What does a 1:1 peg to short-term debt mean for stablecoins, the US dollar, US Treasuries, and the Federal Reserve?

The "GENIUS Act" has been passed with a high vote, and US dollar stablecoins will become a new channel for global capital inflow into the United States, driving demand for short-term US Treasury bonds and interest rate fluctuations.

According to the Chase Wind Trading Desk, Deutsche Bank released a research report on June 18 stating that the passage of the "GENIUS Act" will officially incorporate US dollar stablecoins into the compliance system, becoming a new channel for attracting global "non-dollar funds." Global investors converting their local currency into US dollar stablecoins is equivalent to transforming local currency funds into US dollar assets, indirectly flowing into the US market and strengthening the global dominance of the US dollar.

As the act requires all stablecoins to be 100% backed by highly liquid, low-risk assets, especially US Treasury bonds maturing within 93 days, this will increase demand for short-term US Treasury bonds and affect the yield trends of US Treasury bonds. Research shows that inflows of stablecoin funds can lower the 3-month US Treasury yield by 2–2.5 basis points within 10 days, while outflows can raise it by 6–8 basis points.

If stablecoins continue to buy short-term US Treasury bonds, it may suppress yield fluctuations, thereby weakening the Federal Reserve's ability to adjust the financial environment through short-term interest rates. Additionally, the US Treasury has warned that allowing stablecoins to pay interest may siphon off a large amount of bank deposits, threatening the stability of the traditional banking system.

Consolidating the Digital Hegemony of the US Dollar

Deutsche Bank pointed out that with the passage of the "GENIUS Act," the United States is expected to officially establish a regulatory framework for stablecoins. This shift may make dollar-pegged stablecoins (such as USDT and USDC) a new channel for attracting global "non-dollar liquidity"—that is, global money (which was originally not in US dollars) may become US dollar assets by purchasing US dollar stablecoins, thereby indirectly bringing funds into the US asset system, further consolidating the global dominance of the US dollar.

Currently, US dollar stablecoins account for over 99% of the total market value of stablecoins. According to data from the Bank for International Settlements (BIS), by April 2025, the total amount of US Treasury bonds held by US dollar stablecoins will exceed $120 billion, with an additional $40 billion added in 2024 alone, even surpassing the US Treasury bond purchases of most foreign governments.

According to the provisions of the "GENIUS Act," all stablecoins must be backed 1:1 by high-quality, low-risk liquid assets, specifically including US Treasury bonds maturing within 93 days, insured bank deposits, or physical US dollars.

This means that the future expansion of the stablecoin market will simultaneously drive up demand for short-term US Treasury bonds. Data shows that inflows of stablecoin funds can lower the 3-month US Treasury yield by 2-2.5 basis points within 10 days, while outflows can raise the yield by 6-8 basis points, especially with Tether (USDT) having the greatest impact on yields.

If US dollar stablecoins continue to expand in scale, their "crowding-out effect" on the short-term interest rate market may become increasingly significant. Continued purchases of short-term US Treasury bonds by stablecoins may suppress yield fluctuations, thereby weakening the Federal Reserve's ability to adjust the financial environment through short-term interest rates, which may force global monetary authorities to strengthen coordination to stabilize financial conditions.

With the rise of the stablecoin market, the US Treasury has also issued warnings that if stablecoins are allowed to pay interest, a large amount of bank deposits may flow into these "more flexible" digital assets, thereby undermining the stability of the banking system. **

To mitigate this risk, the GENIUS Act explicitly prohibits interest payments on stablecoins to avoid direct competition with bank deposits.

Acceleration of Global Digital Dollarization

With the advancement of the GENIUS Act, regulated dollar stablecoins (such as USDC and USDT) are accelerating the global process of "digital dollarization," especially in countries and regions with unstable local currencies and severe inflation.

In many countries, the primary purpose for the public using stablecoins is not investment or trading, but rather saving in dollars, essentially using stablecoins to hedge against local currency depreciation and high inflation. A survey sponsored by Visa shows that in countries like Brazil, Turkey, Nigeria, India, and Indonesia, 47% of cryptocurrency users stated that "saving in dollars" is their primary reason for using stablecoins.

Stablecoins are rapidly expanding globally. By May 2025, 58% of stablecoin transactions on Ethereum and Solana will come from regions outside North America, compared to only 13.7% in May 2021. The Atlantic Council predicts that over 80% of stablecoin transactions will occur outside the United States in the future.

In the field of cross-border remittances, stablecoins are rapidly rising due to their low cost and high efficiency. According to World Bank data, the global average cost of traditional cross-border remittances is 6.62%, while the cost of remittances using stablecoins typically ranges from 0.5% to 3.0%, representing a significant reduction