Main Points:
- Stablecoins have surpassed $230 billion in circulation, acting as programmable “Currency APIs” with sub-cent transaction costs.
- Real-world use cases span Nigeria’s merchants using USDC to hedge naira volatility to Singapore hedge funds tokenizing T-Bills for 4.9% yield.
- The U.S. Senate’s GENIUS Act aimed to create a federal licensing framework but stalled amid political controversies and concerns over anti–money laundering provisions.
- The EU’s MiCA regulation, effective as of December 2024 for stablecoins, mandates robust reserve requirements and consumer protections.
- Leading issuers USDT and USDC hold over 90% market share; Tether reported $120 billion in U.S. Treasury holdings in Q1 2025, while Circle publishes monthly attestations for $61.38 billion USDC reserves.
- Governance challenges linger: questions around monetary policy oversight, blacklisting authority, and the need for on-chain transparency and Basel-style capital requirements.
A New Chapter in the Dollar’s Story
The history of the U.S. dollar unfolds like a three-act play. The first act, Eurodollars, began in 1950s London as offshore dollar deposits that allowed entities from Soviet-bloc nations to multinational corporations to hold and transact in dollars outside U.S. regulation. These deposits swelled into a shadow banking system holding trillions of dollars. The second act, Petrodollars, commenced in 1974 when OPEC priced oil exclusively in dollars, creating enduring demand for U.S. Treasury bills and cementing the dollar’s role in global energy markets.
Now, the third act is underway: stablecoins—blockchain-based tokens pegged to the dollar and often backed by T-Bills and cash equivalents. With over $230 billion in combined market capitalization, stablecoins have become a de facto digital dollar, outpacing daily transaction volumes of legacy payment giants like PayPal and Western Union on many days. They represent programmable, permissionless currency units that settle in seconds for fractions of a cent.
Real-World Use Cases: From Lagos to Singapore
Hedging Local Currency Risks
In Nigeria, merchants increasingly accept USDC via mobile wallets, shielding themselves from the naira’s 20 percent year-to-date depreciation. They convert USDC back to naira at favorable rates, allowing same-day inventory restocking without exposing themselves to FX volatility.
Tokenized Treasury Yields
Singapore-based hedge funds are allocating capital to tokenized U.S. Treasury bills offering yields of 4.9 percent. By deploying funds in token form, they can execute trades at 8 a.m. New York time instantly—bypassing correspondent banking rails and settlement delays.
Empowering Gig Workers
In Colombia and other emerging markets, gig economy workers choose to get paid in stablecoins to avoid weekend and holiday remittance lags as well as high fees. They redeem tokens at nearby ATMs, circumventing restrictions on foreign currency remittances and expensive international transfers.
Stablecoins are not supplanting banks; rather, they tunnel beneath the slowest, costliest bottlenecks of the traditional financial system.
Regulatory Landscape: The U.S. Stumbles
The GENIUS Act and Political Headwinds
In an effort to bring stablecoins under a unified federal framework, Senators introduced the “Greater Regulatory Efficiency for Innovative and Useful Stablecoins” (GENIUS) Act. The bill would grant national charters to stablecoin issuers and provide access to Federal Reserve master accounts for the first time. The U.S. Department of the Treasury projects stablecoin supply could reach $2 trillion by 2028—on par with early Eurodollars.
However, in May 2025, the Senate failed to invoke cloture on the GENIUS Act, with a 48–49 vote falling short of the 60 needed to advance. Opposition coalesced around concerns over foreign issuer oversight and anti-money laundering safeguards. The bill’s momentum further stalled when nine Senate Democrats withdrew support, citing conflicts of interest tied to President Trump’s personal crypto ventures, including a $320 million meme coin and rumored Binance ties. This politicization highlights the challenge of bipartisan crypto regulation in Washington.
Regulatory Landscape: The EU Moves Forward
Markets in Crypto-Assets Regulation (MiCA)
The European Union took decisive action with MiCA, the world’s first comprehensive crypto-asset rulebook. Effective since December 2024 for fiat-backed stablecoins, MiCA requires issuers to:
- Hold 1:1 reserves in high-quality liquid assets.
- Publish real-time, on-chain attestations of reserve audits.
- Adhere to capital and liquidity requirements akin to Basel standards.
- Ensure custody interoperability to prevent single-custodian monopolies.
- Provide consumer protection measures, including rights to redemption and complaint processes.
MiCA’s steady implementation positions Europe as a testbed for institutional adoption of regulated stablecoins.
Market Dynamics: USDT and USDC Dominate
Tether (USDT)
Tether continues to lead, accounting for over 60 percent of trading volume with a daily turnover of $60 billion as of May 10, 2025. In Q1 2025, Tether reported $120 billion in U.S. Treasury holdings—up significantly from prior quarters—demonstrating deep liquidity pools underpinning USDT.
Circle (USDC)
Circle’s USDC claims over 30 percent of market share, with $61.38 billion in circulation and an equivalent amount held in cash and equivalents as of May 1, 2025. Circle publishes monthly attestations by a Big Four auditor, bolstering confidence in USDC’s fully reserved status.
These two stablecoins together represent more than 90 percent of the market, reflecting a duopoly shaping liquidity and trust in the space.
Governance and Oversight Challenges
Monetary Policy Implications
With one-third of offshore dollars potentially tokenized, questions emerge: Who will oversee monetary policy when private stablecoin issuers can mint and burn tokens at will? How can central banks account for off-balance-sheet stablecoin supply?
Blacklisting and Sanctions
If an issuer blacklists a wallet, what remediation exists for affected users? Can private firms wield coercive power akin to states? These governance gaps require clear legal frameworks to prevent abuse and ensure user recourse.
Interoperability and Decentralization
Requiring multi-chain interoperability standards prevents a single custodian or blockchain from monopolizing stablecoin infrastructure. This fosters resilience and competition, aligning with MiCA’s interoperability mandates.
The Road Ahead: Building a Digital-Dollar Moat
To maintain dollar primacy against rival CBDCs, Washington must act swiftly:
- Impose Basel-style Capital & Liquidity Requirements. Stablecoin issuers should hold capital buffers to absorb shocks.
- Mandate On-Chain Reserve Transparency. Real-time, cryptographically verifiable attestations should become standard, reducing information asymmetry.
- Enforce Interoperability Protocols. Multiple blockchains and custodians must be able to issue and redeem the same USD-pegged token.
- Offer Access to Fed Master Accounts. A regulated stablecoin charter should include central bank liquidity windows under strict conditions.
- Extend FDIC-Equivalent Protection. User deposits in stablecoins could be insured similar to bank deposits, boosting retail confidence.
By executing these steps, the U.S. can entrench a “digital-dollar moat” deeper than any rival CBDC, ensuring stablecoins reinforce rather than erode dollar hegemony.
Conclusion
Stablecoins represent the dollar’s third grand reinvention—from Eurodollars to Petrodollars to programmable on-chain tokens. They have already transformed cross-border payments, treasury management, and financial inclusion with sub-second, sub-cent settlement. Yet, without robust regulation and transparent governance, stablecoins risk fragmenting monetary control and creating private “shadow” monetary systems.
The EU’s MiCA offers a blueprint for balanced regulation, requiring full reserves, on-chain audits, and consumer safeguards. Meanwhile, U.S. legislative efforts like the GENIUS Act underscore the political complexities of framing a federal regime. For the dollar’s third act to be a triumph rather than a cautionary tale, policymakers must implement Basel-style requirements, ensure interoperability, and align stablecoins with core monetary policy goals.
If executed wisely, stablecoins can elevate the dollar to a programmable, digital currency framework—cementing its role in the 21st-century economy. If not, the U.S. risks ceding control to offshore issuers and opaque financial networks. The next decade will reveal whether stablecoins become the silent “water” carrying global commerce or a maelstrom that slips beyond Washington’s grasp.
