Stablecoin: The Secret Path to Monetizing US Treasury Bonds

Author: Les Barclays, Translated by: Shaw Golden Finance

In this article, I will analyze what I believe to be one of the most important financial developments currently happening... the new stablecoin legislation and its potential role in helping the United States manage national debt, maintain the dollar's dominance, and exert pressure in global markets. In my view, this is not just about cryptocurrency regulation, but also closely related to the bond market, yield curves, macroeconomic strategies, and the broader geopolitical games being played behind the scenes.

If stablecoins are incorporated into the fiscal and monetary policy system of the United States, their impact will be significant not only for the cryptocurrency sector but also for global trade, manufacturing, debt issuance, and monetary policy. This could allow the United States to rebuild domestically at a lower cost while increasing financial pressure on competitors and attracting funds back into the U.S. system.

What is the GENIUS Act (and why is it being introduced at this time)

Stablecoins can be viewed as digital dollars that always have a value of exactly 1 dollar. Currently, there are no clear rules regarding who can issue stablecoins and how they should operate, which raises concerns about their safety.

The "GENIUS Act" (Senate version): This act establishes a regulatory framework for payment stablecoins (digital assets that must be redeemed at a fixed monetary value by the issuer). According to this act, only licensed issuers are allowed to issue payment stablecoins. You can think of it as needing a special license to print digital currency.

Key Differences

Who is responsible: The Senate version consolidates regulatory authority in the Treasury Department, while the House distributes power to the Federal Reserve, the Office of the Comptroller of the Currency, and other agencies.

Rule-making: According to the Senate's "GENIUS Act," only the Office of the Comptroller of the Currency (OCC) has the authority to issue these rules. In contrast, the House's "STABLE Act" will impose additional requirements, requiring collaboration from multiple agencies.

Both parties have the same goal:

1. Safety First: Only approved companies can issue stablecoins, which is similar to how only licensed banks can hold your funds.
2. Consumer Protection: This legislation will limit the issuance of payment stablecoins within the United States to "approved payment stablecoin issuers."
3. Market Clarity: Aims to regulate the stablecoin market of approximately $238 billion, creating a clearer framework for banks, companies, and other entities to issue digital currencies.

Current Status: The GENIUS Act has been passed with a result of 308 votes in favor and 122 votes against. The U.S. House of Representatives passed the "Guidance and Establishment of the U.S. Stablecoin National Innovation Act" (referred to as the "GENIUS Act") on July 17, 2025, and submitted this landmark bill for President Trump’s signature. As a result, the Senate version (GENIUS Act) ultimately prevailed and officially became law, marking it as the first cryptocurrency bill to be approved by both chambers of Congress.

Essentially, both bills aim to establish "traffic rules" for the digital dollar, but there are differences regarding which government agencies should act as the "traffic police."

The House's "STABLE Act" and the Senate's "GENIUS Act" are two opposing bills with a common goal: to bring stablecoin issuers under regulatory oversight and clarify how much capital, liquidity, and risk management is deemed sufficient. They also aim to clarify which federal or state agencies will serve as arbiters. But there is another, less conspicuous potential subplot: how the widespread acceptance of stablecoins by traditional global institutions will impact the $28 trillion U.S. Treasury market?

How Stablecoins Become Implicit Demand for Government Bonds

The situation is as follows: government bonds are the backbone of stablecoin reserves because, in terms of safety and liquidity, almost no other asset can compare. If you provide a digital dollar, you need to back it with assets that are as close to risk-free as possible. This sounds very much like the hundreds of money market mutual funds issued by giants like BlackRock, Fidelity, and Vanguard, which hold over $6 trillion in assets, most of which are U.S. government bonds. However, unlike the money market funds issued by Fidelity that may offer a 4% annual yield, most stablecoin issuers have so far refused to offer any yield or income to their holders. This is also why the largest stablecoin issuer, Tether, has an extremely high profit margin and reported over $1 billion in operating profit in the first quarter of 2025. It indeed sets many standards for reserves, audits, disclosures, and compliance with anti-money laundering (AML) procedures, as it wants to address many concerns regarding illegal activities. It also involves restrictions on marketing stablecoins as legal tender, while prohibiting payments of yields or interest to individuals holding stablecoins, as this would greatly undermine the banking industry.

There is one thing I have been paying attention to for a while (but unfortunately haven't mentioned to anyone yet), which is the relationship between stablecoins, U.S. Treasury bonds, and the Treasury Department. And why I believe the government would promote stablecoins first rather than other things.

In the chart below, there is one thing I want to emphasize:

The reason I emphasize this point now is that stablecoins could be one of the largest buyers of U.S. Treasury bonds, which would lower the yields on those bonds. In short, through stablecoins, you can normalize the yield curve, and this, in my view, is exactly what the Trump administration wants to implement, as both Trump and Bessent (whom I will discuss later) are concerned about the national debt and the amount that needs to be refinanced before the end of the year.

Perspective of National Debt

I think this is an interesting way to reduce the interest payments on the aforementioned debt, and the extremely compelling reason is that it will allow the United States to refinance its national debt at a lower yield, ultimately making the financing of national debt much easier.

Now let's talk about the situation of stablecoins compared to other countries. In 2024, Tether is the seventh largest buyer of U.S. Treasury bonds, and this is also the case compared to other countries buying U.S. Treasury bonds. Imagine how much U.S. Treasury bonds Tether (or Circle or other institutions) could buy within this framework. There are some concerns surrounding stablecoins and central bank digital currencies, and there are other bills or proposals being drafted and passed regarding the U.S. not supporting central bank digital currencies. You could speculate that Tether or Circle might be disguised as central bank digital currencies, but that is a completely different topic, and I won't delve into it. What I want to emphasize is the impact of stablecoins on national debt.

The Federal Reserve currently holds about 40% of the national debt, which needs to be rolled over at the new interest rate levels. These debts are set to mature in 2025 and 2026. Below, I will attach a chart of short-term U.S. Treasury bond rates of different maturities for reference.

Currently, depending on the time frame being examined, our debt ratio is approximately between 4% and 5%. If this is short to medium-term debt and is rolled over at the aforementioned interest rates, it will become very unsustainable, leading to a debt spiral. If stablecoins become one of the largest buyers of U.S. Treasuries, they can lower yields and will do so, especially in the short term. This is why I believe that short-term demand, particularly for short-term Treasuries, is very noteworthy, as it means they will essentially become one of the largest buyers of short-term Treasuries and will significantly alleviate the pressure of U.S. national debt.

U.S. Treasury Secretary Scott Behnke discussed in an interview the desire for the United States to become a leader in the digital asset space and to use this as a means of exerting pressure in the global market.

It is clear that Bessent is a supporter of stablecoins. A few months ago, it was still impossible to discuss that you wouldn't want to display your action plan to your competitors. I am glad that he is one of the few who has figured out what the adoption of stablecoins in the U.S. might mean—given his background, it is not surprising for those who understand him and work in the financial field. I believe he has a very advanced understanding of what stablecoins could be or what they might mean for the U.S. Treasury market.

The U.S. Treasury is issuing different types of bonds. On July 21, they auctioned $82 billion in 3-month Treasury bills, and the auction went very well. These are matters that everyone involved in finance or investing should pay attention to.

These auctions are very important because they reflect the interest of investors (including domestic and foreign investors) in purchasing U.S. Treasury bonds. I also believe that Powell's current approach is correct, that is, not lowering interest rates too quickly, not only because economic data suggests so, but also because when interest rates remain high—especially since the U.S. is the driving force of the global economy—this undermines the stability of many other economies, mainly those in Asia, Europe, and South America. I say this because when interest rates are high, it actually attracts liquidity back to the dollar, as investors seek safe havens. I believe the current situation is that they want to force other countries' currencies to realign with the dollar. Therefore, they can take action in the bond market by keeping interest rates high. This may severely weaken the economies and/or currencies of those countries from a financing perspective, as the capital cost of non-dollar denominated currencies becomes higher, making it harder to borrow. Consequently, those other countries will have to sell off a large amount of assets to fund themselves and stabilize their domestic economies.

When a country falls into financial trouble—no matter how it got into this situation—it is forced to sell assets to stabilize its economy. I am sure the Trump administration is aware of this and is taking advantage of the fact.

Scott and the entire U.S. government seem to be dissatisfied with Europe. They could have pressured many countries to align with U.S. policies and proposals through means such as tariffs and the bond market, but the bond market is extremely important.

Financial Stability or Digital Fragility?

Now, if the U.S. pushes for stablecoin legislation while conducting tariff negotiations and trade agreements, I believe there are many factors that will compound, and domestic pressures in Europe and Asia will be significant, potentially even triggering some kind of credit event, which would essentially lead to a stock market decline, with everyone rushing back to U.S. Treasuries. It depends on how quickly and at what scale stablecoins can develop, because if they develop too quickly and in too large quantities, we may encounter some sort of liquidity event (like the money market fund run from 2008 to 2009, or even the brief decoupling of Tether from the dollar in 2022), and there could even be a liquidity spiral decline/run dynamic, such as stablecoin redemptions forcing the sale of short-term Treasuries.

In my opinion, some type of event really needs to occur. It's like a compressed spring, or even a ball underwater. The deeper you push the ball, the more it wants to rise to the surface. This is the situation we see with Japanese government bonds and the UK debt market, among others.

An article written by a friend of mine at Barclays Bank discusses several key adoption risks of stablecoins. Stablecoins are digital assets designed to maintain a stable value relative to a reference asset. The main adoption risks highlighted in the article include:

• Regulatory Uncertainty: Stablecoins face significant regulatory scrutiny as regulators attempt to address issues surrounding their use, investor protection, and risks posed to financial stability. In the absence of a clear regulatory framework, issuers, users, and financial institutions seeking to incorporate stablecoins into their business operations face ongoing uncertainty.
• Operational Resilience: The underlying technology architecture of stablecoins, including smart contracts and the supporting blockchain, must demonstrate strong stability, scalability, and security. Operational risks arising from outages, technical failures, and network attacks may undermine trust and usage rates.
• Consumer Protection and Trust: Users must believe that the tokens are fully backed by reserves and can be redeemed at the promised value. Insufficient transparency or poor reserve management can undermine confidence, leading to value loss for holders or other issues.
• Integration with Existing Systems: The adoption of stablecoins may be hindered by the challenges of integrating new digital assets with traditional payment, banking, and financial market infrastructures. To realize the advantages of stablecoins on a large scale, seamless interoperability is essential.
• Systemic Risk: If poorly designed or inadequately regulated stablecoins are widely adopted, they could introduce new systemic risks to the broader financial system, especially when they hold a significant share in payments or deposits.

These risks indicate that, although the prospects for stablecoins are broad, their widespread application depends on clear regulatory standards, robust technology, transparent reserve management, and successful integration with the existing financial ecosystem.

The Politics of Quiet Monetization

Shashank Rai describes a phenomenon that can be called "quiet monetization"—how stablecoins create a significant increase in demand for U.S. Treasury bonds without expanding traditional government debt. Here is its mechanism:

Stablecoin issuers must fully back their tokens with liquid assets, the majority of which are short-term U.S. Treasury bonds. As of early 2025, stablecoin issuers held over $120 billion in U.S. Treasury bonds, and this figure is expected to rise to $1 trillion or more by 2028. This creates what they call a "structural, continuous source of demand, even as the market grows increasingly cautious about U.S. fiscal policy and long-term debt with respect to short-term U.S. Treasury bonds."

The UK has been slow to take action in establishing necessary regulatory certainty around stablecoins. Stablecoins are a costly form of currency. They are costly because they limit the transmission mechanism of money (thereby reducing economic growth). They are costly because they increase the volatility of government bonds (and the dollar), and exacerbate term premiums. They are costly because they dilute liquidity. They are costly because most of their yields are lower than those of money market funds. They are also costly because the transaction costs on blockchain are an order of magnitude higher than those of domestic payment systems.

Stablecoins are a form of currency that carries higher risks. The risk lies in the fact that they use an atomic swap model rather than a currency peg model. The risk also stems from the fact that its KYC processes are subject to much less regulation. Additionally, the risk exists due to the centralization risks surrounding miners in the blockchain.

As a competitive form of currency, they should obtain regulatory certainty and be included within the regulatory framework (which is different from the EU's approach, where excessive regulation has repeated its mistakes in the retail foreign exchange market, driving that market overseas). However, the structure of stablecoins should not undermine the stability of the banking system or people's confidence in currency (as seen in the US). Stablecoins that are properly regulated and operate within regulatory boundaries will be able to fully interoperate with cash. In a capital market environment, this will ultimately eliminate most stablecoins. Efficient markets, efficient liquidity, programmable currency—these do not require blockchain-based stablecoins.

A good regulatory framework for stablecoins requires:

• Real-time report on redemption/liquidity - Daily net asset value report
• Regulatory capital based on the RWA model (e.g., money market funds or banks)
• Minimum short-term liquidity ratio (24 hours).
• Regularly require transparent internal audits (systems and processes) - Senior personnel system (key decision-makers must be qualified).
• CRO's duty of attention to regulatory authorities.

The issuer of stablecoins should be able to fully access the central bank's real-time gross settlement system, repurchase market, and obtain central bank funds during periods of market pressure, just like a bank. However, there should be no regulations on the asset composition of stablecoins (other than meeting short-term liquidity needs). Transparency should be maintained, and the market should decide.

The Effect of "Offshore Quantitative Easing"

The concept of "offshore quantitative easing" refers to the fact that stablecoins have effectively created a demand for the US dollar globally, without the Federal Reserve needing to print more money:

As stablecoins are driven by the market, users tend to choose the most stable and widely accepted stablecoins, which naturally leads them to favor strong currencies (primarily the US dollar) while potentially excluding weaker national currencies. With the proliferation of stablecoins, especially in emerging markets, the process of dollarization may further intensify.

The author believes that this will create "a new game of dollarization," where "the rapid and low-cost flow of stablecoins may marginalize weaker currencies, further consolidating the dollar's dominance and reshaping the international financial landscape by making the dollar more accessible and liquid in cross-border transactions."

Unlike traditional quantitative easing (QE) where central banks openly expand the money supply, this operation is achieved through private market forces—stablecoin companies automatically purchase government bonds to support their tokens, thereby creating demand for government bonds without government intervention.