- US Treasury Secretary is hoping stablecoins can soothe rising debt.
- 'The biggest stablecoin issuers will be too big to fail,' says expert.
- Additional policy measures beyond the Genius Act are still needed.
A version of this story appeared in The Guidance newsletter on August 25. Sign up here.
Hey all, Liam here.
US Treasury Secretary Scott Bessent is making his boldest bet yet on the American economy.
The 63-year-old former hedge fund manager is banking on stablecoin issuers, such as Tether and Circle, to help soak up the country’s turgid debt woes, according to reporting by the Financial Times.
That’s because dollar-token issuers are typically net buyers of US debt in the form of treasuries.
With the passage of landmark stablecoin legislation this summer, the sector is expected to rise as high as $3.7 trillion in the next five years as new and old players pile in, according to some estimates.
But is it enough to right the American fiscal ship?
“It doesn’t hurt!” Garett Jones, chief economist at stablecoin ratings agency Bluechip, told DL News. “But having, say, 10% more demand for treasuries isn’t going to paper over the US’s long-term fiscal problems.”
A growing problem
Still, with the country’s massive debt load careening out of control, Bessent will take anything he can get.
Thanks to US President Donald Trump’s massive spending bill passed in July, government debt is expected to grow by another $2.8 trillion by 2034, according to the Congressional Budget Office estimates.
Today, the entire stablecoin market is worth over $277 billion, according to DefiLlama.
Indeed, stablecoin businesses offer something of a large plastic bucket to battle what’s turning out to be a fiscal tsunami.
“While this is certainly helpful and the programmatic reinvestment of reserves creates predictable demand, it’s nowhere near enough to offset structural deficits on a $35 trillion debt stack,” Kevin Lehtiniitty, CEO of stablecoin upstart Borderless.xyz, told DL News.
Stablecoin behemoths
Meanwhile, it could put the US in an awkward position should some of these private issuers go bust, especially if they start outpacing G7 economies — which Tether has already done.
“Companies are typically more fragile than nation-states,” Ben Reynolds, the managing director of stablecoins at BitGo, told DL News. “A private company could fall into economic trouble and have to liquidate a large treasury position in a small amount of time.”
Additionally, the US will have fewer options to navigate should the American fiscal picture turn a darker hue. It’s a real risk, said Bluechip’s Jones.
“The biggest stablecoin projects will be too big to fail, so if the US is ever thinking about using a partial default to get out of its fiscal problems, these stablecoin projects won’t be a good group to default on,” he said.
There are other risks. If just a few issuers start to buy up trillions in US debt, they could suddenly get “undue influence over political directions,” said Lehtiniitty.
He warned that such “extreme concentration” will create “a systemic risk to the debt market.”
Unkillable coins
Additional policy measures beyond the Genius Act could help ensure a diverse market of issuers.
And given the stablecoin genie is already out of the bottle, other experts suggest that said policy measures will continue long after Trump’s tenure.
“This trend is macro and tech-based, not even an antagonistic administration could kill it,” Luca Prosperi, co-founder and CEO of M0 Foundation. “While the pro-crypto administration has helped, I don’t think this is a Trump-dependent trend at all.”
Liam Kelly is a Berlin-based reporter for DL News. Got a tip? Email him at liam@dlnews.com.