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Stablecoins may become a major funding source for the U.S. government.

The U.S. Senate passed the GENIUS Act this week, which could make stablecoins a major funding source for the U.S. government. U.S. Treasury Secretary Yellen praised the GENIUS Act, noting that a regulated and expanded stablecoin market could help attract new buyers for U.S. government debt, increasing private sector demand for U.S. Treasury bonds. Yellen had informed the U.S. House Financial Services Committee last May of speculation that the stablecoin market may require up to two trillion dollars in U.S. government securities in the coming years.

However, analysts warn that the stablecoin sector is unlikely to fully solve the challenges of financing U.S. government debt and may pose additional risks. The increasing demand for stablecoins will take time to develop, while the U.S. Treasury needs to issue a large quantity of debt securities within the year. If issues arise that prevent the Federal Reserve from lowering interest rates, the U.S. budget deficit could spiral out of control.