US GENIUS stablecoin Bill: Financial Innovation and Risks Amidst Debt Crisis

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

In the context of significant debt pressure in the United States and divergent monetary policies, the timing of the advancement of the stablecoin bill is worth pondering.

US Debt Crisis: Catalyzing Stablecoin Policies

During the pandemic, the United States initiated an unprecedented monetary expansion policy. The Federal Reserve's M2 money supply skyrocketed from $15.5 trillion in February 2020 to the current $21.6 trillion, with a growth rate peaking at 26.9%, far exceeding the levels seen during the 2008 financial crisis and the high inflation periods of the 1970s and 1980s.

At the same time, the Federal Reserve's balance sheet has expanded to $7.1 trillion, with pandemic relief spending reaching $5.2 trillion, equivalent to 25% of GDP. In short, the United States has added $7 trillion to its money supply in two years, laying the groundwork for future inflation and a debt crisis.

As of April 2025, the total amount of U.S. national debt has surpassed $36 trillion. The total principal and interest that will need to be repaid in 2025 is estimated to be about $9 trillion, with approximately $7.2 trillion of that being principal due. Over the next decade, the U.S. government's interest payments are expected to reach $13.8 trillion, and the proportion of national debt interest payments to GDP continues to rise. To repay the debt, the government may have to increase taxes or cut spending, which will have a negative impact on the economy.

Discrepancies in Monetary Policy

Trump: Calls for interest rate cuts

Trump is eager for the Federal Reserve to cut interest rates, and the reason is obvious: high rates directly affect mortgages and consumption, posing a threat to his political prospects. More crucially, Trump has always viewed stock market performance as a reflection of his achievements; a high interest rate environment suppresses further increases in the stock market, directly threatening the core data he uses to showcase his accomplishments.

In addition, the tariff policy has led to an increase in import costs, raising domestic price levels and increasing inflationary pressures. Moderate interest rate cuts can help offset the negative impact of the tariff policy on economic growth to some extent, alleviating the slowdown of the economy and creating a more favorable economic environment for re-election.

Federal Reserve Chairman: Upholding Independence

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, the Federal Reserve Chairman acts strictly according to a data-driven methodology, evaluating the execution of the dual mandate based on existing economic data, and only implementing targeted policies for adjustments when issues arise with inflation or employment targets.

The unemployment rate in the US in April was 4.2%, and inflation is basically in line with the long-term target of 2%. Due to the impact of tariffs and other policies, any potential economic recession has not yet transmitted to actual data, so the Federal Reserve will not take action. The Federal Reserve Chairman believes that Trump's tariff policy "is likely to raise inflation at least temporarily" and that "the inflation effect may also be more persistent." Prematurely cutting 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 enable monetary policy to be based on economic fundamentals and professional analysis, ensuring that the formulation of monetary policy is driven by considerations of the long-term interests of the national economy rather than catering to short-term political demands.

GENIUS Act: A New Financing Channel for US Debt

Market data fully demonstrates the significant impact of stablecoins on the U.S. Treasury market. In 2024, the largest stablecoin issuer net purchased $33.1 billion in U.S. Treasuries, becoming the seventh largest buyer of U.S. Treasuries globally, with a total holding of $113 billion. The second largest stablecoin issuer has a market capitalization of about $60 billion, which is also fully backed by cash and short-term U.S. 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 securities and other dollar-denominated assets. The current stablecoin market has reached a scale of $243 billion, and if fully included under the GENIUS Act framework, it will generate hundreds of billions of dollars in Treasury purchase demand.

potential advantages

1. The effect of direct financing is significant: for every 1 dollar stablecoin issued, theoretically, it requires the purchase of 1 dollar of short-term U.S. Treasury bonds or equivalent assets, providing a new source of funding for government financing.

2. Cost advantage: Compared to traditional government bond auctions, the demand for stablecoin reserves is more stable and predictable, reducing the uncertainty of government financing.

3. Scale Effect: After the implementation of the bill, more stablecoin issuers will be forced to purchase U.S. Treasury bonds, creating a scaled institutional demand.

4. Regulatory premium: The government controls the issuance standards of stablecoins through legislation, effectively gaining the power to influence the allocation of this massive pool of funds. This "regulatory arbitrage" allows the government to leverage innovation to advance traditional debt financing goals while circumventing the political and institutional constraints faced by traditional monetary policy.

potential risks

1. The risk of monetary policy being hijacked by politics: The large-scale issuance of USD stablecoins effectively gives the government a "money printing power" that bypasses the Federal Reserve, allowing it to indirectly achieve the goal of stimulating the economy through interest rate cuts. When monetary policy is no longer constrained by the professional judgment and independent decision-making of central banks, it can easily become a tool serving the short-term interests of politicians.

2. Hidden inflation risk: When a user spends 1 dollar to buy a stablecoin, it seems that there is not much money involved, but in reality, the 1 dollar in cash has transformed into two parts: the 1 dollar stablecoin in the user's hand + the 1 dollar short-term treasury bond purchased by the issuer. These treasury bonds also have quasi-currency functions within the financial system. This means that the original monetary function of 1 dollar has now split into two, effectively increasing the liquidity in the entire financial system, which raises asset prices and consumption demand, inevitably putting upward pressure on inflation.

3. Historical lesson: 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 changing the international monetary system. Similarly, when the U.S. government faces an escalating debt crisis and an excessively heavy interest burden, there is likely to be political motivation to decouple stablecoins from U.S. Treasury bonds, ultimately making the market pay the price.

DeFi: Amplifier of Risks

After the issuance of stablecoins, they will most likely flow into the DeFi ecosystem. Through a series of operations such as DeFi lending, staking and re-staking, and investing in tokenized government bonds, the risks are magnified layer by layer.

The restaking mechanism is a typical example, repeatedly leveraging assets across different protocols. Each added layer introduces additional risk, and if the value of the restaked assets plummets, it could trigger a chain liquidation, leading to panic selling in the market.

Although the reserves of these stablecoins are still US Treasury bonds, after multiple layers of DeFi nesting, market behavior has completely diverged from traditional US Treasury bond holders, and this risk is entirely outside the traditional regulatory framework.

The Monetization of Presidential Power

Combining past operations, promoting stablecoin policies may not only be to save the U.S. economy, but could also become a tool for certain political figures to amass wealth.

1. Launch cryptocurrency projects and raise funds through the sale of tokens.
2. Issuing personal MEME coins, opening a precedent for presidential coin issuance.
3. Comments on social media raise doubts about market manipulation.

The USD stablecoin involves multiple aspects including monetary policy, financial regulation, technological innovation, and political gamesmanship, and requires comprehensive analysis. The ultimate direction of the stablecoin depends on regulatory decisions, technological developments, the behavior of market participants, and changes in the macroeconomic environment. Only through continuous observation and rational analysis can we truly understand the profound impact of the USD stablecoin on the global financial system.

However, it can be said for certain that in this game of financial innovation, ordinary investors are likely to be the ones ultimately footing the bill.