GENIUS Bill: Future Passport or Crisis Catalyst?

On May 19, 2025, the U.S. Senate passed the procedural motion for the GENIUS stablecoin bill with a vote of 66-32. On the surface, this is a technical piece of legislation aimed at regulating digital assets and protecting consumer rights, but a deeper analysis of the political and economic logic behind it reveals that this may be the beginning of a more complex and profound systemic transformation.

Against the backdrop of enormous debt pressure in the United States, where Trump and Federal Reserve Chairman Powell are in a heated dispute over monetary policy, the timing of the advancement of the stablecoin bill is thought-provoking.

US debt crisis: Forced stablecoin policy

During the pandemic, the United States initiated an unprecedented money-printing mode, with the M2 money supply of the Federal Reserve skyrocketing from $15.5 trillion in February 2020 to $21.6 trillion now, with a growth rate increasing from 5% to 25%. In February 2021, it even reached a peak of 26.9%, easily surpassing the growth rates during the 2008 financial crisis and the high inflation periods of the 70s and 80s.

At the same time, the Fed's balance sheet swelled to $7.1 trillion, and $5.2 trillion was spent on pandemic relief, equivalent to 25% of GDP, which is more than the 13 most money-burning wars in U.S. history combined.

In simple terms, the United States printed an additional 7 trillion dollars over two years, laying a super bomb for the subsequent inflation and debt crisis.

The interest expenditure on the U.S. government's debt is creating historical records. As of April 2025, the total amount of U.S. national debt has exceeded $36 trillion, and it is estimated that about $9 trillion in principal and interest on national debt will need to be repaid in 2025, of which approximately $7.2 trillion is the principal due.

In the next ten years, the U.S. government's interest payments are expected to reach $13.8 trillion, with the proportion of national debt interest expenditure to GDP rising year by year. To repay the debt, the government may need to further increase taxes or cut spending, both of which will have a negative impact on the economy.

Trump and Powell: Divergence on Interest Rate Cuts

Trump: Fire if interest rates are not lowered

Trump is now in urgent need of the Federal Reserve to cut interest rates for very practical reasons: high interest rates directly affect mortgages and consumption, posing a threat to Trump's political prospects. More critically, Trump has always regarded stock market performance as his report card, and a high interest rate environment suppresses further increases in the stock market, directly threatening the core data Trump uses to showcase his achievements.

In addition, the tariff policy has led to an increase in import costs, thereby pushing up domestic price levels and increasing inflationary pressure. A moderate interest rate cut can to some extent offset the negative impact of the tariff policy on economic growth, alleviate the trend of economic slowdown, and create a more favorable economic environment for re-election.

Powell: No one cares

The dual mandate of the Federal Reserve is to achieve maximum employment and maintain price stability. Unlike Trump's decision-making approach based on political expectations and stock market performance, Powell acts strictly according to the Federal Reserve's data-driven methodology. He does not make predictive judgments about the economy but evaluates the execution of the dual mandate based on existing economic data. When there are issues with either inflation or employment targets, corresponding policies are implemented to remedy the situation.

The unemployment rate in the U.S. in April was 4.2%, and inflation is also basically in line with the long-term target of 2%. Before the potential economic recession caused by tariffs and other policy impacts is transmitted to actual data, Powell will not take any action. He believes that Trump's tariff policy "is likely to at least temporarily push up inflation" and that "the inflation effect may also be more persistent". Prematurely lowering interest rates while inflation data has not fully returned to the 2% target may worsen the inflation situation.

Moreover, the independence of the Federal Reserve is a crucial principle in its decision-making process. The original intention of establishing the Federal Reserve was to ensure that monetary policy could be based on economic fundamentals and professional analysis, ensuring that the formulation of monetary policy is driven by the long-term interests of the national economy rather than succumbing to short-term political demands. In the face of pressure from Trump, Powell insisted on defending the independence of the Federal Reserve, stating, "I never actively seek to meet with the President, nor will I ever."

GENIUS Act: The New Harvesting Machine for US Debt

Market data clearly demonstrates the significant impact of stablecoins on the U.S. Treasury market. Tether, as the largest stablecoin issuer, net purchased $33.1 billion in U.S. Treasuries in 2024, making it the seventh largest buyer of U.S. Treasuries globally. According to Tether's Q4 2024 report, its holdings of U.S. Treasuries have reached $113 billion. Circle, as the second largest stablecoin issuer, has a market cap of approximately $60 billion for its USDC, which is also fully backed by cash and short-term Treasuries.

The GENIUS Act requires that the issuance of stablecoins must maintain reserves at a ratio of at least 1:1, with reserve assets including short-term U.S. Treasury bills and other dollar-denominated assets. The current market size of stablecoins has reached $243 billion, and if fully incorporated into the GENIUS Act framework, it will create hundreds of billions of dollars in Treasury bond purchase demand.

First, let's talk about the benefits

The direct financing effect is obvious, and for every $1 stablecoin issued, it is theoretically necessary to purchase $1 of short-term U.S. 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 bond 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 buy US bonds, forming a large-scale institutional demand. The most important thing is the regulatory premium: the government controls stablecoin issuance standards through the GENIUS Act, effectively gaining the power to influence the allocation of this huge pool. This "regulatory arbitrage" allows governments to use the cloak of innovation to advance traditional debt financing objectives while circumventing the political and institutional constraints of 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 US dollar.

let's talk about the drawbacks

The risk of monetary policy being hijacked by politics: The large-scale issuance of USD stablecoins has effectively given Trump a "money printing power" to bypass the Federal Reserve, indirectly achieving the goal of interest rate cuts to stimulate the economy without facing Powell directly. When monetary policy is no longer bound by the professional judgment and independent decision-making of central banks, 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 to gain voter support, while ignoring long-term inflation risks.

Hidden inflation risk: Users spend $1 to buy stablecoins, and on the surface there is not much money, but in fact, $1 cash becomes two parts: $1 stablecoin in the user's hand + $1 short-term treasury bond bought by the issuer. These treasuries also have a quasi-monetary function in the financial system – high liquidity, which can be used as collateral and used by banks to manage liquidity. In other words, the monetary function of the original $1 is now split into two parts, and the effective liquidity of the entire financial system has increased, pushing up asset prices and consumer demand, and inflation will inevitably be under upward pressure.

Historical Lessons of the Bretton Woods System: In 1971, the U.S. government unilaterally announced the decoupling of the dollar from gold in the face of insufficient gold reserves and economic pressure, fundamentally altering the international monetary system. Similarly, when the U.S. government faces an exacerbating debt crisis and an overwhelming interest burden, there is likely to be political motivation to decouple stablecoins from U.S. Treasury bonds, ultimately forcing the market to bear the consequences.

DeFi: Risk Amplifier

After the issuance of stablecoins, they are likely to flow into the DeFi ecosystem—liquidity mining, lending collateral, various farming, etc. Through DeFi lending, staking and re-staking, investing in tokenized government bonds, and a series of operations, risks are layered and amplified.

The restaking mechanism is a typical example, repeatedly leveraging assets across different protocols. Each additional layer adds another layer of risk. If the value of the restaked assets plummets, it could trigger a chain reaction of liquidations and panic selling in the market.

Although the reserves of these stablecoins are still US Treasuries, after multiple layers of embedding in DeFi, market behavior has become completely different from that of traditional US Treasury holders, and this risk is completely outside the traditional regulatory system.

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Trump’s Way of Making Money: Monetizing Presidential Power

Considering Trump's past antics, I really find it hard to believe that his push for stablecoins is purely to save the American economy; I would rather believe that the US dollar stablecoin is a tool for the Trump consortium to gather wealth.

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

Issuance $TRUMP: In January of this year, Trump issued a personal MEME coin $TRUMP, which opened a precedent for a presidential coin issuance, and the Trump Organization controlled 80% of the token share. Since its $TRUMP launch, more than 813,000 cryptocurrency wallets have lost around $2 billion. Last week, Trump sparked widespread controversy when he hosted a private dinner at the National Golf Club for the first 25 holders of the $TRUMP.

Twitter's frequent shouting: 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, the suspension of policy was announced, and U.S. stocks soared. Just four hours before the policy change was announced, he posted on Truth Social that "this is a great time to buy", and DJT's stock price rose 22.67% on the same day, and Trump's personal wealth soared by $415 million.

The US dollar stablecoin involves monetary policy, financial regulation, technological innovation, and political maneuvering. Any analysis from a single perspective is insufficient. The ultimate direction of stablecoins depends on how regulations are formulated, how technology develops, how market participants engage, 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.

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