2022, Maker quietly converted more than half of its collateral into tokenized treasuries and short-term bonds, which not only smoothed ETH volatility but also earned returns. Currently, this part of the configuration contributes about 50% of the protocol's revenue.

Algorithmic stablecoins: These stablecoins do not rely on any collateral, but maintain their anchors through an algorithmic minting-destruction mechanism. Terra's stablecoin UST once reached a market value of $20 billion, but it triggered a run due to a collapse in confidence during the depegging incident. Although new projects such as Ethena have achieved a scale of $5 billion through innovative models, it will take time for the field to gain widespread recognition.

If Washington only grants "qualified stablecoins" certification to fully fiat-collateralized stablecoins, other types may be forced to abandon the "dollar" logo in their names to comply with regulations. The fate of algorithmic stablecoins is still unclear - the GENIUS Act requires the Treasury Department to conduct a one-year study on these protocols before making a final ruling.

(2) Money market instruments

Money market instruments include highly liquid short-term assets such as government bonds, cash and repurchase agreements. On-chain funds are "tokenized" by encapsulating ownership rights into ERC-20 or SPL tokens. This carrier supports 24/7 redemption, automatic profit distribution, seamless payment docking and convenient collateral management.

Asset management companies still retain the original compliance framework (anti-money laundering/identity verification, qualified investor restrictions), but settlement time is shortened from several days to minutes.

BlackRock's US Dollar Institutional Digital Liquidity Fund (BUIDL) is a market leader. The agency appointed SEC-registered transfer agent Securitize to handle KYC access, token minting/destruction, FATCA/CRS tax compliance reporting and shareholder register maintenance. Investors need at least $5 million in investable assets to qualify, but once on the whitelist, they can purchase, redeem or transfer tokens 24/7 - a flexibility that traditional money market funds cannot provide.

BUIDL's assets under management have grown to approximately $2.5 billion, distributed among more than 70 whitelisted holders on five blockchains. About 80% of the funds are allocated to short-term treasury bills (mainly 1-3 months), 10% are invested in longer-term treasury bonds, and the rest are maintained in cash positions.

Products such as Ondo (OUSG) operate as investment management pools, allocating funds to tokenized money market fund portfolios of institutions such as BlackRock, Franklin Templeton, and WisdomTree, and providing free access to stablecoins.

Although the scale of $10 billion is insignificant compared to the $26 trillion Treasury market, its symbolic significance is extremely significant: Wall Street's top asset management institutions are choosing public chains as distribution channels.

(3) Commodities

The tokenization of hard assets is driving these markets to transform into all-weather, click-and-trade platforms. Paxos Gold (PAXG) and Tether Gold (XAUT) allow anyone to buy tokenized shares of gold bars; Venezuela's 1 PETRO is pegged to 1 barrel of crude oil; small pilot projects have linked token supply to soybeans, corn, and even carbon credits.

The current model still relies on traditional infrastructure: gold bars are stored in vaults, crude oil is stored in tank farms, and auditors sign reserve reports on a monthly basis. This custody bottleneck creates concentrated risk, and physical redemption is often difficult to achieve.

Tokenization not only realizes the division of asset ownership, but also makes traditional illiquid physical assets easy to mortgage financing. The scale of this field has reached US$145 billion (almost all of which is backed by gold), compared with the size of the US$5 trillion physical gold market, the development space is self-evident.

（4） Lending and Credit

DeFi lending initially appeared in the form of over-collateralized cryptocurrency loans. Users pledged ETH or BTC worth $150 to borrow $100, and the operating model was similar to gold mortgage loans. Such users hope to hold digital assets for a long time to bet on appreciation, and at the same time need liquidity to pay bills or open new positions. Currently, the Aave platform has a lending scale of approximately US$17 billion, accounting for nearly 65% ​​of the DeFi lending market.

The traditional credit market is dominated by banks, which underwrite risks through decades-proven risk models and strictly regulated capital buffers. As an emerging asset class, private credit has developed in parallel with traditional credit to a global management scale of US$3 trillion. Companies no longer rely solely on banks, but instead raise funds by issuing high-risk, high-yield loans, which is attractive to institutional lenders such as private equity funds and asset management institutions seeking higher returns.

Bringing this area to the chain can expand the group of lenders and improve transparency. Smart contracts can automate the entire loan cycle: fund disbursement, interest collection, while ensuring that liquidation triggers are clearly visible on the chain.

Two models of private credit on the chain:

"Retailization"Direct lending: Platforms such as Figure tokenize home improvement loans and sell split notes to yield-seeking wallets around the world, which can be called the debt version of Kickstarter. Homeowners get lower financing costs by splitting loans into small shares, retail depositors receive monthly coupons, and the protocol automatically handles the repayment process.

Pyse and Glow package solar projects, tokenize power purchase agreements, and handle the entire process from panel installation to meter reading. Investors can simply sit back and enjoy the benefits, and receive an annualized return of 15-20% directly on their monthly electricity bills.

Institutional Liquidity Pools:Private credit desks are presented in an on-chain transparent form. Protocols such as Maple, Goldfinch, and Centrifuge package borrower needs into on-chain credit pools managed by professional underwriters. Depositors are mainly qualified investors, DAOs, and family offices, who can earn floating returns (7-12%) and track asset performance on a public ledger.

These protocols are committed to reducing operating costs, allowing underwriters to conduct due diligence on the chain and complete loan issuance within 24 hours. Qiro adopts an underwriter network model, where each underwriter uses an independent credit model and is rewarded for analysis work. Due to the high risk of default, the growth rate of this area is not as fast as that of mortgage loans. When a default occurs, the agreement cannot use traditional collection methods such as court orders, and must rely on traditional collection agencies, resulting in rising disposal costs.

As underwriters, auditors and collection agencies continue to go online, market operating costs will continue to decline, and the lender capital pool will also be greatly deepened.

(5) Tokenized bonds

Bonds and loans are both debt instruments, but they differ in structure, degree of standardization and issuance and trading methods. Loans are one-to-one agreements, while bonds are one-to-many financing instruments. Bonds use a fixed format - for example, a 5% coupon bond with a term of 10 years is easier to rate and trade in the secondary market. As a public instrument subject to market supervision, bonds are usually rated by institutions such as Moody's.

Bonds are often used to meet large-scale, long-term capital needs. Governments, utilities and blue-chip companies issue bonds to finance budgets, build factories or obtain bridge loans. Investors receive interest regularly and receive their principal back at maturity. The size of this asset class is staggering: its notional value is about $140 trillion by 2023, equivalent to 1.5 times the total market value of global stocks.

The current market still runs on an outdated infrastructure designed in the 1970s. Clearing institutions such as Euroclear and the Depository Trust & Clearing Corporation (DTCC) in the United States need to transfer through multiple custodians, resulting in transaction delays and a T+2 settlement system. Smart contract bonds can achieve atomic settlement in seconds, automatically pay dividends to thousands of wallets at the same time, have built-in compliance logic, and access to global liquidity pools.

Each bond issuance can save 40-60 basis points in operating costs, and treasurers can also get a 24-hour secondary market without paying exchange listing fees. As the core settlement and custody channel in Europe, Euroclear holds 40 trillion euros in assets and connects more than 2,000 institutions to 50 markets. The agency is developing a blockchain-based issuer-broker-custodian settlement platform that aims to eliminate duplication, reduce risks, and provide customers with real-time digital workflows.

Companies such as Siemens and UBS have issued on-chain bonds as a pilot project of the European Central Bank. The Japanese government is also working with Nomura Securities to test the bond on-chain solution.

（6） Stock Market

This area naturally has development potential - the stock market itself already has a large number of retail investors participating, and tokenization can create an "Internet capital market" that operates around the clock.

Regulatory barriers are the main bottleneck. The current custody and settlement rules of the US Securities and Exchange Commission (SEC) were formulated in the pre-blockchain era and require intermediaries to participate and maintain a T+2 settlement cycle.

This situation is beginning to loosen. Solana has applied to the SEC for approval of an on-chain stock issuance plan that includes KYC verification, investor education processes, broker custody requirements and instant settlement functions. Robinhood followed closely and filed an application, arguing that tokens representing US Treasury bond strip certificates or Tesla single shares should be considered securities themselves, rather than synthetic derivatives.

Demand in overseas markets is even stronger. Thanks to loose regulations, foreign investors already hold about $19 trillion in U.S. stocks. The traditional path is to invest through local brokers such as eTrade (which need to cooperate with U.S. financial institutions and pay high foreign exchange spreads). Startups such as Backed are offering an alternative - synthetic assets. Backed has completed $16 million in business by purchasing equivalent underlying stocks in the U.S. market. Kraken recently partnered with it to provide U.S. stock trading services to non-U.S. traders.

(7) Real Estate and Alternative Assets

Real estate is the asset class most constrained by paper certificates. Every title deed is stored in the government registry, and every mortgage document is sealed in the bank vault. Large-scale tokenization is difficult to achieve before the registry accepts hash values ​​as legal proof of ownership. Currently, only about $2 billion of the world's $400 trillion in real estate has been put on the chain.

The United Arab Emirates is one of the regions leading the change, with real estate deeds worth $3 billion already registered on the chain. In the US market, real estate technology companies such as RealT and Lofty AI have tokenized more than $100 million in residential assets, with rental income flowing directly to digital wallets.

FiveFunds are eager to flow

Cyberpunks see "dollar stablecoins" as a regression to bank custody and license whitelists, while regulators are reluctant to accept permissionless channels that can transfer billions of dollars in a single block. But the reality is that true adoption is born precisely at the intersection of these two "discomfort zones".

Crypto purists will still complain, just as early Internet purists hated TLS certificates issued by centralized institutions. But it was HTTPS technology that allowed our parents to use online banking safely. Similarly, dollar stablecoins and tokenized treasuries may not seem “pure” enough, but they will be the first silent exposure to blockchain for billions of people—through an application that never mentions the word “cryptocurrency.”

While the Bretton Woods system locked the world into a single currency, blockchain frees money from the shackles of time. Each asset on the chain shortens settlement time, frees up collateral dormant in a clearing house, and allows the same dollar to guarantee three transactions before lunch arrives.

We keep coming back to the same core idea: the velocity of money will eventually become the killer application scenario for crypto, and putting real assets on the chain fits this theme. The faster the value is settled, the more frequently the funds are redeployed, and the bigger the market pie. When dollars, debt, and data all flow at network speeds, the business model will no longer be transfer fees, but profiting from the potential of flow.