US Treasury Secretary Scott Bessent Recognizes That Stablecoins Could Play an Immense Role in Financing the US Government Budget. The Proposed GENIUS Regulation Aims to Open These Floodgates—But Meets a Tepid Reception from the Most Significant Stablecoin So Far.

In a recent interview with Bloomberg, US Treasury Secretary Scott Bessent spoke about the upcoming stablecoin regulation.

„We want to introduce the highest regulatory and anti-money laundering standards for digital assets, especially for stablecoins. I’ve seen estimates that stablecoins could generate a demand of two trillion dollars for US government bonds and T-bills in no time at all.“

Bessent is essentially repeating what Trump’s “Crypto and AI Czar” David Sacks recently said in an earlier CNBC interview: There already exists an unregulated 200 billion dollar stablecoin market. “If we create legal clarity and a regulatory framework, then I think we can generate a multi-trillion dollar demand for government bonds practically overnight.”

Currently, Tether (USDT ($1.00)) holds about 120 billion dollars in US government bonds, while Circle (USDC ($1.00)) holds another 50-60 billion dollars. This means stablecoins are already a significant source of financing for the US government budget. However, this is just a fraction of the trillions in demand that Sacks and Bessent hope for.

As Sachs explains, stablecoins “are a new, more efficient, less expensive, and more liquid payment system—a new payment network for the US economy. They also strengthen the dominance of the dollar online.” Technically, there is nothing to stop ever-increasing portions of dollar supply from circulating as stablecoins.

Given a money supply of $18.43 trillion (M1) or $21.3 trillion (M2), even tokenizing 10-20 percent would create a demand for government bonds amounting to several trillion dollars. In light of the relatively weak demand for stablecoins at the last auction and the presumed disappearance of Japan as a buyer, this development would be more than welcome in the White House.

The GENIUS Act is intended to regulate the stablecoin market and ensure its success. It imposes a variety of obligations on stablecoin issuers. For example, they must publish regular audits, comply with certain reserve requirements, and implement financial sanctions and anti-money laundering measures. GENIUS is similar to the EU rules under MiCA, but grants issuers a bit more freedom, especially regarding the composition of their reserves.

Above all, however, the US government is acting from a position of strength: Stablecoins are pegged nearly 100 percent to the dollar, while euro variants are niche products that nobody uses. While issuers do not need the EU, they are dependent on the United States. This enables the US government to impose its wishes on the market.

The law has good prospects of being enacted. Recently, it passed an important hurdle in the Senate, thanks in part to the support of 15 Democratic representatives.

At Tether, the issuer of the largest stablecoin USDT, these requirements seem to be met with limited enthusiasm. In a recent Bloomberg interview, CEO Paolo Ardoino explained that, while Tether would observe the outcomes of GENIUS with keen interest, the core markets for USDT were primarily in developing and emerging markets, where they provide the “unbanked” with access to the US dollar and payment systems. Therefore, Tether intends to focus on these markets.

However, in order to maintain access to the US market, the company is planning to launch a US-issued stablecoin that complies with GENIUS regulation. Ardoino says they are more comfortable with GENIUS than with MiCA, since GENIUS allows the holding of government bonds, whereas MiCA requires that a large portion of reserves be held in non-deposit-guaranteed bank accounts. Europe is falling behind while the US is moving forward through regulation.

Ardoino does not explain exactly why Tether wants to issue a stablecoin specifically for the US market instead of simply regulating USDT as a whole. He merely mentions that stablecoins serve different purposes in emerging markets than in the US. Presumably, Tether does not want to become too dependent on the United States, but rather maintain its standing as a global stablecoin that cooperates with the US government without being subordinated to it.