In this game, ordinary people are likely still the ones footing the bill.
Written by: IOBC Capital
On May 19, 2025, the U.S. Senate passed the procedural motion for the GENIUS stablecoin bill with a vote of 66-32. On the surface, this is a technical piece of legislation aimed at regulating digital assets and protecting consumer rights, but a deeper analysis of the political and economic logic behind it reveals that this may be the beginning of a more complex and far-reaching systemic change.
Against the backdrop of significant debt pressure in the U.S., and the ongoing disputes between Trump and Federal Reserve Chairman Powell over monetary policy, the timing of the stablecoin bill's advancement is intriguing.
U.S. Debt Crisis: A Forced Stablecoin Policy
During the pandemic, the U.S. initiated an unprecedented money-printing mode, with the Federal Reserve's M2 money supply skyrocketing from $15.5 trillion in February 2020 to $21.6 trillion now, with a growth rate soaring from 5% to 25%. In February 2021, it even peaked at 26.9%, easily surpassing the growth rates during the 2008 financial crisis and the high inflation periods of the 1970s and 1980s.
At the same time, the Federal Reserve's balance sheet expanded to $7.1 trillion, with pandemic relief costing $5.2 trillion, equivalent to 25% of GDP, which is more than the combined costs of the 13 most expensive wars in U.S. history.
In simple terms, the U.S. printed an additional $7 trillion in just two years, laying a massive landmine for future inflation and debt crises.
The U.S. government's interest payments on debt are setting historical records. As of April 2025, the total U.S. 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.
In the next decade, the U.S. government's interest payments are expected to reach $13.8 trillion, with the proportion of debt interest payments to GDP rising 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: The Interest Rate Dispute
Trump: Fire if Rates Don't Drop
Trump is in urgent need of the Federal Reserve to lower interest rates for a very practical reason: high rates directly affect mortgages and consumer spending, posing a threat to Trump's political prospects. More critically, Trump has always viewed stock market performance as his report card; a high-interest environment suppresses further stock market gains, directly threatening the core data he uses to showcase his achievements.
Additionally, tariff policies have led to increased import costs, pushing domestic prices higher and increasing inflationary pressure. A moderate rate cut could offset the negative impact of tariff policies on economic growth, alleviating the slowdown and creating a more favorable economic environment for re-election.
Powell: No One Cares
The Federal Reserve's dual mandate is full employment and price stability. Unlike Trump's decision-making based on political expectations and stock market performance, Powell strictly adheres to the Fed's data-driven methodology. He does not make predictive judgments about the economy but assesses the execution of the dual mandate based on existing economic data. When either inflation or employment targets face issues, he implements corresponding policies to remedy the situation.
The U.S. unemployment rate in April was 4.2%, and inflation is generally in line with the long-term target of 2%. Powell will not take any action until potential economic recessions from policies like tariffs are reflected in actual data. He believes Trump's tariff policies "are likely to at least temporarily raise inflation" and that "the inflation effect may be more persistent." Acting hastily to cut rates before inflation data fully returns to the 2% target could worsen the inflation situation.
Moreover, the independence of the Federal Reserve is a crucial principle in its decision-making process. The Fed was established to ensure that monetary policy decisions are based on economic fundamentals and professional analysis, ensuring that policy formulation considers the long-term interests of the national economy rather than catering to short-term political demands. In the face of Trump's pressure, Powell insists on defending the Fed's independence, stating, "I never proactively request to meet with the president, and I never will."
GENIUS Bill: A New Harvesting Machine for U.S. Debt
Market data clearly demonstrates the significant impact of stablecoins on the U.S. debt market. Tether, as the largest stablecoin issuer, net purchased $33.1 billion in U.S. Treasury bonds in 2024, making it the seventh-largest U.S. debt buyer globally. According to Tether's Q4 2024 report, its holdings of U.S. debt have reached $113 billion. Circle, as the second-largest stablecoin issuer, has a USDC market cap of about $60 billion, fully backed by cash and short-term Treasury bonds.
The GENIUS bill requires stablecoin issuers to maintain reserves at a ratio of at least 1:1, with reserve assets including short-term U.S. Treasury bonds and other dollar assets. The current stablecoin market size has reached $243 billion, and if fully incorporated into the GENIUS bill framework, it will generate hundreds of billions of dollars in Treasury bond purchasing demand.
First, the Benefits
The direct financing effect is evident; for every $1 stablecoin issued, theoretically, $1 of short-term U.S. Treasury bonds or equivalent assets must be purchased, directly providing a new source of funding for government financing. Secondly, there is a cost advantage: compared to traditional Treasury bond auctions, the demand for stablecoin reserves is more stable and predictable, reducing the uncertainty of government financing. Thirdly, there are scale effects: after the implementation of the GENIUS bill, more stablecoin issuers will be forced to purchase U.S. debt, creating a scaled institutional demand. Most importantly, there is a regulatory premium: by controlling the issuance standards of stablecoins through the GENIUS bill, the government effectively gains the power to influence the allocation of this massive pool of funds. This "regulatory arbitrage" allows the government to use the guise of innovation to advance traditional debt financing goals while avoiding the political and institutional constraints faced by traditional monetary policy. U.S. Treasury Secretary Yellen explicitly stated at the White House cryptocurrency summit that stablecoins will be used to ensure the global dominance of the dollar.
Now, the Downsides
The risk of monetary policy being politically hijacked: The large-scale issuance of dollar stablecoins effectively gives Trump a "money-printing power" to bypass the Federal Reserve, indirectly achieving the goal of stimulating the economy through rate cuts without confronting Powell directly. When monetary policy is no longer constrained by the professional judgment and independent decision-making of the central bank, it can easily become a tool serving the short-term interests of politicians. Historical experience shows that politicians often tend to stimulate the economy through monetary easing to gain voter support while ignoring long-term inflation risks.
Hidden inflation risks: When users spend $1 to buy stablecoins, it may seem like no extra money is involved, but in reality, the $1 cash is split into two parts: the $1 stablecoin in the user's hand + the $1 short-term Treasury bond purchased by the issuer. 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. Essentially, the original $1 monetary function is now split into two, increasing the effective liquidity of the entire financial system, pushing up asset prices and consumer demand, inevitably putting upward pressure on inflation.
Historical lessons from the Bretton Woods system: In 1971, facing insufficient gold reserves and economic pressure, the U.S. government unilaterally announced the decoupling of the dollar from gold, fundamentally altering the international monetary system. Similarly, when the U.S. government faces a worsening debt crisis and excessive interest burdens, there may be political incentives to decouple stablecoins from U.S. debt, ultimately making the market pay the price.
DeFi: A Risk Amplifier
After stablecoins are issued, they are likely to flow into the DeFi ecosystem—liquidity mining, collateralized lending, various farming, etc. Through DeFi lending, restaking, and investing in tokenized Treasury bonds, risks are amplified layer by layer.
The restaking mechanism is a typical example, leveraging assets repeatedly across different protocols; each additional layer adds more risk. If the value of the restaked assets plummets, it could trigger a chain reaction of liquidations and market panic selling.
Although these stablecoins' reserves are still U.S. debt, after multiple layers of DeFi nesting, market behavior becomes completely different from traditional U.S. debt holders, and this risk is entirely outside the traditional regulatory framework.
Trump's Path to Wealth: Monetizing Presidential Power
Considering Trump's past maneuvers, I find it hard to believe that his push for stablecoins is purely to save the U.S. economy; I am more inclined to believe that dollar stablecoins are a tool for the Trump family to amass wealth.
World Liberty Financial: The Trump family launched the cryptocurrency project World Liberty Financial (WLFI), raising at least $550 million through the sale of $WLFI, most of which occurred after Trump's victory in the November election. WLFI also launched a stablecoin pegged to the dollar, USD1, with the Abu Dhabi-backed investment company MGX announcing a $2 billion investment in Binance through the USD1 stablecoin.
Issuing $TRUMP: In January of this year, Trump issued the personal MEME coin $TRUMP, marking the first instance of a president issuing a currency, with the Trump Group controlling 80% of the token share. Since the issuance of $TRUMP, over 813,000 cryptocurrency wallets have reportedly lost about $2 billion. Last week, Trump hosted a private dinner for the top 25 holders of $TRUMP at his national golf club, sparking widespread controversy.
Frequent Twitter Promotions: Trump's behavior on social media has also raised questions about market manipulation. On April 2, Trump signed a tariff executive order at the White House, causing a sharp drop in U.S. stocks; on April 9, he announced a policy suspension, leading to a surge in U.S. stocks. Just four hours before announcing the policy change, he posted on Truth Social, "This is a great time to buy," and that day, DJT's stock price rose by 22.67%, increasing Trump's personal wealth by $415 million.
Dollar stablecoins involve monetary policy, financial regulation, technological innovation, and political maneuvering; any single perspective analysis is insufficient. The ultimate direction of stablecoins depends on how regulations are formulated, how technology develops, how market participants engage, and changes in the macroeconomic environment. Only through continuous observation and rational analysis can we truly understand the profound impact of dollar stablecoins on the global financial system.
However, one thing is certain: in this game, ordinary people are likely still the ones footing the bill.
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