Introduction

As one of the most disruptive innovations of the 21st century, blockchain technology has evolved from a niche cryptocurrency experiment to a vital component of the global financial system. However, the gap between the blockchain world and the traditional financial system still exists, and stablecoins are the bridge connecting the two. In recent years, with the advancement of the U.S. (GENIE Act), the deep binding of stablecoins to U.S. Treasury bonds is reshaping the global financial landscape. This linkage mechanism not only affects the healthy development of the blockchain ecosystem but may also alter our fundamental understanding of currency, value, and trust. This report will analyze the mechanisms and impacts of linking U.S. Treasury bonds to stablecoins, exploring the profound significance of this trend for the future development of blockchain.

Stablecoins: The bridge connecting the digital and the real

Before delving into the impact of linking U.S. Treasury bonds to stablecoins, we first need to understand the essence and classification of stablecoins. Stablecoins are a type of cryptocurrency whose value is pegged to various fiat currencies or assets to maintain price stability. Unlike volatile cryptocurrencies such as Bitcoin, the primary goal of stablecoins is to provide price stability while retaining certain characteristics of cryptocurrencies, such as programmability, global accessibility, and transaction transparency.

Stablecoins can be classified into four main categories based on the type of asset they are pegged to:

1. Fiat-collateralized stablecoins: The most common type, where each unit of stablecoin is backed by corresponding fiat currency or treasury bonds. For example, USDT issued by Tether and USDC issued by Circle are pegged to the dollar and short-term U.S. Treasury bonds at a 1:1 ratio.

2. Crypto-collateralized stablecoins: Issued using other cryptocurrencies as collateral, such as DAI (a stablecoin supported by the Ethereum ecosystem).

3. Algorithmic stablecoins: Maintain price stability by automatically adjusting the supply of currency through algorithms, such as Ampleforth.

4. Commodity-backed stablecoins: Pegged to commodities like gold, such as Digix Gold (DGX).

In the current market, fiat-collateralized stablecoins dominate. According to CoinMarketCap data, as of May 2025, the total market capitalization of global stablecoins exceeded $240 billion, with USDT and USDC issued by Tether having a combined market capitalization of $214 billion, accounting for about 90%. This market concentration reflects that fiat-collateralized stablecoins, especially those pegged to the dollar, have become core components of the blockchain ecosystem.

(GENIE Act): A new framework for stablecoin regulation

The (GENIE Act) currently under consideration by the U.S. Senate is establishing a clear federal regulatory framework for stablecoins. This act, led by Republican Senator Bill Hagerty, aims to regulate the issuance of stablecoins and protect consumers by strengthening anti-money laundering (AML) and counter-terrorism financing (CFT) measures.

The core provisions of the (GENIE Act) include:

1. Mandatory 1:1 reserve holdings: All stablecoin issuers must hold U.S. short-term Treasury bonds or dollars as reserves on a 1:1 basis. This means that for every stablecoin issued, the issuer must hold an equivalent amount of dollars or U.S. short-term Treasury bonds maturing within 93 days.

2. Strict regulatory entry: Require any stablecoin issuer to obtain approval from federal or state regulatory agencies and undergo strict regulation.

3. Transparency requirements: Issuers must regularly disclose the composition of reserves to ensure transparency and auditability.

4. Tiered regulatory mechanism: Implement tiered regulation based on the scale of stablecoin issuance, ensuring the targeting and effectiveness of regulation.

Tao Dong commented that the "genius" of the (GENIE Act) lies in the fact that these stablecoins will become automatic vending machines for U.S. Treasury bonds. Stablecoins need asset backing, and the most obvious low-risk, price-stable asset is U.S. Treasury bonds. This comment reveals the profound logic behind the act: by mandating that stablecoins hold U.S. Treasury bonds as reserves, the act effectively creates a continuous and large-scale demand for U.S. Treasury bonds.

The current status and scale of linking U.S. Treasury bonds to stablecoins

Market overview

The scale and importance of the stablecoin market cannot be overlooked. As of April 2025, the market capitalization of USDT reached $145.6 billion, accounting for 62.8% of the total stablecoin market capitalization, while USDC reached $59.2 billion, accounting for 25.5%. Together, they account for 86.4% of the total stablecoin market capitalization. This market concentration indicates that USDT and USDC, as the main dollar-pegged stablecoins, play a core role in the blockchain ecosystem.

Reserve structure

According to the latest data, Tether (the issuer of USDT) holds approximately $120 billion in U.S. Treasury bonds and overnight repos, accounting for over 80% of its total reserves. Circle (the issuer of USDC) supports USDC with an 88% T-bill (U.S. Treasury bond) holding ratio, while Tether supports USDT with a 66% T-bill holding ratio.

This high proportion of Treasury bond reserves makes stablecoins important buyers in the U.S. Treasury bond market. It is estimated that the two major stablecoins hold short-term Treasury bonds worth $120 billion, becoming important new buyers in the U.S. Treasury bond market, further deepening the connection between the cryptocurrency market and the U.S. Treasury bond market.

Influence

The scale and liquidity of stablecoins have begun to impact traditional financial markets. According to research from the Bank for International Settlements, stablecoins like USDT/USDC experience daily trading fluctuations of 2%, enough to affect the 3-month Treasury yield by 2.5 basis points, comparable to a mini quantitative easing effect. This finding suggests that the connectivity between the stablecoin market and the U.S. Treasury bond market is strengthening, and the volatility of stablecoins may transmit through the Treasury bond market to the broader financial system.

The impact of linking U.S. Treasury bonds to stablecoins on future trends in blockchain

Impact on blockchain financial stability

The impact of linking U.S. Treasury bonds to stablecoins on blockchain financial stability is multifaceted. On one hand, this linkage mechanism enhances the value stability of stablecoins, reducing the volatility of the cryptocurrency market, and providing a more solid foundation for blockchain finance. The stability of stablecoins makes them key tools for payment and value storage in the on-chain ecosystem.

On the other hand, this mechanism also creates new financial risks. Bank of America has stated that with the rise of stablecoins, traditional banks face the risk of deposit outflows, and demand for short-term U.S. Treasury bonds may surge, with approximately $6.6 trillion in bank trading deposits at risk of moving to stablecoins. For every $1 that flows from the banking system to stablecoins, the demand for the U.S. Treasury bond market could increase by about $0.8. This large-scale flow of funds may have profound implications for the stability of the financial system.

Additionally, linking U.S. Treasury bonds to stablecoins may also lead to new "run" risks. When users collectively redeem stablecoins, issuers may be forced to sell Treasury bonds to meet redemptions, potentially causing market turbulence. This risk is particularly pronounced during periods of market stress and may impact both the Treasury bond market and the cryptocurrency market simultaneously.

Impact on the degree of decentralization in blockchain

One of the core concepts of blockchain technology is decentralization, and linking U.S. Treasury bonds to stablecoins may have complex effects on this concept. On one hand, stablecoins provide a bridge between blockchain and the traditional financial system, allowing cryptocurrencies to interact with real-world assets and values, which in some ways expands the applications and influence of blockchain.

On the other hand, this linkage mechanism may also lead to new centralization risks. The (GENIE Act) requires stablecoin issuers to obtain approval from federal or state regulatory agencies and undergo strict regulation. This means that the issuance of stablecoins will be subject to the constraints of traditional financial regulatory frameworks, potentially undermining the decentralized characteristics of blockchain.

Moreover, the high concentration in the stablecoin market also brings centralization risks. USDT and USDC together account for 86.4% of the total stablecoin market capitalization, and this market concentration may cause the entire blockchain ecosystem to rely on the decisions of a few stablecoin issuers, increasing systemic risk.

Impact on the regulatory environment

The impact of linking U.S. Treasury bonds to stablecoins on the blockchain regulatory environment is profound. The advancement of the (GENIE Act) marks the beginning of regulators addressing the rise of stablecoins in a more systematic and comprehensive manner. This act will establish a regulatory framework for stablecoins "pegged" to the dollar, which is widely viewed as beneficial for strengthening consumer protection and enhancing the legitimacy of the cryptocurrency industry.

The establishment of this regulatory framework may have far-reaching implications for the future development of blockchain technology. On one hand, a clear regulatory framework may provide clearer rules and expectations for blockchain innovation, promoting responsible innovation. On the other hand, overly stringent regulation may also limit the decentralized nature of blockchain, hindering the development of certain innovative applications.

It is worth noting that the (GENIE Act) not only regulates the issuance of stablecoins but also protects consumers by strengthening anti-money laundering (AML) and counter-terrorism financing (CFT) measures. This comprehensive regulatory approach reflects the regulators' recognition of the potential of blockchain technology, while also indicating their awareness of the risks that blockchain may bring.

Impact on user trust

The impact of linking U.S. Treasury bonds to stablecoins on user trust in blockchain is significant. On one hand, the linkage to U.S. Treasury bonds enhances the credibility and stability of stablecoins, making more traditional investors and institutions willing to participate in blockchain transactions. The stability of stablecoins makes them key tools for payment and value storage in the on-chain ecosystem, and this stability is built on users' trust in U.S. Treasury bonds as a safe asset.

On the other hand, this linkage mechanism may also raise questions about the transparency and true reserves of stablecoins. Although Circle releases monthly reserve reports audited by independent accounting firms, Tether's transparency issues still exist, which may lead to a decline in user trust in certain stablecoins.

Moreover, the deep binding of stablecoins to U.S. Treasury bonds may also trigger discussions about dollar hegemony and financial globalization. Stablecoins essentially represent a new narrative of dollar hegemony, extending the influence of the dollar to broader financial fields through blockchain technology. This expansion may provoke regulatory responses from other countries and regions, further complicating the global financial regulatory environment.

Impact on blockchain innovation and applications

The impact of linking U.S. Treasury bonds to stablecoins on blockchain innovation and applications is profound. On one hand, this linkage mechanism provides a bridge for blockchain to connect with the traditional financial system, offering a broader space for blockchain innovative applications. Traditional financial institutions can expand their blockchain business by issuing stablecoins, improving business efficiency and security.

On the other hand, this linkage mechanism may also limit the development of certain blockchain innovation directions. For example, fully decentralized cryptocurrency projects may face greater regulatory pressure as they do not conform to the linkage model with U.S. Treasury bonds. Additionally, the (GENIE Act) requires stablecoin issuers to obtain approval from federal or state regulatory agencies, which may increase the barriers to entry for blockchain startups and restrict the development of certain innovative directions.

It is noteworthy that stablecoins provide new possibilities for the application of blockchain technology in traditional financial sectors such as insurance. In the insurance sector, stablecoins can be used for pricing and trading, reducing insurance costs and enhancing transparency. This application may bring broader and deeper financial applications for blockchain technology.

Future outlook of linking U.S. Treasury bonds to stablecoins

New buyers in the U.S. Treasury bond market

The (GENIE Act) mandates that stablecoin issuers must hold U.S. short-term Treasury bonds or dollars as reserves on a 1:1 basis, which will create a continuous and large-scale demand for U.S. Treasury bonds. It is estimated that the two major stablecoins hold short-term Treasury bonds worth $120 billion, becoming important new buyers in the U.S. Treasury bond market.

This demand may have far-reaching implications for the U.S. Treasury bond market. On one hand, it could provide a more stable source of funding for the Treasury bond market, lowering Treasury yields and alleviating the U.S. government's debt burden. On the other hand, it may also increase the volatility of the Treasury bond market, as fluctuations in the stablecoin market could transmit through the Treasury bond market to the broader financial system. According to research from the Bank for International Settlements, stablecoins like USDT/USDC experience daily trading volatility of 2%, enough to affect the 3-month Treasury yield by 2.5 basis points, comparable to a mini quantitative easing effect.

New models of blockchain finance

Linking U.S. Treasury bonds to stablecoins may give rise to new models of blockchain finance. Leveraging blockchain technology, stablecoins possess inherent cross-border universality, providing new possibilities for cross-border payments and international trade settlements. As a bridge connecting digital currencies and real assets, stablecoins are reshaping global capital flows.

This new model may have far-reaching implications for traditional banking. Bank of America has stated that with the rise of stablecoins, traditional banks face the risk of deposit outflows, and demand for short-term U.S. Treasury bonds could surge, putting approximately $6.6 trillion in bank trading deposits at risk of moving to stablecoins. This shift may force traditional banks to rethink their business models and competitive strategies.

Transformation of the global financial landscape

Linking U.S. Treasury bonds to stablecoins may have profound effects on the global financial landscape. On one hand, it could strengthen the dollar's status as the global reserve currency, as stablecoins essentially represent a new narrative of dollar hegemony, extending the influence of the dollar to broader financial fields through blockchain technology.

On the other hand, it may also provoke regulatory responses and competition from other countries and regions. For example, regions like Hong Kong may launch their own stablecoins or digital asset regulatory frameworks to maintain their status as financial centers. This competition could drive the unification and coordination of global financial regulatory frameworks, but it could also lead to differentiation and complexity in financial regulation.

Conclusion and outlook

Linking U.S. Treasury bonds to stablecoins represents a new phase in the integration of blockchain and the traditional financial system. The advancement of the (GENIE Act) establishes a clear regulatory framework for stablecoins, requiring issuers to hold U.S. short-term Treasury bonds or dollars as reserves on a 1:1 basis, which will create a continuous and large-scale demand for U.S. Treasury bonds, while providing a more solid foundation for blockchain technology.

The impact of this linkage mechanism on future trends in blockchain is profound. On one hand, it enhances the value stability of stablecoins, providing a bridge for blockchain to connect with the traditional financial system, promoting the application of blockchain in areas such as cross-border payments and international trade settlements. On the other hand, it may also lead to new financial risks, increasing dependence on the dollar and the U.S. financial system, and limiting the development of certain blockchain innovation directions.

Looking ahead, linking U.S. Treasury bonds to stablecoins may give rise to new models of blockchain finance, having far-reaching effects on the global financial landscape. Leveraging blockchain technology, stablecoins possess inherent cross-border universality, providing new possibilities for cross-border payments and international trade settlements. At the same time, the expansion of the stablecoin market may provide a more stable source of funding for the U.S. Treasury bond market, but it may also increase volatility in the Treasury bond market.

As a seasoned economist, I believe that linking U.S. Treasury bonds to stablecoins represents a trend towards a more efficient and inclusive global financial system. However, this trend also brings new challenges and risks that need to be jointly addressed and studied by regulators, market participants, and academia. In the future, with the advancement of technology and the improvement of regulation, we have reason to believe that the integration of blockchain and the traditional financial system will create a fairer and more efficient global financial system.