Can stablecoins save the US dollar? Or can they only delay the collapse of the dollar?

Although stablecoins like Tether have created a new source of demand for the US dollar, can they truly save the dollar system, or are they merely delaying its inevitable decline?

Recently, Doug Casey's InternationalMan website published an in-depth analysis discussing the impact of the world's largest stablecoin, Tether (USDt), on the dollar system. The article's author, Nick Giambruno, is a renowned speculator and international investor known for his keen ability to capture major trends and identify geopolitical and economic changes in advance.

In this analysis, Nick Giambruno points out that we are witnessing a "profit monster" birthed by the crypto world—Tether, which has inadvertently become an unexpected "ally" of the dollar system.

However, the author notes that while Tether has created a new source of demand by purchasing massive amounts of US Treasury bonds, which may help stabilize the dollar in the short term, this support remains limited in the face of nearly $9 trillion in annual debt rollover and spending needs of the US government.

" Structural cracks are rapidly widening, and time is running out," he warns in the article.

Tether: A Profit Miracle in the Digital Age

Tether may be the most profitable company in business history on a per capita basis! The article opens with a shocking statistic that grabs everyone's attention:

Last year's profit of $13.7 billion was generated by just 165 employees, resulting in a per-employee profit of over $83 million. This figure even surpasses tech giants like Nvidia, making it possibly the most efficient profit machine in business history.

Nick Giambruno questions: " Has any company in history ever generated such high per capita profits? If so, I have never heard of it."

The article states that Tether's success stems from its unique business model. The company provides instant, global access to digital dollars for anyone with a smartphone.

Currently, the market capitalization of USDt has surpassed $162 billion and continues to rise, making it the largest stablecoin in the world and the fourth-largest cryptocurrency.

The article points out that this success has not only changed the way people in many developing countries store wealth but has also indirectly made them demanders of US Treasury bonds.

The Demand for "Offshore Dollars" in a New Era

The article states that Tether claims to have over 400 million users globally, adding 30 million new users each quarter. This explosive growth is reminiscent of Facebook's performance during its peak expansion period. The author writes:

"It is no surprise that USDt is extremely popular in emerging markets and developing countries such as Argentina, Venezuela, and Turkey, where local currencies are rapidly depreciating, and people are turning to the dollar as a relatively more stable store of value."

For the billions who cannot access traditional banking systems, Tether is like having a dollar-based checking account without a U.S. bank. The author explains: "Ordinary people in Venezuela cannot open U.S. bank accounts, but they can use USDt."

From a more macro perspective, the article points out: "Tether can be seen as the 'retail version of Eurodollars' in the digital age."

The traditional Eurodollar market refers to dollar deposits held in banks outside the United States, primarily used for global trade, finance, and interbank lending. According to estimates from the Bank for International Settlements (BIS) and the International Monetary Fund (IMF), the Eurodollar market exceeds $13 trillion.

While the current size of the Eurodollar market is about 80 times that of Tether, the latter is growing rapidly and beginning to offer similar functions for retail and small institutional investors.

This comparison reveals the increasingly important role of stablecoins in the global financial system. The article states that today, the value settled by stablecoins has surpassed that of Visa, representing the future of dollar payments for billions, whether people realize it or not.

How does Tether support the U.S. Treasury market?

The article notes that Tether generates income by investing its massive reserves in short-term U.S. Treasury bonds and collecting interest, while USDt holders do not receive any returns. Last year, Tether became the seventh-largest buyer of U.S. Treasuries globally, surpassing entire countries like Canada, Switzerland, Germany, and Saudi Arabia.

To cope with large-scale withdrawal and redemption demands (sometimes reaching billions of dollars in a single day), Tether has partnered with Cantor Fitzgerald, which owns 5% of Tether.

Notably, Howard Lutnick, the former CEO of Cantor Fitzgerald, is also the current U.S. Secretary of Commerce.

As a primary dealer, Cantor Fitzgerald is one of the few financial institutions authorized to trade directly with the New York Federal Reserve Bank, this special status means it can easily handle any transaction volume brought by Tether.

Tether CEO Paolo Ardoino recalled the experience of being attacked in 2022:

"At that time, Tether was clearly subjected to a funding attack aimed at causing a USDt run. They hoarded billions of USDt, trying to sell them at below par prices in the secondary market and various cryptocurrency exchanges. But Tether has never refused a redemption and has never been unable to redeem at a price of $1 per token."

He further explained:

"During that attack, Tether was able to redeem $7 billion within 48 hours and $20 billion within 25 days. $7 billion accounted for 10% of our reserves, while $20 billion accounted for about 20% of our reserves." Since 2008, no other bank that has collapsed has been able to withstand a 10% run. Yet we did it easily. Not only did we withstand it, but we also performed exceptionally well.

This is the significance of having a sound repurchase market and a very deep, highly liquid U.S. Treasury market. All the U.S. Treasuries we hold are basically of three-month maturity. So I believe we have built the best mechanism to handle any type of redemption, providing our global users with the trust assurance they need.

In fact, we have proven that even when faced with an extremely fierce attack, one that could have destroyed every business and financial institution in the world, we survived—and performed very well.”

Can Only Support the Dollar in the Short Term

Although the author acknowledges in the article that stablecoins like USDt do benefit the dollar by creating a significant new source of demand for U.S. Treasuries, he is not optimistic about it. He writes:

"What I least want to see is the U.S. government becoming more capable of financing the damage it causes both domestically and abroad, with currency devaluation still being one of its main sources of funding. The larger the dollar-based monetary network, the more value the government quietly extracts from global dollar holders through money printing."

The article states that, from a numerical perspective, Tether holds about $162 billion in U.S. Treasuries, which is indeed a considerable amount. However, compared to the nearly $9 trillion that the U.S. government needs to finance this year, it is merely a drop in the bucket—this funding is only for rolling over maturing debt and paying ongoing expenses.

The author warns: "Any additional demand for USD from Tether could be far surpassed by the relentless surge in federal spending." He believes that due to the uncontrollable growth of war, welfare, rights, and interest payments on national debt, the fiscal outlook for the U.S. government remains bleak.

Delaying Rather Than Saving

In the conclusion of this analysis, the author believes that stablecoins like Tether may slightly extend the life of the dollar, but they do not change its fundamental trajectory—due to unstoppable government spending, the dollar still faces a serious devaluation fate. He points out:

"Ironically, Tether—a company founded by Italians in Europe, registered in the British Virgin Islands, and headquartered in El Salvador—has become the most powerful advocate for the dollar outside the United States."

However, the author emphasizes in the article that this support does not fundamentally change the severe fiscal outlook of the U.S. government and warns:

"Tether may have helped stabilize the dollar in the short term, but this has not changed the long-term trajectory. Structural cracks are rapidly widening, and time is running out."