Written by: Dan Davies, Henry J. Farrell
Translated by: BitpushNews Yanan
For the US cryptocurrency interest group, this week has been fruitful. The Genius Act passed in the Senate, officially legalizing "stablecoins" as a type of cryptocurrency. More notably, President Trump hosted a private dinner on Thursday for investors ranking in the top 220 holders of the "Trump" meme coin ($Trump memecoin). However, for the United States as a whole, this is by no means a week worth celebrating.
Stablecoins are crypto assets backed by traditional assets such as the US dollar. The USD1 stablecoin issued by the Trump family through their cryptocurrency company World Liberty Financial is a typical example. These digital currencies, if used for political interest transfer, pose a significant threat. More worryingly, they could cause a deep impact on the US mainstream financial system—a risk that is more subtle and more destructive.
Supporters of stablecoins claim that these currencies will consolidate US financial hegemony—Trump even directly stated that stablecoins will "further expand the global dominance of the US dollar".
However, the reality might be exactly the opposite. These digital currencies could not only weaken the international status of the US dollar but also facilitate financial fraud, circumvent sanctions, and even trigger systemic risks. More worryingly, they might open the door for another currency to replace the US dollar as a global trade settlement tool.
World Liberty Financial stated that its stablecoin will be backed by short-term US Treasury bonds, US dollar deposits, and other cash equivalents. Similar to the US dollar's role as the foundation of the global financial system, stablecoins attempt to provide a value anchoring standard for the cryptocurrency market—avoiding the cost of exchanging real US dollars in regulated bank accounts and bypassing many restrictions of the traditional financial system.
The cryptocurrency interest group is trying to break down the boundaries between the crypto market and traditional finance by incorporating stablecoins into the US mainstream financial system. This strategy allows them to freely switch between two completely different domains: one is the highly volatile cryptocurrency casino (where people can speculate on various internet meme coins), and the other is the strictly regulated traditional financial market (where assets and bank accounts are protected by the US Securities and Exchange Commission and the Federal Deposit Insurance Corporation).
With Trump's return to the White House, the cryptocurrency industry has ushered in a new development opportunity—but this is not solely Trump's credit. The cross-party support for cryptocurrencies is due to both the massive funding from Political Action Committees (PACs) and the consecutive failures of politicians skeptical of cryptocurrencies. (In 2024, the cryptocurrency industry spent $40 million to successfully block the re-election campaign of Ohio Senator and prominent cryptocurrency critic Sherrod Brown.)
Stablecoin supporters believe that the prosperity of cryptocurrencies will consolidate the international status of the US dollar. As one of the co-sponsors of the Genius Act, New York Democratic Senator Kirsten Gillibrand warned that the United States is at risk of "falling behind in the digital currency race". She specifically pointed out: "We are watching Europe and China layout in the digital currency field, while the Trump administration obstructed the Federal Reserve's plan to launch a digital dollar, which will undoubtedly make us fall further behind."
Gillibrand argues that since most stablecoins are anchored to the US dollar, strengthening regulation and promoting these digital currencies could actually reinforce the global dominance of the US dollar. This view is not entirely unreasonable—the US dollar's global hegemony is precisely due to the stability of the US economic and political system and its established international payment network. This advantageous position allows the United States to transform the core position of the global financial system into a strategic weapon: through economic sanctions, the US can force international financial institutions to choose between "serving customers not welcomed by the US" and "entering the US dollar-dominated global financial system".
The cryptocurrency industry firmly believes that stablecoin legalization will officially incorporate the current mixed cryptocurrency ecosystem—it must be particularly noted that the main force of this system, many cryptocurrency projects and exchanges, were initially created to circumvent or even replace US dollar hegemony and government legal tender—into the mainstream financial system.
While this is undoubtedly a major benefit for the cryptocurrency industry, it poses enormous hidden dangers to global financial stability. Just look at the previous boastful statements of cryptocurrency enthusiasts: David Sacks, Trump's appointed "AI and Cryptocurrency Tsar", publicly hoped that cryptocurrencies like Bit would become the "new world currency", allowing US financial hegemony to be replaced by the disorderly competition of the private sector.
The potential chaos if cryptocurrencies become mainstream financial instruments is concerning. A Democratic staff member of the Senate Banking Committee pointed out that the Genius Act will allow US exchanges to list stablecoins issued by offshore companies not subject to domestic regulation. Critics particularly mentioned that the currently circulating main stablecoin Tether (whose operating entity is outside US judicial jurisdiction) has been confirmed as a funding channel for criminals and sanction evaders. More worryingly, some "mixer service" platforms with transaction concealment functions have been accused of helping North Korean hackers launder hundreds of millions of dollars.
Even with a perfect regulatory framework, enforcement is key. The recent policies of the US Department of Justice are puzzling—on one hand, acknowledging that terrorist organizations like Hamas and ISIS use cryptocurrency platforms to hide fund flows and evade tracking, while on the other hand announcing exemptions from prosecution for some platforms. With the current president viewing meme coins as a personal profit tool, the possibility of legal accountability is even more minimal.
The most fundamental concern about stablecoins may lie in the potential systemic financial risks they could trigger. This special existence hovering at the edge of the traditional financial system brings unprecedented regulatory challenges. While the drafters of the Genius Act propose regular assessments of stablecoins' impact on financial stability, they deliberately avoid a core question: Will the US government provide credit endorsement for US dollar stablecoins?
The key to this question is: When a stablecoin faces collapse or is proven fraudulent, will the government intervene to rescue it? Choosing to rescue could burden taxpayers with heavy debt—this is the fundamental reason why "too big to fail" traditional financial institutions need strict regulation.
But refusing to rescue will bring new systemic risks to the international US dollar system. When the market cannot predict which institutions might collapse due to chain reactions or the extent of risk exposure, bank-run-like crises could erupt, ultimately leading to liquidity exhaustion in the entire financial system. This is precisely why regulatory agencies require major participants in the global US dollar market to maintain high transparency.
Taking Tether as an example, its CEO candidly revealed a cautionary scenario: Due to large banks' refusal to cooperate, European stablecoin issuers have been forced to deposit funds in small and medium-sized banks. However, if the market loses confidence in the stablecoins held by these banks and experiences a 20% concentrated redemption, these small and medium-sized banks will immediately face a crisis similar to a traditional bank run.
At that time, who can prevent this panic from spreading to the entire banking system? This role must be undertaken by institutions with sufficient rescue capabilities—and they must use real US dollars, not those dubious cryptocurrencies.
This explains why the question "Should the United States support the US dollar stablecoin" is so difficult to answer. No wonder reports show that many countries are trying to reduce their banks' dependence on US dollar financing.
The international community views the US push to legalize stablecoins as a potential threat. Once stablecoins become a new financial instrument controlled by the US, Washington may further penetrate other countries' financial systems. More worryingly, the new binding relationship between the US dollar and cryptocurrencies may enable illegal fund flows on an unprecedented scale.
European Central Bank Chief Economist Philip Lane warned that dependence on stablecoins will lead financial activities to shift from the euro system to US dollar-backed private cryptocurrencies, which will make Europe more vulnerable when facing US economic pressure.
As an important part of the EU's "strategic autonomy" plan (aimed at reducing dependence on the US), the European Central Bank is accelerating the development of the digital euro. This publicly-led digital currency will not only provide a complete alternative payment network but will also have built-in privacy protection and security mechanisms - in stark contrast to private stablecoins.
The current situation indicates that stablecoins have not only failed to consolidate US dollar hegemony by "helping the US catch up with other countries" as expected, but are actually accelerating countries' efforts to break free from the US dollar system. Europe is not only building its own financial safety net but is also planning to establish an entirely new global alternative - this US-led system, which is losing trust, is facing unprecedented challenges.
The European Central Bank's digital euro project leader has begun exploring its "international application prospects", aiming to create an entirely new payment system that "respects national sovereignty, reduces systemic risks, and creates new development opportunities".
Ironically, stablecoins were originally hoped to help regulate the chaotic crypto market by leveraging US dollar credit, but now may instead transmit the crypto market's chaos - along with the Trump administration's unique policy orientation - into the traditional financial system dominated by the US dollar. This reverse penetration is triggering deeper systemic risks.
