US Stablecoin Strategy: Reshaping Dollar Hegemony and the Treasury Market Landscape

With the "GENIUS Act" passing procedural voting in the Senate with an overwhelming majority on May 19, the U.S. stablecoin regulatory framework is accelerating towards implementation. This is not just a regulatory update, but a national strategic deployment by the U.S. in the field of digital finance. In recent years, the U.S. government has been quietly advancing a far-reaching financial strategy, attempting to regulate and guide the stablecoin market to respond to the reshaping of the global financial landscape and consolidate the international dominance of the dollar.

According to Bloomberg, this strategic consideration may be more profound than the market generally believes. As early as during the Trump administration, there were signs that it had included the development of dollar stablecoins in national strategic considerations through executive means, using it as a tool to sustain dollar hegemony. The advancement of legislative frameworks such as the GENIUS Act also reflects the continuation of this thinking in the current government. Treasury Secretary Scott Bessent recently pointed out at a congressional hearing that digital assets are expected to bring up to $2 trillion in new demand for the U.S. Treasury market in the coming years. This not only provides a new structural buyer for U.S. Treasuries but also extends the influence of the dollar globally in a digital manner through mechanisms linked to stablecoins.

Stablecoin Legislation: Policy Design for Strategic Dual Gains

The core provisions of the "GENIUS Act" require stablecoin issuers to hold 100% of their reserves in highly liquid assets such as cash in US dollars or short-term US government bonds, accompanied by monthly transparency reports. The policy intent goes beyond mere risk control, as such regulations will directly generate structural demand for US dollars and US government bonds. Theoretically, for every 1 dollar of compliant stablecoin issued, an equivalent value of dollar assets is locked as reserves. Against the backdrop of nearly 99% of stablecoins being pegged to the US dollar globally, the scale effect of this mechanism should not be underestimated.

This move, on one hand, introduces a new and growing group of buyers to the increasingly expanding U.S. Treasury market, especially against the backdrop of traditional foreign sovereign buyers (such as China and Japan) continuously reducing their holdings of U.S. Treasuries in recent years, highlighting its strategic value even more. On the other hand, by supporting a compliant dollar stablecoin ecosystem, the U.S. is able to maintain its monetary influence in the digital currency era without the need to directly expand the Federal Reserve's balance sheet.

The strategic value of this emerging flow of funds for the U.S. Treasury market has been further corroborated by recent forecasts from mainstream financial institutions. For example, Standard Chartered estimates that by the end of 2028, the circulating market value of stablecoins pegged to the U.S. dollar could soar eightfold to reach $2 trillion. Citigroup's analysis also depicts a similar growth trajectory, with its "base case" prediction suggesting that by 2030, the market size will reach $1.6 trillion, while under a "bull case," this figure could even rise to $3.7 trillion.

Source: U.S. Department of the Treasury, Tagus Capital, Citigroup Institute

Crucially, both international banks have clearly pointed out that due to the fact that stablecoin issuers must purchase low-risk assets such as U.S. Treasury bonds to support the issuance of their tokens, they are very likely to surpass many sovereign nations in the scale of holding U.S. Treasury bonds in the coming years. The context in which this trend occurs is particularly noteworthy: on one hand, traditional major holders of U.S. Treasuries, such as China, have been continuously reducing their positions in recent years; on the other hand, policies such as the trade tariffs implemented during the Trump administration have at times sparked market scrutiny and questioning of the traditional safe-haven status of U.S. Treasuries. Against this background, compliant stablecoin issuers are transitioning from being specific participants in the crypto space to potential, and possibly even primary, structural sources of demand for U.S. Treasuries.

The Role of Tether: From Market Giant to Strategic Hub

In this strategic landscape, the role of Tether, the issuer of the world's largest stablecoin USDT, is becoming increasingly prominent. Data shows that the scale of U.S. Treasury bonds held by Tether is comparable to that of major industrial countries like Germany. This makes Tether not only an important infrastructure in the crypto market but also a significant holder of U.S. Treasury bonds that cannot be ignored.

Tether's holdings of US Treasury bonds will soon surpass those of Germany.

The uniqueness of Tether lies not only in its enormous asset scale but also in its deep collaboration with the established American financial institution Cantor Fitzgerald. This primary dealer, as a direct trading partner of the Federal Reserve, provides Tether with unparalleled liquidity support in extreme market conditions. Through Cantor Fitzgerald, Tether can quickly sell its holdings of U.S. Treasury bonds for cash when users concentrate on redeeming USDT. For example, during the severe turbulence in the cryptocurrency market in 2022, USDT briefly decoupled from the dollar, but Tether successfully addressed a redemption demand of up to $7 billion within 48 hours using this mechanism, accounting for 10% of its supply at that time. Such a scale of a bank run is usually enough to drive most traditional financial institutions into crisis, but Tether navigated it smoothly, highlighting the robustness of its reserve system and the uniqueness of its liquidity arrangements.

To some extent, this institutional design aligns with the long-term goals of the United States in recent years to promote financial innovation and consolidate the dominance of the dollar, which is to strengthen America's financial advantages through non-traditional means. The result is a powerful stablecoin issuer that is deeply tied to the dollar, objectively benefiting the global penetration of the dollar system.

Global Expansion and the Soft Power Projection of the Digital Dollar

Tether's ambitions do not stop at the existing market. The company is actively expanding its USDT business to emerging markets such as Africa and Latin America, and is diversifying its efforts by acquiring local physical infrastructure, developing an asset tokenization platform called Hadron, launching a self-custodial open-source wallet, and investing in brain-computer interfaces and peer-to-peer communication applications like Keet (based on the Holepunch protocol), to build what it calls an "AI Agent driven peer-to-peer network." Its newly launched QVAC platform natively supports USDT and bitcoin payments, integrates decentralized communication tools, and aims to create a digital ecosystem that emphasizes user autonomy, censorship resistance, and trustlessness.

Tether CEO Paolo Ardoino has mentioned observations regarding China's influence in developing countries through infrastructure projects and the potential for a non-dollar payment system (such as gold-backed digital currencies). In this context, Tether's positioning in these regions can be seen as a market-driven business activity aimed at promoting the use cases of dollar stablecoins, which objectively also competes with other digital currency systems, expanding the influence of the dollar in the digital realm. This aligns to some extent with the macro strategy of the United States to maintain its global currency status.

Despite its prominent market position and unique liquidity mechanism, Tether's operations are not without controversy. According to a report by The Wall Street Journal last October, federal prosecutors in Manhattan investigated potential violations of sanctions and anti-money laundering regulations by Tether (Tether claimed to be unaware of this or to be cooperating with law enforcement). In 2021, Tether paid $41 million to settle allegations of misreporting its reserves with U.S. regulators. These historical events and ongoing scrutiny highlight the challenges large stablecoin issuers face regarding compliance and transparency. CEO Ardoino himself only visited the U.S. for the first time this past March, joking that he might have been arrested had he come earlier, which indirectly reflects the delicacy of Tether's relationship with U.S. authorities. However, reports from Bloomberg also pointed out that "Tether's interests suddenly align with U.S. interests" from certain policy perspectives.

New Paths of Dollar Hegemony in the Digital Age

The United States is using legislative tools such as the "GENIUS Act" to regulate and guide the development of the stablecoin market. This strategy, combined with the rise and global expansion of market entities such as Tether, is paving a new path for the consolidation of the US dollar's international status. This not only brings significant new demand for US Treasury bonds but also alleviates the pressure from traditional buyers reducing their holdings. Standard Chartered analysts even believe that the bonds purchased by this industry over the next four years "may roughly cover all additional US Treasury bonds that could possibly be issued," while also maintaining and extending the global influence of the US dollar in a relatively low-cost and more penetrating manner amid the wave of global digital transformation. As Secretary of the Treasury Bessent acknowledged, digital assets could bring $2 trillion in new demand for US Treasury bonds in the coming years, but the expansion of stablecoins also brings risks. For instance, any sudden surge in redemption volumes could force operators to quickly liquidate their bond positions, potentially disrupting the market. Furthermore, the market competition landscape is evolving with the entry of traditional financial giants like PayPal and new players like World Liberty Financial, which is linked to the Trump family. However, the long-term effectiveness of this "sunny conspiracy" will still be tested through global regulatory coordination, technological security, geopolitical competition, and market competition.