The stablecoin gameplay has changed.

Author: Shanaka Anslem Perera

The U.S. Treasury bypassed the Federal Reserve and implemented structural reforms to the U.S. monetary system, forcing the private sector to purchase government bonds, potentially providing a temporary solution to the fundamental issue of deficit financing. This transformation was achieved without a constitutional amendment, political revolution, or even extensive public debate. All of this was made possible with just a 47-page financial regulation document.

On July 18, 2025, President Trump signed the “Guiding and Establishing the U.S. Stablecoin National Innovation Act” (GUIDIUS Act). The act has been marketed as a consumer protection measure for digital currencies. However, it actually represents the most significant restructuring of the sovereign debt market in peacetime since the 1951 “Treasury-Federal Reserve Accord”—but in the opposite direction. The 1951 accord established the independence of the central bank from fiscal authority, while the GENIUS Act weaponizes the regulatory framework for digital dollars, subordinating monetary policy to the financing needs of the Treasury.

The mechanism is very ingenious. The bill stipulates that all payment stablecoins (digital tokens) pegged to the US dollar must hold 100% of US Treasuries or central bank cash reserves. Regulatory authority is exercised by the Office of the Comptroller of the Currency (OCC) under the Treasury Department rather than the independent Federal Reserve. The bill prohibits these issuing institutions from investing the reserves in corporate bonds, commercial paper, or any other assets other than short-term government securities.

The result is: each newly minted digital dollar has become a legal purchase of U.S. sovereign debt.

U.S. Treasury Secretary Scott Basset has publicly predicted that by 2030, the market capitalization of stablecoins will grow from the current $309 billion to between $2 trillion and $3.7 trillion. If this prediction comes true, the stablecoin industry will become the second-largest holder of U.S. government debt, after the Federal Reserve—however, unlike the Federal Reserve's balance sheet, this demand is not created by central bank money printing but originates from private capital flows, primarily from emerging markets seeking dollar exposure amid local currency instability.

This is not quantitative easing, but rather privatized quantitative easing—fiscal authorities artificially create structural demand for their own debt through regulatory directives, unaffected by the central bank's policy stance. Its impact goes far beyond technical debt management, undermining the foundations of the post-Bretton Woods monetary order.

Mandatory Requirement Architecture

The key innovation of the “GENIUS Act” lies not in the behaviors it allows, but in those it prohibits. Traditional banking regulation permits financial institutions to hold diversified portfolios, manage maturity transformation, and generate profits through lending. However, under this act, stablecoin issuers are prohibited from engaging in all of these activities.

They can only hold three types of assets: dollar deposits at banks insured by the Federal Deposit Insurance Corporation, Treasury bills with maturities of 90 days or less, or repurchase agreements collateralized by these Treasury bills. They are explicitly prohibited from re-pledging these assets—i.e., using the same collateral multiple times—unless it is to raise liquidity through the overnight repurchase market to meet redemption demands.

This structure transforms stablecoin issuing institutions into “narrow banks” with a singular mission: to convert private savings into government liabilities. Circle, Tether, and any future licensed issuers play the role of a conduit, directly channeling global demand for dollars into Treasury bill auctions. The regulatory framework ensures that this portion of funds does not flow into the broader private economy.

The research of the Bank for International Settlements has empirically measured this effect. A working paper analyzing the liquidity of stablecoins from 2022 to 2024 found that a $3.5 billion increase in market capitalization would result in a decrease in short-term government bond yields by 2.5 to 5 basis points. The key point is that this effect is asymmetric: the magnitude of yield increases caused by outflows is two to three times greater than the magnitude of yield decreases caused by inflows.

Extending this relationship to the $30 trillion target proposed by Secretary Becerra implies that the short-term yield curve will experience a structural suppression of 25 to 50 basis points. For a government with $38 trillion in liabilities, a 30 basis point reduction in borrowing costs translates to annual savings of about $114 billion in interest—almost double the entire budget of the Department of Homeland Security.

This marks a fundamental decoupling of fiscal policy and monetary policy. The Federal Reserve may raise the federal funds rate to 5% in an attempt to tighten financial conditions, but if the Treasury can maintain interest rates below 4.5% through mandatory purchases of stablecoins, then the transmission mechanism of the Federal Reserve's policy will become ineffective. The central bank sets the policy interest rate, while the Treasury sets its own borrowing costs.

Bessenet Principle and Debt Ceiling Dynamics

The public statement by Minister Besant reveals his strategic considerations. In his testimony following the passage of the GENIUS Act, he stated that the expansion of the stablecoin market would allow the Treasury to “at least for the next few quarters” avoid expanding the scale of bond coupon auctions. This is not just empty talk; rather, it is the government's acknowledgment that it views the growth of regulated stablecoins as a direct substitute for demand in the traditional bond market.

The timing aligns with fiscal needs. The comprehensive bill in 2025 suspended the debt ceiling and authorized an additional $5 trillion in borrowing capacity. Finding buyers for this batch of bonds without pushing up yields is a critical challenge for the Treasury. If the stablecoin industry can achieve its anticipated scale, it will become part of the solution.

Demand mainly comes from emerging markets. The analysis by the ASEAN Plus Three Macroeconomic Research Office indicates that US dollar stablecoins have become the primary medium for cross-border payments in parts of Southeast Asia, Latin America, and Africa. These regions face currency instability and capital controls, thus viewing regulated dollar tokens as a superior means of value storage compared to domestic banking systems.

This has created an abnormal situation. The United States is exporting inflation to developing countries, whose populations are responding by abandoning their own currencies and turning to digital dollars. Stablecoin issuers are taking advantage of this capital flight, channeling it back to the U.S. Treasury. In this way, the U.S. government is financing its fiscal deficit through the currency collapse of global southern countries—this is a form of 21st-century financial imperialism, achieved through software protocols rather than gunboat diplomacy.

The strategic Bitcoin reserve established by an executive order in March 2025 has improved this framework. The Treasury holds approximately 198,000 Bitcoins (valued at $15 billion to $20 billion) as sovereign reserves and explicitly states “never to sell,” in order to hedge against its debt strategy risks. If a large influx of digital dollars into the global market ultimately leads to currency depreciation—this is a potential long-term consequence of sustained deficit spending—then the Bitcoin reserve will appreciate in dollar terms, thereby offsetting the liabilities on the sovereign balance sheet.

Institutional Surrender and Morgan Stanley Signal

The strongest evidence that this transition represents a true change of regime does not come from Washington, but from Wall Street. On October 15, 2025, JPMorgan Chase - the largest bank in the United States and historically the most hostile major financial institution towards cryptocurrencies - announced that it would begin accepting Bitcoin and Ethereum as collateral for institutional loans.

For the past decade, JPMorgan CEO Jamie Dimon has dismissed Bitcoin as a “scam” and a tool for criminals. The recent policy reversal is not a change in attitude, but rather an acknowledgment of changes in incentive mechanisms. With the GENIUS Act mandating that stablecoins must hold government bonds, and the Fair Banking Executive Order prohibiting discrimination against digital asset businesses, JPMorgan believes that the benefits of adopting a more lenient policy outweigh the drawbacks.

The new mechanism incorporates encrypted assets into the collateral chain of the shadow banking system. Institutional clients—including hedge funds, family offices, and corporate treasury departments—can now pledge digital assets to JPMorgan and use them as collateral to borrow dollars or government bonds. This increases the velocity of capital circulation in the financial system, allowing previously idle encrypted assets to generate liquidity and flow into the government bond market.

JPMorgan's move signals a broad acceptance of digital asset strategies across the industry. When this most influential commercial bank aligns with the Treasury's digital asset strategy, it confirms that “smart money” has already taken the new system into consideration. The institution is positioning itself as the central bank of the crypto economy, issuing loans backed by Bitcoin reserves, just as the Federal Reserve has historically issued loans backed by government securities.

Asymmetric Risks and the Fatal Blow from the Federal Reserve

The Ministry of Finance's strategy has a fatal dependency: it ties the stability of the U.S. sovereign debt market to the volatility of cryptocurrency asset prices. This introduces tail risk, which the Federal Reserve will ultimately be forced to bear.

The mechanism operates smoothly during market expansion. As the demand for stablecoins grows, the issuers will purchase government bonds, thereby lowering yields and alleviating fiscal pressure. However, the asymmetrical analysis by the Bank for International Settlements reveals reverse risks. If a crash in the cryptocurrency market triggers a large-scale redemption—users exchanging stablecoins back to dollars—the issuers must immediately liquidate their holdings of government bonds to meet the redemption demand.

Given the 2-3 times asymmetry, the shrinkage of stablecoin market value by $500 billion could lead to a surge in short-term yields by 75 to 150 basis points within a matter of days. For a government that has to roll over trillions of dollars in maturing debt every quarter, this is undoubtedly a liquidity crisis. The Treasury will face a dilemma: either accept catastrophic borrowing costs or suspend bond auctions—either choice could result in a downgrade of sovereign credit ratings.

The Federal Reserve will be forced to intervene as a last trader, purchasing government bonds sold off by stablecoin issuers. This will turn the private sector's balance sheet crisis into central bank monetization—exactly the outcome that the Treasury initially sought to avoid by establishing stablecoin financing channels.

This is the inherent fatal trap in the structure. The Treasury benefits from low-cost financing during periods of economic expansion, while the Federal Reserve bears catastrophic risks during periods of economic contraction. The central bank has strategically remained in a subordinate position: it can neither prevent the Treasury from creating this dependency nor refuse to lend a helping hand when the system collapses.

Federal Reserve Governor Stephen Milan acknowledged this dynamic in a speech in November 2025, pointing out that stablecoins have become “a force that cannot be ignored” and can influence interest rates in situations where the Federal Reserve cannot exert control. His analysis cleverly sidestepped the obvious implication: the Treasury has already constructed a parallel monetary policy transmission mechanism that operates regardless of whether the Federal Reserve agrees.

Geopolitical Projection and the Digital Bretton Woods System

The bill has profound domestic implications, but its international impact may be even more significant. The GENIUS Act does not merely provide funding for the U.S. fiscal deficit—it reinforces the dominance of the dollar in the 21st century by making it programmable, portable, and superior to any other competitive medium of exchange.

90% of existing stablecoins are pegged to the US dollar. The United States has laid the groundwork for a new international monetary system by establishing a regulated, Treasury-backed digital dollar infrastructure. Citizens of emerging market countries can now hold US dollars without relying on traditional correspondent banking systems. Meanwhile, traditional correspondent banking systems have increasingly been exploited by sanctions and anti-money laundering measures, excluding large populations.

This expands the potential market for the US dollar. Farmers in Vietnam, shopkeepers in Nigeria, or software developers in Argentina can exchange their local currency for USDC with just a smartphone and an internet connection. Compared to domestic banking systems troubled by inflation, capital controls, or political unrest, this stablecoin becomes a superior means of storing value. Each adoption signifies capital outflows, eventually flowing into the U.S. Treasury auction market.

China has implemented a vision with digital renminbi that is contrary to this, with a framework that is completely different from that of the United States. The electronic renminbi (e-CNY) is a central bank digital currency—issued, regulated, and controlled by the government. It increases efficiency but also requires users to accept state oversight. The U.S. model, on the other hand, outsources issuance to private entities (such as Circle, PayPal, and potentially JPMorgan Chase), while ensuring that these entities are structurally dependent on government bonds. This model creates the illusion of private sector innovation while safeguarding national sovereign interests.

This represents a digital Bretton Woods system—under this monetary order, the reserve currency status of the US dollar is maintained not through the recycling of petrodollars or military means to enforce oil trade, but rather through the network effects of digital payment infrastructure. The more merchants that accept USDC, the higher the value of USDC. The higher the value of USDC, the greater the demand for US Treasuries. This system will self-reinforce until it collapses.

Conclusion: The Shift of Sovereign Voice

The term “silent coup” is not an exaggeration, but a precise institutional analysis. The Treasury did not abolish the Federal Reserve, nor did it amend the Constitution. It merely established a parallel financial system, enabling fiscal policy to influence monetary policy, thus reversing the independence of the central bank that has lasted for seventy years.

The “GENIUS Act”, the Fair Banking Executive Order, strategic Bitcoin reserves, and personnel pressure on Chairman Powell constitute a coordinated strategy aimed at making the Federal Reserve yield to the financing needs of the Treasury. The $3 trillion stablecoin prediction proposed by Secretary Bessenet is not a market forecast, but a policy objective. If realized, the Treasury will become the dominant force in determining U.S. interest rates.

The institutional compromise reflected in JPMorgan's policy reversal confirms that major financial institutions have accepted this new reality. Their adjustments are not due to an endorsement of this strategy, but rather because resistance is futile. The landscape of game theory has changed: cooperation may gain favor with the Treasury and new liquidity mechanisms; whereas opposition may face the risk of being marginalized by regulators.

The most ironic thing is that this shift did not originate from populist movements or political mandates, but was achieved through everyday financial regulatory mechanisms. A mere 47 pages of legislative text, debated mainly in some little-known committees of Congress, have fundamentally reshaped the relationship between the U.S. fiscal and monetary authorities more than any policy since the abandonment of the gold standard in the 1970s.

Whether this represents institutional evolution or civilizational risk depends on some yet-to-be-measured variables. Can the $3 trillion stablecoin market maintain a 1:1 redemption rate during the cryptocurrency winter? Will the asymmetrical capital outflow dynamics discovered by the Bank for International Settlements (BIS) trigger instability in the government bond market before the issuer reaches a systemic scale? If the market realizes that the Federal Reserve ultimately has to guarantee a system that it neither designed nor can control, can the Federal Reserve maintain its credibility?

The answers to these questions will not be revealed in congressional hearings or academic papers, but will be unveiled in real-time stress tests during future market crises. The Treasury has already built the infrastructure. Now, we will test whether it can bear the weight of the empire.