Regarding U.S. dollar stablecoins, there are theoretical misconceptions in monetary economics that need to be clarified, exaggerated market narratives that require demystification, and challenges to monetary sovereignty that must be seriously addressed.
On May 19, 2025, the U.S. Senate passed a procedural vote on the “Guiding and Establishing the Nation’s Use of Stablecoins Innovation Act” (hereinafter referred to as the “GENIUS Act”), signaling the impending establishment of the first federal regulatory framework for stablecoins in the United States. Some commentators argue that stablecoins represent a private-sector exercise of monetary issuance power and will replace payment systems such as SWIFT, Visa, and Mastercard. They believe the U.S. aims to legislate around stablecoins to generate demand for U.S. Treasury bonds through dollar-pegged stablecoins, potentially creating a “blockchain-based Bretton Woods system.”
There Is No Need to Mythologize the Payment Nature of Stablecoins
The last time stablecoins garnered global attention was on June 19, 2019, when Facebook announced its Libra project. At the time, Facebook was perceived as challenging central banks’ monetary authority. Although the Libra project ultimately failed in early 2022, other stablecoin projects have continued to grow rapidly amid limited regulation and momentum within the crypto-asset space. According to Alaric, as of June 1, 2025, the total market size of all stablecoins had reached $247.7 billion—190 times larger than $1.3 billion on June 1, 2019—with 99% of stablecoins pegged to the U.S. dollar. During their development, stablecoins explored various models, and a market consensus has now emerged around viable formats. First, after Libra abandoned its plan to peg to a basket of currencies in mid-2020, stablecoins have since been pegged to a single currency. Second, following the collapse of the algorithmic stablecoin Luna/UST in 2022, most stablecoins are now issued based on fiat currency reserves. Although decentralized algorithmic stablecoins, overcollateralized crypto-backed stablecoins, and stablecoins backed by gold or other real-world assets (RWA) have all been tested, their issuance and trading volumes remain a small fraction of the market. Both the U.S. GENIUS Act and Hong Kong’s “Stablecoin Regulations” explicitly require that stablecoins be issued with full fiat currency reserves and impose strict rules on the composition, management, and disclosure of reserve assets.
Under the mainstream model, issuing stablecoins does not expand the balance sheets of central banks or involve commercial bank lending—no new money is created. Instead, existing funds within the two-tier banking system composed of central and commercial banks are tokenized via distributed ledger technology (DLT), introducing a new mode of currency circulation. The Bank for International Settlements (BIS) summarized the three pillars of tokenization in 2023: first, digital tokens on distributed ledgers represent money; second, these tokens circulate on-chain, replacing traditional interbank transfers; and third, although tokens move on DLTs, the corresponding funds remain locked in the banking system. Stablecoins are essentially tokenized representations of commercial bank deposits, which can be invested in low-risk, highly liquid assets such as Treasury bills—forming the reserve backing for stablecoins.
Both stablecoins and non-bank payment systems (particularly stored-value models) are general-purpose payment instruments based on pre-funded deposits. The International Monetary Fund (IMF) classifies them both as e-money, but there are three key distinctions:
Ledger Architecture and Anonymity: Stablecoins run on distributed ledgers, offering greater openness and anonymity, and are inherently cross-border. Non-bank payment systems operate on centralized ledgers under real-name identification, used primarily for domestic retail payments.
Reserve Asset Investment Risk: Stablecoin reserves can be deposited across multiple banks and diversified into various instruments. The investment return on reserves is the main income source for stablecoin issuers, incentivizing riskier investments. In the event of losses, issuers may struggle to honor redemptions, potentially leading to runs on stablecoins.
Regulatory Arbitrage via Offshore Issuance: A significant proportion—estimated at over 70%—of U.S. dollar stablecoins are issued offshore and thus subject to weaker KYC, AML, and CFT oversight. In some cases, stablecoins have been used to circumvent U.S. financial sanctions. For example, USDT, issued by Tether (which accounts for 62% of all stablecoins), is one such offshore product. By contrast, non-bank payment providers are tightly regulated by local financial authorities.
Thus, mainstream stablecoins are not an exercise in monetary issuance by private entities and have nothing to do with the “denationalization” of money. However, if only partially backed by fiat reserves, their value stability hinges on the issuer’s creditworthiness—effectively constituting a form of private monetary issuance. These stablecoins are inherently unstable, prone to redemption pressure, and potentially pose systemic risk. Public records suggest that USDT exhibited such characteristics during its early development.
No Need to Overinterpret the Trump Administration’s Intentions Behind Promoting Dollar-Pegged Stablecoins
Upon returning to office, President Trump has aggressively promoted digital assets—including dollar stablecoins, Bitcoin, and tokenized securities—adopting policies markedly different from his previous term and his predecessors. Some researchers speculate that Trump is “playing a long game,” proposing that “dollar stablecoins will replace SWIFT” and herald a “blockchain-based Bretton Woods system.” However, this policy reversal is rooted in complex political and economic dynamics. Powerful interests in Wall Street and Silicon Valley have been instrumental in shaping these developments. Trump and his family have also profited substantially from the crypto sector, making it less about U.S. strategic interest than about commercial gain.
Dollar stablecoins now see significant trading volumes. According to Alaric, as of June 1, 2025, daily transaction volume for dollar stablecoins stood at $100.7 billion—well above the combined volume of Bitcoin and Ether. Currently, dollar stablecoins mainly solve the fiat on/off ramp issue for crypto exchanges. Due to regulatory constraints, many exchanges lack support from traditional banks and thus rely on stablecoins. Decentralized exchanges (DEXs), which are even further from regulatory oversight, rely heavily on stablecoins. Most users buy crypto with dollar stablecoins and receive stablecoins upon selling, with stablecoins serving as the unit of account and store of value across platforms. In other words, within crypto markets, dollar stablecoins function as the dominant medium of exchange, unit of account, and store of value.
After accumulating a large user base in crypto markets, dollar stablecoins are rapidly expanding into new use cases such as cross-border trade settlement, B2B payments, consumer transactions, payroll, and corporate financing. In Latin America, Africa, and Southeast Asia, individuals increasingly hold dollar stablecoins to hedge against economic instability and currency depreciation. Digitally, dollar stablecoins are accelerating global “dollarization.” This digital dollarization bolsters the international status of the U.S. dollar while eroding monetary sovereignty in other nations—potentially exacerbating structural imbalances in their economies.
Despite lacking both public and private consensus in the U.S. for a central bank digital dollar (CBDC), dollar stablecoins offer a more efficient path to global dollarization. The U.S. strategy can be summarized as follows: allow private firms to drive the growth of dollar stablecoins under a loose regulatory framework, then tighten oversight once the market reaches critical mass—in terms of users, issuance, and transaction volume—through controls on issuers, reserve asset management, and enforcement of KYC, AML, and CFT requirements. This strategy leverages the dollar’s role as a global reserve currency and exploits the openness and cross-border utility of stablecoins.
Fundamentally, dollar stablecoins are distinct from systems like SWIFT (a messaging network) and Visa/Mastercard (card payment networks); they are not substitutes. These legacy systems are pillars of the dollar’s international role and will not be replaced by stablecoins. While stablecoin reserves are often invested in U.S. Treasuries, and USDT reportedly holds over $120 billion in such assets (more than Germany), their contribution to solving the U.S. debt problem is minimal. First, under the GENIUS Act, stablecoin reserves may only be invested in Treasuries maturing within 93 days—short-term bills, whereas the U.S. needs long-term debt financing. Second, with total U.S. national debt exceeding $36 trillion, even if all stablecoin reserves (approximately $245.2 billion) were invested in Treasuries, the impact would be limited. Third, should stablecoin issuers allow flexible redemption while holding large quantities of Treasuries, forced redemptions could prompt large-scale bond sales, potentially destabilizing the market.
In theory, dollar stablecoins face a “trilemma”: large-scale issuance, large-scale investment in U.S. Treasuries (especially long-term ones), and flexible redemption. These three goals cannot be simultaneously satisfied.