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

From certain policy perspectives, "Tether's interests suddenly align with those of the United States."

Written by: Cobo Researcher

Stablecoin legislation is seen as a model of success for crypto regulation in the United States. However, in a broader narrative, it marks the beginning of a strategy for the extension of the dollar.

With the "GENIUS Act" passing the procedural vote in the Senate by an overwhelming majority on May 19, the regulatory framework for stablecoins in the United States is rapidly moving towards implementation. This is not only a regulatory update but also a national strategic deployment by the U.S. in the digital finance sector. In recent years, the U.S. government has been quietly advancing a far-reaching financial strategy, aiming to respond to the reshaping of the global financial landscape by regulating and guiding the stablecoin market, thereby consolidating the international dominance of the dollar.

According to Bloomberg, this strategic consideration may be more far-reaching than the market generally believes. As early as the Trump administration, there were indications that it had included the development of dollar stablecoins as a national strategic consideration through administrative means, using it as a tool to perpetuate the hegemony of the dollar. The advancement of legislative frameworks such as the GENIUS Act also reflects the continuation of this line of 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 of new demand to the U.S. Treasury market in the coming years. This not only provides a new structural buyer for U.S. bonds, but also digitally extends the global influence of the U.S. dollar through a mechanism pegged to stablecoins.

Stablecoin Legislation: Policy Design for Strategic Dual Gains

The core provisions of the "GENIUS Act," such as requiring stablecoin issuers to hold 100% of their reserves in highly liquid assets like cash or short-term U.S. Treasury securities, along with monthly transparency reports, aim to go beyond mere risk control. Such regulations will directly create structural demand for U.S. dollars and U.S. Treasury securities. Theoretically, for every dollar of compliant stablecoin issued, an equivalent value of dollar assets is locked as reserves. In the context where nearly 99% of stablecoins are pegged to the dollar, the scale effect of this mechanism should not be underestimated.

This move introduces a new and growth-oriented 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 U.S. dollar stablecoin ecosystem, the U.S. is able to maintain its monetary influence in the era of digital currencies without directly expanding the Federal Reserve's balance sheet.

The strategic value of this emerging capital flow for the U.S. Treasury market has been further confirmed in recent forecasts by 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, reaching $2 trillion. Citigroup's analysis also depicts a similar growth trajectory, with its "base case" prediction forecasting the market size to reach $1.6 trillion by 2030, while in a "bull case" scenario, 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 made it clear that stablecoin issuers are likely to surpass many sovereigns in their holdings of U.S. Treasuries in the coming years, as they must buy low-risk assets such as U.S. Treasuries to support their token offerings. The context against which this trend is occurring is particularly noteworthy: on the one hand, traditional US bond-holding countries such as China have continued to reduce their holdings in recent years; On the other hand, policies such as trade tariffs implemented during the Trump administration have once caused the market to scrutinize and question the traditional safe-haven status of US Treasury bonds. Against this backdrop, compliant stablecoin issuers are transforming from a specific player in the crypto space to a potential and possibly a major source of structural demand for U.S. Treasuries.

The Role of Tether: From Market Leader 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 an undeniable holder of U.S. Treasury bonds.

Tether's holdings of U.S. Treasury bonds are about to surpass Germany's

Tether's uniqueness lies not only in its large asset size, but also in its deep cooperation with Cantor Fitzgerald, a long-established financial institution in the United States, as a direct trading partner of the Federal Reserve, which gives Tether unparalleled liquidity support in extreme market conditions. Through Cantor Fitzgerald, Tether was able to quickly sell its holdings of U.S. Treasuries in exchange for USD cash when users collectively redeemed USDT. For example, during the violent turmoil in the crypto market in 2022, USDT briefly depegged the US dollar, but Tether successfully responded to a whopping $7 billion in redemption demand within 48 hours, accounting for 10% of its supply at the time. A bank run of this magnitude would normally be enough to plunge 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 system design aligns with the long-term goal of the United States in recent years to promote financial innovation and consolidate the dominance of the dollar, namely to strengthen America's financial advantages through non-traditional means. The result is a powerful stablecoin issuer that is deeply tied to the dollar, which objectively facilitates the global penetration of the dollar system.

Global Expansion and the Soft Power Projection of Digital Dollar

Tether's ambitions do not stop at the existing market. The company is actively expanding its USDT business into emerging markets such as Africa and Latin America, and is diversifying its efforts through the acquisition of local entity infrastructure, the development of an asset tokenization platform called Hadron, the launch of a self-custodial open-source wallet, and investments 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 recently launched QVAC platform natively supports USDT and Bitcoin payments, and integrates decentralized communication tools, aiming to create a digital ecosystem that emphasizes user autonomy, censorship resistance, and trustlessness.

Tether CEO Paolo Ardoino has mentioned his observations regarding China's influence in developing countries through infrastructure projects and the potential non-dollar payment systems (such as gold-backed digital currencies). In this context, Tether's layout in these regions can be seen as a market-driven commercial act aimed at promoting the use cases of dollar stablecoins, which objectively competes with other digital currency systems and expands 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. The Wall Street Journal reported in October that U.S. prosecutors in Manhattan had investigated Tether for possible sanctions and anti-money laundering violations (which Tether said had no knowledge of or was cooperating with law enforcement). In 2021, Tether paid $41 million to settle with U.S. regulators to settle allegations that it misrepresented its reserves. These historical events and ongoing scrutiny highlight the challenges faced by large stablecoin issuers in terms of compliance and transparency. CEO Ardoino, who himself did not visit the U.S. for the first time until March of this year, joked that he might have been arrested if he had come earlier, reflecting the delicate nature of Tether's relationship with U.S. authorities. However, the Bloomberg report also notes that in some policy perspectives, "Tether's interests suddenly converge with those of the United States."

New Pathways for Dollar Hegemony in the Digital Age

The U.S. strategy of regulating and guiding the development of the stablecoin market through legislative tools such as the GENIUS Act, combined with the rise and global expansion of market players such as Tether, is opening up a new path of consolidation for the international status of the U.S. dollar. Not only has this created an important new demand for U.S. Treasuries, but analysts at Standard Chartered Bank even believe that the U.S. Treasury bonds purchased by the sector in the next four years "may roughly cover all possible additional U.S. Treasury bonds", relieving the pressure on traditional buyers to reduce their holdings, and maintaining and extending the global influence of the U.S. dollar in a relatively low-cost and more penetrating way in the wave of global digital transformation. As Treasury Secretary Bessent acknowledged, digital assets could generate $2 trillion in new demand for U.S. Treasuries in the coming years, but the expansion of stablecoins also poses risks, such as any sudden spike in redemption volumes that could force operators to liquidate their Treasury positions quickly, potentially disrupting the market. In addition, the competitive landscape is evolving with the entry of traditional financial giants such as PayPal and new players such as World Liberty Financial, which is linked to the Trump family. However, the long-term results of this "conspiracy" will still be carried out in the multiple tests of global regulatory coordination, technological security, geopolitical competition and market competition.

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