The way of playing with stablecoins has changed.

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 and possibly providing a temporary solution to the fundamental problem of deficit financing.

This transformation does not require constitutional amendments, political revolutions, or even large-scale public debates. It is all achieved with just 47 pages of financial regulatory documents.

On July 18, 2025, President Trump signed the "Guidance and Establishment of the National Innovation Act for U.S. Stablecoins" (GUIDIUS Act). The act has been promoted 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 completely opposite direction.

The 1951 agreement established the independence of the central bank from fiscal authority, while the GENIUS Act weaponizes the regulatory framework of the digital dollar, subordinating monetary policy to the financing needs of the Treasury. This mechanism is quite ingenious. The Act stipulates that all payment stablecoins (digital tokens) pegged to the dollar must hold 100% of U.S. Treasury securities or central bank cash reserves.

The regulatory authority is exercised by the Office of the Comptroller of the Currency (OCC) under the Department of the Treasury, rather than an independent Federal Reserve. The bill prohibits these issuing institutions from investing reserves in corporate bonds, commercial paper, or any other assets except for short-term government bonds. The result is that each newly minted digital dollar becomes a legal purchase of U.S. sovereign debt.

U.S. Treasury Secretary Scott Bessenet has publicly predicted that by 2030, the stablecoin market capitalization will grow from the current $309 billion to between $2 trillion and $3.7 trillion. If the prediction comes true, the stablecoin industry will become the second largest holder of U.S. government debt, second only to the Federal Reserve—however, unlike the Federal Reserve's balance sheet, this demand is not created through central bank money printing, but rather stems from private capital flows, primarily from emerging markets seeking dollar exposure in the face of 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 foundation of the post-Bretton Woods monetary order.

The key innovation of the mandatory demand framework "GENIUS Act" lies not in the behaviors it allows, but in the behaviors it prohibits. Traditional banking regulations permit financial institutions to hold diversified portfolios, manage maturity transformations, and generate income through loans.

According to this bill, stablecoin issuers are prohibited from engaging in all these activities. They can only hold three types of assets: dollar deposits at banks insured by the Federal Deposit Insurance Corporation, Treasury bills with a maturity of 90 days or less, or repurchase agreements secured by these Treasury bills. They are explicitly prohibited from rehypothecating these assets—i.e., pledging 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 single mission: to convert private savings into government liabilities. Circle, Tether, and any future licensed issuers play a role as a transmission mechanism, directly channeling global dollar demand into Treasury bill auctions. The regulatory framework ensures that this portion of funds does not flow into the broader private economy. Research from the Bank for International Settlements has empirically measured this effect.

A working report analyzing the flow of stablecoins from 2022 to 2024 found that an increase of $3.5 billion in market capitalization would lead to a decrease in short-term Treasury yields by 2.5 to 5 basis points. The key point is that this effect is asymmetric: the increase in yields due to outflows is two to three times greater than the decrease in yields due to inflows. Extending this relationship to the $3 trillion target proposed by Minister Bessent implies that the short-term yield curve will experience structural suppression of 25 to 50 basis points.

For a government with a debt of 38 trillion dollars, a 30 basis point reduction in borrowing costs translates to an annual saving of about 114 billion dollars in interest—almost double the entire budget of the Department of Homeland Security. This marks a fundamental decoupling of fiscal 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 the interest rate below 4.5% by mandating the purchase of stablecoins, then the Federal Reserve's policy transmission mechanism will become ineffective. The central bank sets the policy rate, while the Treasury sets its own borrowing costs.

The Bessent Principle and the Debt Ceiling Dynamics: Secretary Bessent's public statement 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 "at least in the coming quarters" to avoid expanding the scale of bond coupon auctions. This is not an empty statement, but rather the government acknowledging that it sees the growth of regulated stablecoins as a direct substitute for traditional bond market demand.

Timing aligns with fiscal needs. The 2025 omnibus bill suspended the debt ceiling and authorized an additional $5 trillion in borrowing capacity. Finding buyers for this batch of bonds without raising yields is a critical challenge for the Treasury. If the stablecoin industry can reach its expected scale, it will become part of the solution. Demand primarily comes from emerging markets.

The analysis by the ASEAN Plus Three Macroeconomic Research Office points out that the US dollar stablecoin has become a major medium for cross-border payments in parts of Southeast Asia, Latin America, and Africa. These regions face currency instability and capital controls, so they view regulated US dollar tokens as a superior means of value storage compared to their domestic banking systems. This has resulted in an anomalous situation.

The United States is exporting inflation to developing countries, whose citizens respond by abandoning their national currencies in favor of using digital dollars. Stablecoin issuers take advantage of this capital flight to funnel it back to the U.S. Treasury. In this way, the U.S. government finances its fiscal deficit through the monetary collapse of countries in the Global South—this is a form of 21st-century financial imperialism, achieved not through gunboat diplomacy but through software protocols.

The strategic Bitcoin reserve established by executive order in March 2025完善了这一架构。The Treasury holds approximately 198,000 coins (worth $15 billion to $20 billion) as sovereign reserves and explicitly states that they "will never be sold" to hedge against its debt strategic risks. If a large influx of digital dollars into the global market ultimately leads to currency devaluation—this is a long-term consequence of continued deficit spending—then the Bitcoin reserve will appreciate in value in dollars, thereby offsetting the liabilities on the sovereign balance sheet.

The surrender of institutions and the signals from JPMorgan are the most compelling evidence that this shift signifies a genuine change in regime, and it does not come from Washington, but from Wall Street. On October 15, 2025, JPMorgan—America's largest bank 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 Chase CEO Jamie Dimon has derided Bitcoin as a "scam" and a tool for criminals. Now, the policy reversal is not a change in attitude, but rather an acknowledgment of changes in the incentive structure. With the GENIUS Act mandating that stablecoins must be backed by government bonds, and the Executive Order on Fair Banking prohibiting discrimination against digital asset businesses, JPMorgan Chase believes that the benefits of adopting a looser 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 finance 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, which in turn flows into the government bond market.

JPMorgan's move signifies 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 taken the new system into account. 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 bonds.

Asymmetric risks and the Federal Reserve's fatal blow There exists a fatal dependency in the Treasury's strategy: it ties the stability of the U.S. sovereign debt market to the volatility of cryptocurrency asset prices. This introduces tail risks, and the Federal Reserve will ultimately be forced to bear these risks.

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

Given the 2-3 times asymmetry, a $500 billion shrinkage in the stablecoin market cap could lead to short-term yields soaring by 75 to 150 basis points within a few 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 lead to a downgrade in sovereign credit ratings.

The Federal Reserve will be forced to intervene as the lender of last resort, purchasing government bonds sold off by stablecoin issuers. This will transform the private sector's balance sheet crisis into central bank monetization — precisely the outcome the Treasury sought to avoid when establishing stablecoin financing channels. This is the inherent fatal trap in the structure. The Treasury benefits from low-cost financing during economic expansions, while the Federal Reserve bears catastrophic risks during economic contractions.

The central bank has strategically remained in a subordinate position: it is unable to prevent the Treasury from creating this dependency, nor can it refuse to lend a helping hand in the event of a system collapse. Federal Reserve Governor Stephen Milan acknowledged this dynamic in a speech in November 2025, noting that stablecoins have become "an undeniable force" capable of influencing interest rates in a way that the Federal Reserve cannot control.

His analysis cleverly sidesteps the obvious meaning: the Treasury has constructed a parallel monetary policy transmission mechanism that operates regardless of whether the Federal Reserve agrees. The geopolitical projection and the digital Bretton Woods system have far-reaching effects domestically, but their international impact may be even more significant.

The GENIUS Act is not just about funding the U.S. fiscal deficit—it reinforces the dollar's hegemonic position in the 21st century by making the dollar programmable, portable, and superior to any other competitive medium of exchange. 90% of existing stablecoins are pegged to the dollar. The U.S. is laying 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 dollars without relying on traditional intermediary banking systems.

The traditional banking system has gradually been exploited by sanctions and anti-money laundering measures, excluding large populations from access. This has expanded the potential market for the US dollar. Farmers in Vietnam, shop owners in Nigeria, or software developers in Argentina can exchange their local currencies for USDC with just a smartphone and internet connection. Compared to domestic banking systems plagued by inflation, capital controls, or political turmoil, this stablecoin has become a superior means of storing value.

Every adoption means capital outflow, eventually flowing into the U.S. Treasury auction market. China has implemented a vision that is contrary to this through the digital renminbi, which is structured entirely differently 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 regulation.

The American model outsources issuance to private entities (such as Circle, PayPal, and potentially JPMorgan), while ensuring that these entities structurally rely on government bonds. This model creates an illusion of private sector innovation while safeguarding national sovereignty interests. It represents a digital Bretton Woods system—under this monetary order, the dollar's reserve currency status is maintained not through the recycling of petrodollars or through military means to enforce oil trade, but 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 U.S. Treasury bonds. This system will self-reinforce until it collapses. Conclusion: The shift in the voice of sovereignty is not an exaggeration to call it a "silent coup," but a precise institutional analysis. The Treasury has not abolished the Federal Reserve nor amended the Constitution.

It has simply established a parallel financial system that allows fiscal policy to influence monetary policy, thereby reversing the independence of central banks 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 subordinate to the financing needs of the Treasury.

The 30 trillion dollar stablecoin prediction proposed by Minister Besant is not a market forecast, but rather a policy goal. 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 a recognition of this strategy, but rather because resistance is futile.

The landscape of game theory has changed: cooperation can gain the favor of the Treasury and new liquidity mechanisms; while opposition may face the risk of being marginalized by regulation. Ironically, this shift is not driven by populist movements or political mandates, but rather achieved through everyday financial regulatory mechanisms.

The mere 47 pages of legislative text, primarily debated in some little-known committees of Congress, have reshaped the relationship between U.S. fiscal and monetary authorities more thoroughly than any policy since the abandonment of the gold standard in the 1970s. Whether this represents institutional evolution or a risk to civilization depends on some yet-to-be-assessed variables.

Can the stablecoin market, which has reached a scale of 3 trillion USD, maintain a 1:1 redemption rate during the cryptocurrency winter? Will the asymmetric capital outflow dynamics identified by the Bank for International Settlements (BIS) trigger instability in the bond market before issuers achieve systemic scale?

If the market realizes that the Federal Reserve ultimately has to guarantee a system it neither designed nor can control, can the Federal Reserve maintain its credibility? The answers to these questions will not be found in congressional hearings or academic papers, but will be revealed in the real-time stress tests of future market crises.

The Ministry of Finance has already built the infrastructure. Now, we will test whether it can bear the burden of the empire.