The stablecoin is changing everything.
What was once a niche product is now becoming a powerful force in global finance. The age of tokenization is upon us and it is radically altering the entire financial world.
Earlier this year, the United States passed the GENIUS Act. Regulators saw the need for clarity regarding these instruments. It also put the US in a powerful position regarding the US dollar and its debt.
The latter is something that gets a lot of attention. Since few truly understand the global financial system, the view of debt is the same as one experiences personally. For the US, this is slightly different.
In this article we will look at how stablecoins are the next step in the Eurodollar evolution. We will also cover the Milkshake Theory detailing how more value will be pulled in.
Read the headlines and you will see how China is unloading US debt. This causes the doomers to declare that we are nearing immediate crash.
This is obviously not the case but, again, few take the time to learn the system.
A bond is a debt instrument. The last few years, the US government issued them like candy. Deficit spending was absurd. It reached a level of concern, led by the likes of Elon Musk. He headed up DOGE, an organization designed to find wasteful spending and remove it. Unfortunately for him, the mechanisms of Washington DC got in the way.
Politicians, no matter what party, do not usually want to cut off the handouts (bribes) they are offering.
At the core of any discussions is whether there is a demand for debt. No country (individual or entity) has an issue if it can be sold. The ability to "refinance" always exists.
Most major countries find themselves in this position, for now. There is likely to come a day when the selling of the debt will be a problem. When the buyers disappear because confidence is lost, it is curtains.
The US did a remarkable thing. It transformed the debt market pertaining to its issues forever. A country like China, who was the largest buyers of treasuries, is no problem. There is a new buyer in town: stablecoin issuers.
Demand for T-bills is about to skyrocket. We are already seeing the holdings by these companies growing. Each time a company puts out another billion in stablecoins, this amounts to basically $800 million in Treasury purchases.
Coingecko has the market capitalization at almost $300 billion. This was only $250 billion earlier in the Summer.
In other words, we are facing massive expansion. With the new law, the issuers that are operating within the US are forced to buy "highly liquid" assets. This means, for the most part, T-Bills.
Basically, we are seeing the instruments becoming currency. The tokenization means we have a transferrable entity tied to the asset.
This was an idea that I first heard espoused by Brent Johnson.
It is a rather simple idea: the US dollar will grow in dominance as it sucks value from all other currencies, starting with the worst first.
Stablecoins actually support this. When people in countries such as Argentina and Nigeria, traditionally high inflation nations, the people, through the use of a smartphone, can interact with US dollars. This can be done using Tether, USDC, or a host of other stablecoins. Of course, the list is only going to expand as more companies enter the market.
The shift is exemplified in the Treasuries.
China is holding roughly $756 billion in Treasures. As of the second quarter filing, Tether was sitting on $127 billion. The latter is a number that is only going to keep increasing.
Basically, T-Bills become currency that pays interest. This is similar to how the Eurodollar market worked for decades. The collateralization of Treasuries meant that T-bills were the top currency for swaps.
All of this could lead to the realization of the Milkshake Theory. Treasuries will drive the show. As other countries face confidence loss, their bonds will be less appealing. This has a ripple effect throughout the entire global landscape.
No long is it currency from the commercial banks that are the main component. If stablecoins take over, it will be the Treasuries backing it.
In other words, we are basically looking at the tokenization of these assets.
