On May 19, 2025, the U.S. Senate passed the procedural motion of the GENIUS Stablecoin Act with a vote of 66-32. On the surface, this is a technical legislation aimed at regulating digital assets and protecting consumer rights, but a deeper analysis of the political and economic logic behind it shows that this may be the beginning of a more complex and far-reaching systemic change.

Against the backdrop of the United States' current massive debt pressure and Trump and Federal Reserve Chairman Powell arguing over monetary policy, the timing of the advancement of the stablecoin bill is intriguing.

US debt crisis: Stable currency policy forced out

During the epidemic, the United States started an unprecedented money printing mode. The Federal Reserve's M2 money supply soared from 15.5 trillion US dollars in February 2020 to 21.6 trillion US dollars now, with a growth rate from 5% to 25%. In February 2021, it reached a peak of 26.9%, easily exceeding the growth rate during the 2008 financial crisis and the great inflation of the 1970s and 1980s.

At the same time, the Federal Reserve's balance sheet has swelled to $7.1 trillion, and $5.2 trillion has been spent on epidemic relief, equivalent to 25% of GDP, which is more than the 13 most expensive wars in U.S. history combined.

Simply put, the United States printed an extra 7 trillion U.S. dollars in two years, which laid a huge bomb for the subsequent inflation and debt crisis.

The U.S. government's debt interest expenditure is setting historical records. As of April 2025, the total U.S. national debt has exceeded 36 trillion U.S. dollars. The total principal and interest of the national debt expected to be repaid in 2025 is about 9 trillion U.S. dollars, of which the principal due alone is about 7.2 trillion U.S. dollars.

The U.S. government's interest payments are expected to be $13.8 trillion in the next decade, and the proportion of national debt interest expenditure to GDP has increased year by year. In order to repay the debt, the government may need to further increase taxes or cut spending, which will have a negative impact on the economy.

Trump and Powell: Differences on rate cuts

Trump: If you don't cut rates, you'll be fired

Trump is in urgent need of the Fed to cut interest rates for a very realistic reason: high interest rates directly affect mortgages and consumption, which poses a threat to Trump's political prospects. More importantly, Trump has always regarded the performance of the stock market as his own political achievements. The high interest rate environment has suppressed the further rise of the stock market, which directly threatens the core data used by Trump to show his political achievements.

In addition, the tariff policy has led to higher import costs, which in turn has pushed up domestic prices and increased inflationary pressure. A moderate interest rate cut can to a certain extent offset the negative impact of the tariff policy on economic growth, ease the economic slowdown and create a more favorable economic environment for re-election.

Powell: No one cares

The Fed's dual mission is to achieve full employment and maintain price stability. Unlike Trump, who makes decisions based on political expectations and stock market performance, Powell strictly follows the Fed's data-driven methodology. He does not make predictive judgments on the economy, but evaluates the implementation of the dual mission based on existing economic data. When there is a problem with either inflation or employment, he will introduce corresponding policies to remedy the situation.

The unemployment rate in the United States was 4.2% in April, and inflation was basically in line with the long-term target of 2%. Under the influence of policies such as tariffs, Powell will not take any action before the possible economic recession is transmitted to actual data. He believes that Trump's tariff policy "is likely to push up inflation at least temporarily" and "the inflation effect may also be more lasting." A rash rate cut when inflation data has not yet fully returned to the 2% target may make the inflation situation worse.

In addition, the independence of the Federal Reserve is a crucial principle in its decision-making process. The original intention of the Federal Reserve was to enable monetary policy decisions to be made based on economic fundamentals and professional analysis, ensuring that monetary policy is formulated based on the long-term interests of the entire national economy rather than catering to short-term political needs. Facing Trump's pressure, Powell insisted on defending the independence of the Federal Reserve, saying, "I never actively ask to meet with the president, and I never will."

GENIUS Act: The new leek harvester of US debt

Market data fully demonstrates the important impact of stablecoins on the U.S. bond market. As the largest stablecoin issuer, Tether purchased a net of $33.1 billion in U.S. Treasuries in 2024, making it the seventh largest buyer of U.S. Treasuries in the world. According to Tether's fourth quarter report in 2024, its U.S. bond holdings have reached $113 billion. As the second largest stablecoin issuer, Circle's USDC market value is about $60 billion, which is also fully supported by cash and short-term Treasury bonds.

The GENIUS Act requires that stablecoin issuance must maintain reserves at a ratio of at least 1:1, and reserve assets include US dollar assets such as short-term US Treasury bonds. The current stablecoin market size has reached US$243 billion. If it is fully included in the GENIUS Act framework, it will generate hundreds of billions of dollars in demand for Treasury bond purchases.

Let’s talk about the benefits first

The direct financing effect is obvious. For every $1 of stablecoin issued, in theory, it is necessary to purchase $1 of short-term U.S. Treasury bonds or equivalent assets, which directly provides a new source of funds for government financing. The second is the cost advantage: compared with traditional Treasury auctions, the demand for stablecoin reserves is more stable and predictable, reducing the uncertainty of government financing. The third is the scale effect: after the implementation of the GENIUS Act, more stablecoin issuers will be forced to purchase U.S. Treasury bonds, forming a large-scale institutional demand. The most important thing is the regulatory premium: the government controls the issuance standards of stablecoins through the GENIUS Act, and actually gains the power to influence the allocation of this huge pool of funds. This "regulatory arbitrage" enables the government to use the cloak of innovation to advance traditional debt financing goals while circumventing the political and institutional constraints faced by traditional monetary policy. U.S. Treasury Secretary Bessant made it clear at the White House Cryptocurrency Summit that stablecoins will be used to ensure the global dominance of the U.S. dollar.

Let's talk about the disadvantages

Risk of monetary policy being hijacked by politics: The large-scale issuance of US dollar stablecoins actually gives Trump a "right to print money" to bypass the Federal Reserve, and can indirectly achieve the goal of lowering interest rates to stimulate the economy without confronting Powell head-on. 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 for politicians to serve short-term interests. Historical experience shows that politicians tend to stimulate the economy through monetary easing in order to gain voter support, while ignoring long-term inflation risks.

Hidden inflation risk: Users spend $1 to buy stablecoins. On the surface, the money is not much, but in fact, $1 in cash becomes two parts: $1 in stablecoins in the hands of users + $1 in short-term treasury bonds purchased by issuers. These treasury bonds also have quasi-currency functions in the financial system - high liquidity, can be used as collateral, and banks use them to manage liquidity. In other words, the original currency function of $1 is now divided into two parts, and the effective liquidity of the entire financial system has increased, pushing up asset prices and consumer demand, and inflation is bound to be under upward pressure.

Historical lessons from the Bretton Woods system: In 1971, when the US government faced insufficient gold reserves and economic pressure, it unilaterally announced the decoupling of the US dollar from gold, which completely changed the international monetary system. Similarly, when the US government faces an intensifying debt crisis and excessive interest burden, it is likely to generate political momentum to decouple stablecoins from US debt, and ultimately let the market pay the bill.

DeFi: A Risk Amplifier

After the issuance of stablecoins, there is a high probability that they will flow into the DeFi ecosystem - liquidity mining, lending mortgages, various farming, etc. Through DeFi lending, pledging and re-pledging, investing in tokenized treasury bonds and other operations, the risks are magnified layer by layer.

The Restaking mechanism is a typical example. Assets are repeatedly leveraged between different protocols. Each additional layer brings an additional layer of risk. Once the value of the re-pledged assets plummets, it may trigger a chain of liquidations and panic selling in the market.

Although the reserves of these stablecoins are still U.S. Treasuries, after multiple layers of DeFi nesting, the market behavior is completely different from that of traditional U.S. Treasury bond holders, and this risk is completely outside the traditional regulatory system.

Trump's way of making money: Monetizing presidential power

Considering Trump’s previous outrageous actions, I find it hard to believe that he is pushing for stablecoins purely to save the US economy. I would rather believe that the US dollar stablecoin is a tool for the Trump consortium to make money.

World Liberty Financial: The Trump family launched the cryptocurrency project World Liberty Financial (WLFI), which has raised at least $550 million through the sale of $WLFI, most of which occurred after Trump won the election in November. WLFI also launched the USD1 stablecoin pegged to the US dollar, and Abu Dhabi-backed investment company MGX announced a $2 billion investment in Binance through the USD1 stablecoin.

Release of $TRUMP: In January this year, Trump issued his personal MEME coin $TRUMP, which set a precedent for the president to issue coins. The Trump Group controls 80% of the token shares. Since the release of $TRUMP, more than 813,000 cryptocurrency wallets have lost about $2 billion. Last week, Trump held a private dinner for the top 25 holders of $TRUMP at the National Golf Club, which caused widespread controversy.

Frequent orders on Twitter: Trump's behavior on social media has also raised questions about market manipulation. On April 2, Trump signed an executive order on tariffs at the White House, and U.S. stocks plummeted; on April 9, he announced a suspension of the policy, and U.S. stocks soared. Just four hours before announcing the policy change, he posted on Truth Social that "this is a great time to buy." On that day, DJT's stock price rose by 22.67%, and Trump's personal wealth soared by $415 million.

The US dollar stablecoin involves monetary policy, financial regulation, technological innovation and political games. Any analysis from a single angle is not comprehensive enough. The ultimate direction of stablecoins depends on how regulations are formulated, how technology is developed, how market participants play, and changes in the macroeconomic environment. Only through continuous observation and rational analysis can we truly understand the profound impact of the US dollar stablecoin on the global financial system.

But one thing is certain: in this game, ordinary people are most likely the ones who pay the bill.