Recently, there was a big event in the crypto circle. The U.S. Senate passed the so-called procedural motion of the U.S. dollar stablecoin bill by 66 votes to 32, entering the federal legislative stage.
The full name of this bill is "National Innovation Act to Guide and Establish a U.S. Dollar Stablecoin". The English abbreviation happens to be GENIUS, so it is nicknamed the "Genius Act".
For a time, the world's financial and economic circles were hotly discussing whether this so-called genius bill was the last struggle of the US dollar and US debt system before the total collapse, or whether it was indeed a genius way to resolve the US debt crisis and help upgrade the US dollar hegemony to version 3.0?
As we all know, the original US dollar was nothing more than a voucher for gold. The United States relied on World War II to establish the status of US dollar hegemony 1.0. As part of the entire post-war world order, the gold dollar was fixed by the Bretton Woods system, the World Bank, the International Monetary and Financial Organization and other systems and institutions. The Bretton Woods system stipulated that the US dollar and gold were pegged at a fixed exchange rate, and the legal currencies of other countries in the world were pegged to the US dollar. (Refer to Chapter 10, Episode 42 of Liu Jiaolian's "History of Bitcoin" )
However, just 25 years after the war, the United States was unable to maintain the peg between the dollar and gold. Robert Triffin, an American economist, found that if the dollar was to become an international currency, the United States needed to continue to export dollars. Since the dollar was pegged to gold, exporting dollars was exporting gold, which would inevitably lead to a reduction in the US gold reserves, which could not support the increasing number of dollars, and thus inevitably de-anchored.
Specifically, the following three goals are an "Blockchain Trilemma" that cannot be achieved at the same time: first, the U.S. maintains a surplus in international payments and the dollar's external value is stable; second, the U.S. maintains sufficient gold reserves; third, the dollar's value can be maintained at a stable level of $35 per ounce of gold. These three goals are an "Blockchain Trilemma" that cannot be achieved at the same time. (Refer to Liu Jiaolian's "The History of Bitcoin" Chapter 10, Episode 42)
This inherent bug is also known as the "Triffin Dilemma".
When President Nixon suddenly tore up the agreement unilaterally in a televised speech to the world in 1971 and announced that the dollar would no longer be pegged to gold, it was announced that the dollar hegemony 1.0 had fallen into a crisis of collapse. Without the support of gold, the value of the dollar was shaky.
God will give great responsibilities to those who are capable. In 1973, Kissinger became President Nixon's Secretary of State. He proposed the "petrodollar" strategy. He persuaded President Nixon to fully support Israel in the Yom Kippur War (the 4th Arab-Israeli War). Under the powerful military pressure of the United States, Saudi Arabia and the United States secretly reached a key agreement on the "petroleum-dollar-US debt" bundle: (Refer to Liu Jiaolian's article on June 9, 2024, "Every Bitcoiner will eventually become an internationalist" )
1. Saudi oil is priced and settled only in US dollars, and other countries need to reserve US dollars to purchase oil.
Second, Saudi Arabia will invest its surplus oil revenue in U.S. Treasury bonds, forming a mechanism for the repatriation of U.S. dollars.
Many people are confused by the superficial meaning of the term "petrodollar", and say that the US dollar 2.0 is a change from gold to oil. What money can buy is never the anchor of money. The anchor of money is the thing that constrains and supports the issuance of money.
From the perspective of commodity production, the capital process of petrodollars is: oil -> US dollars -> US bonds.
From the perspective of capital movement, this process has become a pure capital growth process: US dollar -> US debt -> US dollar'. Oil production is just a by-product of the capital movement process.
When China began its reform and opening up in the late 1980s, the capital movement of US dollars and US bonds was also applied to drive China's manufacturing to produce a large number of industrial products, achieving amazing results. For this capital cycle, whether the byproduct is oil or industrial products, it doesn't matter. Financial capital only wants to continuously squeeze profits in the high-speed cycle.
Now the United States no longer has to worry about exporting dollars. In the past, exporting dollars meant exporting gold, but the United States did not master alchemy and could not create gold out of thin air, so its gold reserves would soon be emptied. Now, exporting dollars means exporting U.S. debt, and U.S. debt is simply IOU issued by the U.S. Treasury, so can't you print as much as you want?
This is the era of US dollar hegemony 2.0. From the 1970s to the 2020s, about 45 years. The dollar at this stage is essentially a debt dollar, or IOU dollar, rather than an oil dollar or any other kind of dollar.
The most important thing about debt-dollar is to firmly anchor the US dollar to US debt. There are two prerequisites for this:
First, the U.S. must rank first in the world in terms of issuance, interest payment, and trading of U.S. debt, with the strongest discipline, the most reliable mechanism, the most creditable repayment, the strongest liquidity, etc.
Second, the United States must have the world's number one military deterrent force, forcing countries that earn a lot of dollars to actively purchase U.S. debt.
To this end, the Dollar 2.0 system is designed as a double-helix structure of checks and balances: the Treasury Department issues bonds "disciplinedly" according to the debt ceiling approved by Congress, but cannot directly issue US dollars; the Federal Reserve is responsible for monetary policy, issues US dollars, and controls interest rates through open market transactions of US Treasury bonds.
However, although the dollar 2.0 solved the problem of gold shortage, it introduced a bigger bug, that is, any artificial constraints could not really restrain the desire to print money. Congressional approval is not an insurmountable obstacle. The dollar has since embarked on an unstoppable path of unlimited debt expansion, and in just a few decades it has expanded to a huge amount of 36 trillion US dollars.
When the Alaska Treaty ends in 2020, the entire dollar 2.0 system will collapse. The reason is that China is slamming the table.
The huge amount of US debt is like a domino that towers into the sky, with a few small dominoes at the bottom supporting the entire shaky behemoth. Any movement that is strong enough to cause a vibration may cause a landslide above.
Even without external shocks, such a huge scale of US debt will gradually be unable to continue to roll, and it is expected to collapse sooner or later.
Thus, a genius solution came out. This is the US dollar hegemony 3.0 that is being conceived - the US dollar stablecoin. We might as well call it the blockchain dollar, or the crypto dollar.
It has to be said that the United States is still far ahead in financial innovation. Obviously, if the on-chain dollar, or the dollar stablecoin strategy, is a great success, we may see the following five earth-shaking changes in the near future:
1. The Federal Reserve’s monopoly on the right to issue U.S. dollars has been dismantled. The U.S. dollar stablecoin has become the “new dollar”, and the right to issue these “new dollars” is decentralized and in the hands of many stablecoin issuers.
Second, the U.S. Treasury assets in the Federal Reserve's balance sheet are being digested. The issuers of the U.S. dollar stablecoins will grab U.S. Treasury bonds like sharks competing for food as legal reserves to support the issuance of U.S. dollar stablecoins.
3. As more and more traditional US dollar assets are mapped to tokens on the blockchain through RWA (real-world assets) or other names, the massive transactions of a large number of RWA assets plus crypto-native assets (such as BTC) will generate huge demand for US dollar stablecoins, thereby driving the explosive growth of US dollar stablecoins.
4. With the explosive growth of the transaction volume of "RWA assets-US dollar stablecoins", the transaction volume of "traditional assets-US dollars" has gradually been surpassed and become a thing of the past.
5. When the intermediary role of the U.S. dollar in asset transactions gradually declines, it becomes a vassal in the closed loop of "U.S. debt-U.S. dollar-U.S. dollar stablecoin".
The traditional mechanism for issuing US debt and US dollars is: the Ministry of Finance issues US debt to the market to absorb US dollars. The Federal Reserve issues US dollars and buys US debt from the market. In this way, remote linkage is achieved, and US debt is used to support the issuance of US dollars.
The issuance mechanism of the US dollar stablecoin is as follows: the stablecoin issuer receives the US dollars from customers and issues the US dollar stablecoin on the blockchain. Then, the stablecoin issuer uses the received US dollars to purchase US bonds in the market.
Let's derive this using semi-quantitative numerical assumptions.
Traditional method: The Federal Reserve issues an additional $100 million, purchases $100 million worth of U.S. Treasury bonds from the market, and injects $100 million of liquidity into the market. The Treasury Department issues $100 million worth of U.S. Treasury bonds to the market, absorbing $100 million of liquidity.
The problem is: If the Federal Reserve insists on its so-called policy independence and refuses to undertake the task of purchasing U.S. Treasury bonds to inject liquidity, it will put great pressure on the Treasury Department to issue bonds, forcing U.S. Treasury bonds to be auctioned at a relatively high interest rate, which will definitely be very unfavorable for the U.S. government's future debt repayment.
Assuming that there is a sufficient amount of US dollar stablecoins: the stablecoin issuer absorbs $100 million and issues an additional $100 million of stablecoins. The stablecoin issuer takes out $100 million to buy US bonds and injects $100 million of liquidity into the market. The Ministry of Finance issues $100 million worth of US bonds to the market and absorbs $100 million of liquidity.
Note that there can be circular leverage here. If the vast majority of tradable assets are on-chain as RWA assets in the future, then the $100 million absorbed by the Treasury will eventually flow into various RWA assets after being spent. Specifically, the Treasury spends $100 million, and the institution that receives the US dollar converts all of the $100 million into US dollar stablecoins (note that this is an additional issuance of $100 million worth of stablecoins) from the stablecoin issuer, which is used to purchase various RWA assets or simply hoard BTC, thereby realizing the return of $100 million to the stablecoin issuer.
The stablecoin issuer can use the $100 million to buy another $100 million of U.S. Treasury bonds and inject liquidity into the market. The Treasury can then issue another $100 million of U.S. Treasury bonds to absorb the $100 million. This cycle continues.
At this point, we can see that only $100 million is used as a tool in the entire cycle, and the issuance of US Treasury bonds and US dollar stablecoins can be almost unlimited. After one cycle, US Treasury bonds are issued by $100 million, and correspondingly, US dollar stablecoins are also issued by $100 million. After N cycles, both US Treasury bonds and US dollar stablecoins are issued by N billion US dollars.
Of course, in reality, the cycle cannot be 100% lossless. There will always be some dollars that will not flow back to the stablecoin. Assuming that the loss ratio is 20%, it can be easily calculated that the total leverage ratio is 5 times. This should be similar to the money multiplier in the fractional reserve banking system.
The current size of U.S. debt is 36 trillion U.S. dollars. If the Federal Reserve cannot continue printing money, that is, if the existing U.S. dollar remains unchanged, through the circulation of U.S. dollar stablecoins, assuming a 5-fold leverage, the expansion space of U.S. debt can be opened up all at once, becoming 36 trillion times 5, which equals 180 trillion U.S. dollars.
The U.S. Treasury Department, that is, the U.S. government, can continue to issue U.S. debt happily without having to look at the Federal Reserve's face!
The extra 180 – 36 = 14.4 billion U.S. Treasury bonds are not backed by the U.S. dollars printed by the Federal Reserve, but by the U.S. dollar stablecoins printed by stablecoin issuers on various chains.
The Federal Reserve's right to mint U.S. dollars has been deconstructed and replaced by the U.S. dollar stablecoin minting rights of stablecoin issuers.
And when the US dollar stablecoin is widely used in various cross-border payments or daily payments, the US dollar can really be left alone and completely become a supporting role in the "US debt-US dollar stablecoin" cycle.
What role does BTC play in the entire process mentioned above?
Jiao Lian made a metaphor: black hole.
Black holes in the universe have such strong gravitational force that they suck in all light and prevent it from escaping.
BTC is like a black hole in the blockchain universe, with a strong gravitational pull on the liquidity of the US dollar, sucking the value in and making it impossible to escape. In this way, the liquidity of the US dollar is continuously sucked into the blockchain universe and converted into the stable currency of the US dollar. Then the US dollar is released into liquidity again by replacing US debt, and the cycle continues.
However, if the massive amount of newly issued US dollar stablecoins cannot be sold to all parts of the world, at least to a corresponding multiple of the economic scale, then it is conceivable that the actual purchasing power of the US dollar or US dollar stablecoins will depreciate.
Today, the total volume of US dollar stablecoins is still far from double the US debt, and is estimated to be less than 200 billion US dollars in total. 200 billion will first multiply five times to reach 1 trillion, and then expand 36 times to reach the scale of US debt. Then, on this basis, it will continue to double to provide greater help for the expansion of US debt.
Even if we only estimate the expansion based on the 5x leverage ratio mentioned above, the multiplication of these multiples is 5 * 36 * 5 = 900 times, almost 1000 times.
According to the current 10-fold relationship between the stablecoin market value of $200 billion and the BTC market value of $2 trillion, if the stablecoin successfully expands 1,000 times, the BTC market value may increase by 1,000 * 10 = 10,000 times, from $2 trillion to $200 trillion. Correspondingly, one BTC may increase from $100,000 to $1 billion, that is, 1 satoshi equals $10.
If we consider that a lot of liquidity will be diverted to RWA assets in the future, unlike the current market where BTC attracts most of the liquidity, then we can take a discount of 1/10 to 1/100 based on the above figures, that is, the market value of BTC is 200 trillion to 200 trillion US dollars, and the corresponding value of one BTC is 10 million to 100 million US dollars, that is, 1 satoshi is equal to 0.1 to 1 US dollar.
