STABLECOINS

Something unusual is happening beneath the surface of the Federal Reserve's quantitative tightening (QT) efforts.
Officially, the Fed has reduced its balance sheet by over $2.2 trillion since early 2022, trimming down from the expansionary peak reached during the pandemic response. But a closer look reveals a twist: while the total balance sheet has shrunk, the proportion of long-dated Treasury securities—specifically 10+ year bonds—has increased.
This wouldn’t matter if long-term debt didn’t serve a crucial function. In the U.S. economy, 10-year Treasury yields set the benchmark for mortgages, infrastructure loans, and large-scale capital planning. Lowering those yields can spur economic activity. But there’s a catch: demand for these securities has been weakening, especially from traditional foreign buyers like China, which has been gradually reducing its holdings. Meanwhile, domestic institutions aren't lining up eagerly either. Someone has to buy the paper.
If foreign central banks are stepping back and QT officially rules out direct purchases by the Fed, who’s left? Turns out, the Fed itself may still be intervening, quietly. The longer end of its portfolio has not been trimmed proportionally. Some analysts suggest this is no accident. It's a balancing act: maintain the appearance of balance sheet discipline while ensuring that long-term borrowing costs don't spiral out of control.
Enter stablecoins.
At first glance, the connection seems distant. Stablecoins are digital assets pegged to the dollar and backed by short-term U.S. government securities. But what they do, in effect, is vacuum up massive amounts of short-duration Treasuries. That frees up institutional investors to rotate into longer-dated bonds. Indirectly, stablecoin growth can alleviate pressure on the long end of the yield curve.
And this is not just theoretical. Legislation like the GENIUS Act and the STABLE Act, currently circulating through Congress, aims to formalize stablecoin issuance, reinforce dollar-backing rules, and make these instruments integral to the financial system. The political narrative is being shaped, too. Figures close to Donald Trump, such as David Sacks, have publicly stated that with proper regulatory clarity, stablecoins could unlock trillions in demand for Treasuries overnight.
So while the Federal Reserve appears to be reducing its footprint, its quiet support of long-term bonds, alongside a budding political alliance around stablecoin expansion, tells a more nuanced story. The U.S. doesn’t just need to manage its debt, but it needs to find new ways to distribute it. And if traditional buyers are less enthusiastic, new digital mechanisms may be the next vessel for absorbing that load.
This isn’t monetary policy as it used to be. It's not a conspiracy, but it is choreography; a carefully managed dance between optics, balance sheet math, and structural necessity.
We've seen echoes of this kind of workaround before. In the aftermath of the 2008 financial crisis, quantitative easing didn't just mean direct asset purchases—it meant a sprawling web of facilities, rehypothecation channels, and balance sheet disguises that created liquidity far beyond what was seen on the surface. What we’re witnessing today with stablecoins might be a digital-era sequel: a new structure engineered to achieve the same effect as QE, without naming it as such.

#FederalReserve #Stablecoins
$USDC

Trump adviser David Sacks says the GENIUS Act will pass the Senate with bipartisan support, potentially unlocking trillions in demand for US Treasurys.
Trump’s crypto czar David Sacks says stablecoin bill is ‘going to pass’
David Sacks, US President Donald Trump’s top adviser on crypto and artificial intelligence, said the administration expects the stablecoin bill to clear the Senate with bipartisan backing.
“We have every expectation now that it’s going to pass,” Sacks to, following a key procedural vote that saw 15 Democrats join Republicans to clear the filibuster threshold.

The Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act is the most advanced federal effort yet to establish a legal framework for dollar-pegged digital assets.
Sacks said the bill could trigger “trillions of dollars” in demand for US Treasurys by unlocking stablecoin growth under clear rules.

“We already have over $200 billion in stablecoins — it’s just unregulated,” he added. “If we provide legal clarity, we create enormous demand for Treasurys practically overnight.”

#GENIUSAct #Stablecoins

Hong Kong has taken a major step toward regulating digital finance by approving a new legal framework focused on fiat-backed stablecoins. The legislation introduces stringent requirements for issuers, targeting transparency, security, and resilience against market shocks.

🔹 Licensing and Strict Oversight
Under the new law, any entity issuing fiat-referenced stablecoins (FRS)—whether based in Hong Kong or abroad—must now obtain a license from the Hong Kong Monetary Authority (HKMA), particularly if the coin is pegged to the Hong Kong dollar.
Issuers must maintain adequate reserves, establish robust redemption mechanisms, follow anti-money laundering rules, and enforce solid risk management protocols. They are also required to have contingency plans for depegging events and ensure token holders can redeem coins at par value.

🔹 Investor Protection and Innovation Support
According to Financial Secretary Christopher Hui, the legislation aims to protect retail investors while fostering sustainable innovation in virtual assets. Only licensed firms will be allowed to issue, promote, or trade stablecoins. The rules are expected to take effect later in 2025, with a transitional period for license applications.

🔹 Hong Kong Aims to Be a Global Crypto Hub
The bill's approval comes as Hong Kong intensifies efforts to position itself as a leading hub for digital finance. According to a report by migration platform Multipolitan, the city ranks as the world’s second most crypto-friendly destination. The average crypto holder in Hong Kong reportedly owns nearly $100,000 worth of digital assets.
Officials also plan to release a second policy statement on digital asset governance and open public consultations on OTC trading and custodial services.

🔹 Crime Crackdown Highlights the Need for Regulation
The need for tighter oversight was underscored by a recent crackdown on a money laundering syndicate that used crypto to launder over $15 million. Raids resulted in the seizure of over 500 bank cards and numerous financial documents.
Authorities discovered the suspects were using fake accounts to funnel illicit funds through the banking system before converting them into cryptocurrencies to mask their origin.

🔹 Conclusion: Regulation as a Competitive Advantage
By implementing a clear and strict framework for fiat-backed stablecoins, Hong Kong sends a strong signal to the global market—safe and responsible digital finance is the future. As other nations hesitate, this Asian financial powerhouse could solidify its leadership role in the evolving crypto economy.

#Stablecoins , #Regulation , #CryptoNewss , #crypto ,

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