Are Stablecoins Cementing Dollar Hegemony 3.0?
Stablecoins—digital tokens pegged to the U.S. dollar—are rapidly gaining traction, prompting legislative initiatives such as the GENIUS Act and STABLE Act in the U.S. Congress.
The Senate voted 66-22 on May 21 to advance the GENIUS Act, which sparked visions of a new dollar transmission mechanism - one that moves dollars onto blockchain networks, bypassing traditional banks, SWIFT, and clearinghouses altogether.
How the GENIUS Act Turns Stablecoins Into Dollar’s New Tool
Stablecoins are a unique class of cryptocurrencies designed to maintain a stable value by pegging to underlying assets such as fiat currencies, commodities, or through algorithmic mechanisms. They serve a dual role in the financial ecosystem:
a. Enable peer-to-peer transactions with minimal regulatory oversight, appealing to users prioritizing privacy and financial autonomy.
b. Particularly valuable in underbanked regions or scenarios requiring circumvention of traditional financial sanctions.
1. Decentralized Financial Instruments
a. By anchoring their value to reliable assets, stablecoins mitigate the volatility typical of cryptocurrencies, acting as a critical bridge between traditional finance and the crypto economy.
2. Stability and Integration
Most major stablecoins—including the two largest, USDT and USDC—primarily hold short-term U.S. Treasury bonds as reserve assets. This has positioned stablecoin issuers as significant participants in the Treasury market, reinforcing demand for U.S. sovereign debt.
The GENIUS Act establishes strict reserve requirements for stablecoin issuers:
– 1:1 Reserve Backing: Must hold equivalent USD or highly liquid assets (cash, demand deposits, or short-term T-bills).
– Pegging Mandate: Stablecoins must maintain a strong peg to the USD or a predefined asset basket.
– Risk Mitigation: Prohibits algorithmic stablecoins to reduce systemic vulnerabilities.
The Era of Dollar Hegemony 3.0 Begins
Historically, U.S. dollar hegemony evolved through two main phases:
– The gold-backed 'Bretton Woods Era' (1944-1971), where dollar supremacy relied on U.S. gold reserves and postwar reconstruction programs.
– The 'Petrodollar Era' (post-1973), where dollar primacy became enforced through OPEC oil pricing. This transition marked the shift from commodity-backed to fiat-based monetary hegemony.
By formally establishing the role of stablecoin issuers as quasi-money market funds, the GENIUS Act heralds the arrival of Dollar Hegemony 3.0, propelling the US dollar’s influence into the realm of blockchain-based finance. By mandating that stablecoins be fully backed by US dollars and Treasury securities, the legislation ensures that digital dollar equivalents remain firmly anchored to US monetary instruments. This move further cements the dollar’s status as the global reserve currency in the digital age.
This development is driven by the fact that stablecoins denominated in US dollars account for over 99% of the total market value of stablecoins. According to statistics from The Block, as of May 30, 2025, the issuance of stablecoins pegged to the US dollar has surpassed 200 billion US dollars. In contrast, gold-backed stablecoins amount to less than 2 billion US dollars, and those backed by the euro are merely around 300 million euros.
Stablecoins Save US Treasuries
A key insight from the BofA report shows that Stablecoins act as a new, substantial buyer in the Treasury market, supporting U.S. government financing costs and reinforcing the dollar’s global financial dominance.
Here is the direct link between stablecoin reserve requirements and U.S. Treasury demand:
– For every $1 of deposits leaving banks to stablecoins, there is an estimated $0.90 incremental demand for U.S. Treasuries, primarily short-term Treasury bills with maturities under 93 days.
– Current stablecoin market capitalization exceeds $200 billion, with the largest stablecoins (USDT, USDC) holding significant portions of their reserves in short-dated Treasuries.
– This demand is expected to steepen the U.S. Treasury yield curve as the Treasury accelerates issuance of front-end maturities to meet stablecoin reserve requirements, increasing market volatility and liquidity needs.
– The shift in demand composition may reduce the weighted average maturity of Treasuries held by stablecoin issuers compared to traditional bank holdings, which consist of about 10% in Treasuries and 90% in other assets.
Why Trump Need Stablecoins
The foundation of dollar hegemony was laid during wartime through the accumulation of wealth. It is a complex phenomenon involving multiple factors such as petrodollars, debt dollars, and seigniorage. At its core, the dollar tide reflects the US leveraging its status as a global settlement and reserve currency to influence and control the asset prices of other countries. This allows the US to cyclically "reap" wealth from other nations. In each cycle, the US buys foreign assets at low prices and sells them at high prices, generating substantial profits.
– Interest Rate Cuts or Quantitative Easing: Low interest rates encourage the flow of dollars to other countries, particularly emerging markets with rapid economic growth. These countries borrow dollars for investment, driving up asset prices and currency appreciation.
– Interest Rate Hikes: High interest rates draw dollars back to the US. Other countries sell their dollar reserves, liquidate or mortgage high-quality assets, triggering capital outflows, falling asset prices, and currency devaluation, especially in emerging markets.
In recent years, dollar hegemony has faced ongoing challenges and shocks. The adoption of digital currencies by various countries has accelerated the de-dollarization process. Multiple rounds of US quantitative easing have led to high fiscal deficits, eroding confidence in the US government. Central banks globally have increased their gold reserves, while US gold reserves have declined. The Russia-Ukraine conflict has prompted Russia and other countries to introduce non-US dollar settlement mechanisms.
Trump's introduction of high reciprocal tariffs has further exacerbated the cracks in dollar hegemony. It has intensified the global trust crisis in the US and the dollar. Trump's reliance on dollar hegemony to shift fiscal pressure to other countries is another instance of "reaping" through dollar hegemony, potentially accelerating the global de-dollarization process. One of the key ways the US exports dollars globally is through the trade deficit in the current account. However, Trump's high tariff policy may increase trade and settlement cooperation among non-US countries. If dollar hegemony collapses more quickly, the US fiscal burden could become even heavier in the future, making the practice of transferring seigniorage through quantitative easing even less sustainable. This is why the Trump administration urgently needs the stablecoin bill to reshape dollar hegemony.
Challenges and Opportunities for U.S. Banks
The U.S. Treasury Department’s research indicating that approximately $6.6 trillion in bank deposits are at risk of migrating to stablecoins, which could shift the monetary transmission channel from traditional banks to blockchain networks.
The economics of stablecoins pose a potential long-term risk to traditional bank deposits:
– The migration of $6.6 trillion in deposits to stablecoins threatens banks’ deposit bases and associated revenue streams.
– Stablecoins offer an alternative to rate-sensitive deposits, similar to money market funds, and the entry of Big Tech or retail firms as stablecoin issuers could intensify competition.
– Bank stocks have de-rated relative to the S&P 500 as investors assign premium valuations to private credit and direct lending firms, signaling market concerns about banks’ future profitability amid digital disruption.
– However, incumbent banks are actively responding: JPMorgan operates a blockchain-based digital payments platform “Kinexys,” and BNY Mellon launched a Digital Asset Data Insights product to integrate on- and off-chain data.
– The regulatory framework may also allow banks to become stablecoin issuers or subsidiaries, enabling them to retain influence in the evolving payments landscape.
Source: Deutsche bank, BofA, the Block
By moomoo News Adrienne
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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102692757 : US stablecoins are a joke! its just a tactic for US to raise funds using digital currency without issuing bonds and avoiding high interest payments!
worst is US stablecoins are not collateralized! its issued out of nothing! what makes you think US will not default on their obligations! once they do, your stablecoins as good as rubbish!
i would rather go for China digital stablecoins, they are supported by assets!
73833153 : it’s a way for “banks” to print their own money. Then take the actual money people pay for it and invest the acual money. It’s a interesting way to get a free loan. The advantage to many people and countries is that it circumvents banks. The US and EU have a history of seizing assets from “bad actors”. It’s also a handy way to bribe a politician.
Tonyco 102692757 : Incorrect.
Major USD stablecoins are collateralized by cash and cash-equivalent reserves (including U.S. Treasuries).
They are not a stealth Treasury funding scheme, nor “issued out of nothing.”
The U.S. government continues to issue bonds and pay market interest—stablecoins simply offer a blockchain-native claims on privately held reserves.
China’s digital yuan is a government CBDC, not a reserve-backed private stablecoin.
Tonyco 73833153 : Also incorrect:
This characterization is mostly false or—at best—highly misleading. Let’s unpack each claim:
1. “Banks” printing their own money
Stablecoin issuers (e.g. Circle for USDC, Tether for USDT) are not commercial banks and don’t have a banking license. They mint tokens only after taking in USD (or equivalents) as deposits, and must hold those deposits in a 1:1 reserve (cash and cash-equivalents) to back each token .
Under proposed U.S. stablecoin rules (the “GENIUS Act”), issuers would be explicitly barred from fractional-reserve lending—i.e., they couldn’t “reuse” or lend out more than 100% of the reserves .
2. “Take the actual money … and invest it”
Yes, issuers invest reserves in ultra-safe, liquid assets (short-dated U.S. Treasuries, repos, money-market funds) to earn yield. But these are high-quality, low-risk instruments—and not equity, corporate debt, or other high-volatility bets .
Importantly, any yield accrues to the issuer (helping cover operating costs), not to token-holders, who always redeem at a fixed $1 .
3. “A free loan”
What you describe is simply the economic model of deposit institutions: you give them $1, they owe you $1 but can earn interest on your deposit. That’s akin to a bank deposit—not a stealth funding trick.
And because reserves are fully backed, issuers can’t lend them out beyond what they hold (unlike fractional-reserve banks), so there’s no hidden “free” credit creation .
4. “Circumvents banks”
Paradoxically, stablecoins depend on regulated banks (or custodial institutions) to hold reserves. You deposit USD into a bank account (or money-market fund), and the issuer mints tokens against those holdings.
Far from bypassing banks, stablecoins route through them—and are subject to the same custody, AML/KYC, and regulatory oversight .
5. “Asset seizures by US/EU”
It’s true that authorities can freeze or seize crypto assets linked to sanctioned or illicit actors—just as they can with bank accounts. But stablecoin issuers themselves maintain reserves in regulated institutions, which would likewise be subject to any legal garnishment.
So stablecoins do not offer a magic shield against lawful asset freezes.
6. “A way to bribe a politician”
All major issuers enforce robust KYC/AML procedures on redemption and issuance, making truly anonymous large-value transfers very difficult. On-chain transfers are transparent and traceable, so using stablecoins for covert political payoffs would leave a clear blockchain audit trail .
---
Bottom line: while stablecoin issuers do invest their fully-backed reserves in safe, short-term instruments (earning the issuer modest yield), they operate under a full-reserve model, rely on regulated banks, and must comply with standard financial controls. They are not “printing money,” evading banks, or creating hidden free loans—and they certainly aren’t a covert vehicle for guaranteed bribes.
廣理右汛 102692757 : Life looks quite anxious for you. Be careful when breathing.![[undefined]](https://static.moomoo.com/nnq/emoji/static/image/default/default-black.png?imageMogr2/thumbnail/36x36 "undefined")
102692757 Tonyco : thats why i say you these kind of people are so shallow. back by cash, back by treasuries???
what is Us treasuries back with??? what is usd then back with??? usd used to be backed with gold, they took it away.
which stupid bank will lend you money without any collateral???
stablecoins is used by Us govt to bypass traditional way of raising money.
fiat currency already back by nothing, and yet you tell me stablecoins backed by usd??? isnt it still nothing at all!
you these people "think" its stable, cos you see these big numbers put across to you, you see some hedge funds holding substantial amt of stablecoins. you see oh cos its Us govt issued, so its safe (this is blind faith).
go n learn in depth abt realtionship between central bank and govt, the financial system then you come blant abt it.
nn tun : free money for banks..they will play both fiat amd crypto..keeping fiat alive..for interest income
73833153 Tonyco : lets try this again
“banks” in quotes refers to a person(s) or entity that makes/issues the stable coins.
The maker of the stable coins is selling them for $1 and they are redeamable for $1. No more, no less. Yes, the genius act would force the maker to invest in something secure, like US bonds. Lets say at 4% interest. In essence the buyer has given the maker $1 and is expecting nothing back but the original dollar. A fee loan.
Yes I’m certain there will be expenses involved. One would need to scale up and issue many stable coins.
The reference to bribing a politician was a thinly veiled refference to the UAE buying $2,000,000,000 worth of Trumps stable coin. Invested at 4%, compunded quarterly, for a year… thats $81,208,020 in gross profits for the Trump family’s World Liberty Financial. Not bad. Especially considering the UAE could have bought the bonds themselves and put the 81 million dollars in their own pockets. I’m unaware of what advantage this could have been for the Emerates. Or anyone else who buys his stable coin
I understand trading currency, but these arent day trades. If a capitalist parks thier money in a foreign currency they also want it to grow.
Also notable is that Trump’s family stable coin started trading on Binance on May 22nd. Then in May 29th the SEC dropped the lawsuit against Binance. Probably unrelated. We’ll see if Zhao gets the pardon he asked for. I hear folks in DC sometimes trade favors. So, maybe. It’s always “good to know a guy”. It’s not as good to know the son of a guy, but sometimes it’s almost as good.
Don’t get me wrong. I’m not bashing stabe coins or Trump. I’m just not looking thru rose colored glasses.
Joey Hall508 73833153 : Damn! We need a Truth Social for Truth Social. Chaos / confusion / room to do anything you want without anybody having a clue what you're actually doing or care. Block Chain is flawed. Stable coin is flawed. Changes by the second. Donald Trump isn't involved in what his sons are doing. God is coming back today. Stablecoins! It's the only way to get people that don't have a clue what a Stablecoin is to use it. Force them. Start by taking the Coin out of everything, considering it is just a name. You know it's serious when the guy holding the can in the middle of the road asks for a token so he can buy some food while wearing Gucci shoes and that look when you ask if they have change. Considering that Block Chain has tokens stolen everyday, it's definitely not ready for primetime and God forbid you lose your code. That was easy to figure out! Your out! Maybe you should get a tattoo with it. Of course we have a way to commit crime and get paid with Bitcoin especially since they locked you out of your company and hold it for RANSOM! Surely we can come up with a Ransom coin. It sure would make it easier to pay them. And the always favorite! It's easier for the government to know when you spend crypto on anything. I guess I better get those Taxes caught up. Can't find the manual for that yet. let me see! Dogecoin. It was a joke coin in the first place. But it's still making money. 19¢ x 30,000 should do it. Good Luck. we are going to need it.