On May 19, 2025, the U.S. Senate passed the procedural motion for the GENIUS Stablecoin Act with a vote of 66-32. On the surface, this appears to be a technical legislation aimed at regulating digital assets and protecting consumer rights. However, a deeper analysis of its political and economic logic reveals that this could be the beginning of a more complex and far-reaching systemic transformation.
Against the backdrop of massive debt pressure in the United States and the heated monetary policy dispute between Trump and Federal Reserve Chairman Powell, the timing of the Stablecoin Act's advancement is intriguing.
U.S. Debt Crisis: A Policy Forced Out
During the pandemic, the U.S. launched an unprecedented money printing mode. The Federal Reserve's M2 money supply soared from $15.5 trillion in February 2020 to $21.6 trillion now, with growth rates ranging from 5% to 25%, peaking at 26.9% in February 2021, easily surpassing the growth rates during the 2008 financial crisis and the high inflation period of the 70-80s.
Meanwhile, the Federal Reserve's balance sheet has expanded to $7.1 trillion, with pandemic relief spending at $5.2 trillion, equivalent to 25% of GDP, which is more than the total cost of the 13 most expensive wars in U.S. history.
Simply put, the U.S. printed an additional $7 trillion in two years, planting a massive time bomb for future inflation and debt crises.
The U.S. government's debt interest expenditure is creating historical records. As of April 2025, the total national debt has exceeded $36 trillion, with an estimated $9 trillion in principal and interest due in 2025, of which about $7.2 trillion is principal.
Over the next decade, the U.S. government's interest payments are expected to be $13.8 trillion, with the proportion of national debt interest expenditure to GDP increasing year by year. To repay the debt, the government may need to further increase taxes or cut spending, both of which will negatively impact the economy.
Trump vs. Powell: Interest Rate Disagreement
Trump: Cut Rates or Be Fired
Trump urgently needs the Federal Reserve to cut rates for very practical reasons: high interest rates directly affect mortgage and consumer spending, which threatens Trump's political prospects. More critically, Trump has always used stock market performance as his political achievement, and the high-interest-rate environment suppresses further stock market growth, directly threatening the core data he uses to showcase his achievements.
Moreover, tariff policies have increased import costs, thereby pushing up domestic price levels and adding inflationary pressure. Moderate rate cuts can partially offset the negative impact of tariff policies on economic growth, alleviate the economic slowdown, and create a more favorable economic environment for re-election.
Powell: No One Cares
The Federal Reserve's dual mandate is full employment and maintaining price stability. Unlike Trump's decision-making based on political expectations and stock market performance, Powell strictly follows the Federal Reserve's data-driven methodology. He does not make predictive economic judgments but assesses the execution of the dual mandate based on existing economic data, and introduces targeted policies to remedy any issues with inflation or employment.
The U.S. unemployment rate in April was 4.2%, and inflation basically meets the long-term 2% target. Before the potential economic recession caused by policies such as tariffs is reflected in actual data, Powell will not take any action. He believes that Trump's tariff policies will "likely at least temporarily raise inflation" and that the "inflationary effect may be more persistent". Rashly cutting rates before inflation data fully returns to the 2% target could make the inflation situation worse.
Additionally, the Federal Reserve's independence is a crucial principle in its decision-making process. The initial purpose of establishing the Federal Reserve was to ensure that monetary policy could be made based on economic fundamentals and professional analysis, ensuring that policy-making considers the long-term economic interests of the entire country, rather than catering to short-term political needs. Facing Trump's pressure, Powell insists on defending the Federal Reserve's independence, stating, "I never actively request a meeting with the president, and never will".
GENIUS Act: A New Harvesting Machine for U.S. Debt
Market data fully proves the significant impact of stablecoins on the U.S. debt market. As the largest stablecoin issuer, Tether purchased $33.1 billion in U.S. Treasury bonds in 2024, making it the seventh-largest U.S. Treasury bond buyer globally. According to Tether's Q4 2024 report, its U.S. Treasury holdings have reached $113 billion. As the second-largest stablecoin issuer, Circle's USDC market cap is around $60 billion, also fully backed by cash and short-term government bonds.
The GENIUS Act requires stablecoin issuance to maintain reserves at a minimum 1:1 ratio, with reserve assets including short-term U.S. Treasury bonds and other U.S. dollar assets. The current stablecoin market size has reached $243 billion, and if fully incorporated into the GENIUS Act framework, it will generate demand for purchasing billions of dollars in government bonds.
First, the Benefits
The direct financing effect is obvious: theoretically, for every $1 of stablecoin issued, $1 of short-term U.S. Treasury bonds or equivalent assets must be purchased, directly providing a new funding source for government financing. Secondly, there's a cost advantage: compared to traditional bond auctions, stablecoin reserve demand is more stable and predictable, reducing the uncertainty of government financing. Third is the scale effect: after the GENIUS Act's implementation, more stablecoin issuers will be forced to purchase U.S. Treasury bonds, forming a large-scale institutional demand. Most importantly, there's a regulatory premium: by controlling stablecoin issuance standards through the GENIUS Act, the government effectively gains the power to influence the allocation of this massive fund pool. This "regulatory arbitrage" allows the government to advance traditional debt financing goals under the guise of innovation while avoiding the political and institutional constraints faced by traditional monetary policies. U.S. Treasury Secretary Bessent clearly stated at the White House Cryptocurrency Summit that stablecoins will be used to ensure the global dominance of the U.S. dollar.
Then, the Drawbacks
Risk of Monetary Policy Being Politically Hijacked: Large-scale U.S. dollar stablecoin issuance essentially gives Trump a way to bypass the Federal Reserve's "money printing rights", indirectly achieving the goal of stimulating the economy through rate cuts without directly confronting Powell. When monetary policy is no longer constrained by central bank professional judgment and independent decision-making, it easily becomes a tool for politicians to serve short-term interests. Historical experience shows that politicians tend to stimulate the economy through monetary easing to gain voter support while ignoring long-term inflation risks.
Hidden Inflation Risk: When a user spends $1 to buy a stablecoin, the money seemingly remains the same, but in reality, the $1 cash is split into two parts: the user's $1 stablecoin + the issuer's $1 short-term government bond. These bonds also have quasi-monetary functions in the financial system - high liquidity, can be used as collateral, and banks use them to manage liquidity. In other words, the monetary function of the original $1 is now split into two parts, increasing the effective liquidity of the entire financial system, pushing up asset prices and consumer demand, inevitably creating upward pressure on inflation.
Lessons from the Bretton Woods System: In 1971, when facing insufficient gold reserves and economic pressure, the U.S. government unilaterally announced the decoupling of the dollar from gold, completely changing the international monetary system. Similarly, when the U.S. government faces an intensifying debt crisis and excessive interest burdens, it may well generate political momentum to decouple stablecoins from U.S. Treasury bonds, ultimately making the market bear the cost.
DeFi: Risk Amplifier
After the issuance of stablecoins, they will most likely flow into the DeFi ecosystem - liquidity farming, lending collateral, various farming activities, etc. Through DeFi lending, Staking, reStaking, investing in tokenized government bonds and other operations, risks are amplified layer by layer.
The reStaking mechanism is a typical example, repeatedly leveraging assets between different protocols. Each additional layer adds more risk. Once the value of restaked assets plummets, it may trigger a chain of liquidations and market panic selling.
Although these stablecoins' reserves are still US Treasury bonds, after multiple layers of DeFi nesting, market behavior has become completely different from traditional US Treasury bond holders, and these risks are entirely outside the traditional regulatory system.
Trump's Way of Making Money: Monetizing Presidential Power
Given Trump's previous operations, I find it hard to believe he is promoting stablecoins purely to save the US economy. I'm more inclined to believe that USD stablecoins are a wealth-gathering tool for the Trump consortium.
World Liberty Financial: The Trump family launched the cryptocurrency project World Liberty Financial (WLFI), raising at least $550 million through $WLFI sales, with most sales occurring after Trump's November election victory. WLFI also launched USD1, a dollar-pegged stablecoin. The Abu Dhabi-backed investment company MGX announced a $2 billion investment in Binance through the USD1 stablecoin.
Issuing $TRUMP: In January, Trump issued a personal MEME coin $TRUMP, pioneering presidential token issuance, with the Trump group controlling 80% of the token shares. Since $TRUMP's launch, over 813,000 crypto wallets have lost approximately $2 billion. Last week, Trump hosted a private dinner at the National Golf Club for the top 25 $TRUMP holders, sparking widespread controversy.
Frequent Twitter Shilling: Trump's behavior on social media has raised market manipulation suspicions. On April 2nd, Trump signed a tariff executive order at the White House, causing US stocks to plummet; on April 9th, he announced a policy suspension, causing US stocks to surge. Just 4 hours before announcing policy changes, he posted on Truth Social saying "This is a great time to buy", and that day DJT stock rose 22.67%, increasing Trump's personal wealth by $415 million.
USD stablecoins involve monetary policy, financial regulation, technological innovation, and political negotiations. Any single-angle analysis is insufficient. The ultimate direction of stablecoins depends on regulatory formulation, technological development, market participant behavior, and macroeconomic environment changes. Only through continuous observation and rational analysis can we truly understand the far-reaching impact of USD stablecoins on the global financial system.
However, one thing is certain: in this game, ordinary people are most likely the ones paying the bill.
