What is a Stablecoin#
A stablecoin is a cryptocurrency based on blockchain technology. Its core difference from traditional cryptocurrencies lies in its 1:1 peg to fiat currency. For example, the largest stablecoin globally, Tether (USDT), is pegged to the US dollar at a 1:1 ratio. USDT was established by Tether Limited in 2014, indicating that stablecoins are not a new concept and did not emerge only after the passage of the "Stablecoin Act." The act essentially brings stablecoins, which have existed for 11 years, into a regulatory framework.
So, what are the main functions and application scenarios of stablecoins? Their emergence stemmed from the surge in Bitcoin trading volume in 2014, creating a demand for a stable intermediary currency. Bitcoin transactions are essentially direct transfers between wallets and cannot be traded directly with US dollars. Early trading models were relatively backward, relying on face-to-face transactions or platform intermediaries: one party transfers Bitcoin to the other party's wallet, and the other party then transfers US dollars to their account. This model relies on trusted platforms and is inefficient, leading to the creation of stablecoins as an intermediary for Bitcoin transactions.
Therefore, stablecoins essentially act as tokens for US dollars in the cryptocurrency market. After their introduction, the Bitcoin trading model shifted to: buyers first convert US dollars into Tether at a 1:1 ratio, then use Tether to purchase Bitcoin. Tether Limited promises a 1:1 exchange, so sellers must first convert Bitcoin into Tether before exchanging it back to US dollars. In short, stablecoins are US dollar tokens based on blockchain, serving as a bridge currency for cryptocurrency transactions, similar to casino chips. However, the problem lies in the fact that their value entirely depends on the issuer's promise, and the reliability of that promise is questionable.
Even though the US tore up its promise in 1971, decoupling the dollar from gold, who can guarantee that the issuing company won't run away with the funds or go bankrupt? All stablecoin issuers (like Tether) do not keep the exchanged US dollars in third-party accounts but invest them for profit. Before the Federal Reserve's aggressive interest rate hikes in 2022, these companies typically purchased corporate bonds to earn high interest. However, corporate bonds carry risks; if a bond defaults, the issuing company may be dragged down into bankruptcy. There have been historical cases of stablecoin companies collapsing.
For example, in May 2022, the world's third-largest stablecoin, TerraUSD (UST), collapsed, its value plummeting and decoupling from the US dollar, dropping from $1 to $0.10 within a week, a decline of over 90%. The related Luna coin's price nearly went to zero. The collapse of UST was triggered by a bank run: when the Korean company Terra adjusted its liquidity pool, it withdrew some liquidity, prompting large funds to exchange UST for US dollars on a large scale, leading to market panic and a run on the stablecoin. UST was linked to Luna, and during the run, the selling pressure on Luna surged, creating a death spiral. Although the issuing company claimed to hold underlying assets, it struggled to manage the asset liquidation process during the run. After the Federal Reserve raised interest rates in 2022, many issuers invested their funds in high-yield US short-term bonds, earning 5% annually, profiting from the weaknesses of the US Treasury.
Thus, stablecoin issuers essentially engage in banking activities, profiting from interest rate spreads. Their advantage lies in attracting deposits at low or no interest and reinvesting in high-yield US bonds. Even if the Federal Reserve lowers interest rates, the current annual yield on US one-month short-term bonds still reaches 4.3%, creating a lucrative interest rate spread. The high interest rates set by the Federal Reserve have allowed stablecoin companies to thrive in recent years, with the market size increasing to about $200 billion, doubling from a year ago. Consequently, countries supporting cryptocurrencies globally are calling for the regulation of stablecoins, leading to the introduction of the US "GENIUS Act."
What is the Stablecoin Act#
The act stipulates that only three types of entities can issue payment stablecoins:
- First, subsidiaries of banks or credit unions;
- Second, non-bank financial institutions approved by federal regulators (such as those regulated by the OCC);
- Third, state-level issuers that obtain state-level licenses and meet federal "substantive equivalence" standards.
Additionally, the act requires all stablecoins to implement 100% reserve backing: issuers must ensure that assets are sufficient for full redemption, and the US dollars obtained from issuance can only be used to purchase highly liquid assets, such as cash, demand deposits, short-term US Treasury bills (≤93 days), short-term repurchase agreements (≤7 days), and central bank reserves. Customer assets must be strictly segregated from operational funds, and re-pledging is prohibited, only allowing temporary pledging for short-term liquidity purposes. Issuers must disclose the composition of reserve assets monthly and undergo audits by registered accounting firms. Issuers with a market capitalization exceeding $50 billion must comply with stricter auditing and compliance requirements.
Stablecoin issuers are considered financial institutions under the Bank Secrecy Act and must establish anti-money laundering (AML) and sanctions compliance systems. When large tech companies get involved in issuance, they must meet strict financial compliance, user privacy, and fair competition requirements to prevent monopolies and systemic risks. The core provisions of the act aim to strengthen regulation, but against the backdrop of Trump's support for cryptocurrencies, it provides a channel for large tech companies and powerful figures (like Trump) to issue stablecoins for profit and earn through high-yield US bonds.
There is widespread expectation that the stablecoin market will grow dramatically during Trump's presidency. A report by Standard Chartered predicts that by the end of 2028, the issuance of stablecoins will reach $2 trillion, creating an additional $1.6 trillion demand for US short-term bonds, "sufficient to absorb all new short-term bond issuance during Trump's second term." This reveals one of the purposes of the US's support for stablecoins: to increase the number of buyers for short-term bonds.
But can stablecoins solve the $36 trillion debt crisis in the US? Analysis indicates they cannot. The act stipulates that issuers can only purchase short-term bonds maturing within 93 days and cannot buy long-term bonds. The reason is that issuing stablecoins is similar to banks attracting short-term deposits, where funds can be redeemed at any time. If they divert funds to purchase long-term bonds, it will lead to a maturity mismatch issue similar to that of Silicon Valley Bank. In 2020, Silicon Valley Bank invested deposits in long-term bonds, and after the Federal Reserve raised interest rates in 2022, it faced severe losses on long-term bonds and was forced to sell during a bank run, leading to bankruptcy.
Therefore, the US stablecoin act cannot solve the shortage of long-term bond buyers. Issuers' large-scale purchases of short-term bonds are for high-yield profits, exacerbating the financial burden on the US and worsening the debt crisis. Furthermore, stablecoin issuance merely shifts market funds to short-term bonds rather than creating new buyers. For example, Buffett's $300 billion cash is primarily invested in short-term bonds. The market does not lack buyers for short-term bonds; it lacks buyers for long-term bonds, and the act cannot resolve this structural contradiction.
Trump strongly supports stablecoins because he himself is issuing Trump coins. USD1 is a US dollar stablecoin launched by the Trump family's DeFi platform in March 2025, pegged 1:1 to the US dollar and backed by US short-term bonds, deposits, and cash equivalents. Trump's son, Eric Trump, is a key figure. By issuing stablecoins to raise funds and reinvest in high-yield US bonds, they create a profit without capital. The rapid advancement of the act partly stems from facilitating profit-making for the powerful elite.
On May 19, the US stablecoin act passed procedural legislation in the Senate and still requires votes from both the House and Senate before being signed by Trump. Given that the act benefits tech giants in financing and allows the powerful elite to profit, it is expected to pass with low difficulty. On May 21, Hong Kong passed the "Stablecoin Ordinance Draft," which is similar to the US act but focuses more on regulation. Hong Kong positions itself as a financial firewall, allowing high-risk new things to pilot, but China will not implement it until the risks of the current financial crisis are cleared, as stablecoins still carry the risk of runs even with 100% reserves.
Risks of Stablecoins#
The Financial Times commented that although stablecoin issuers must operate with 100% reserves, they essentially perform the functions of banks in absorbing liquidity and promising redemption, yet lack the capital adequacy ratios, liquidity regulations, or deposit insurance constraints of traditional banks, making them more vulnerable during runs. Stablecoins are highly correlated with the cryptocurrency market; if the market crashes (as in 2022), it can easily trigger runs due to related cryptocurrencies (like Luna and UST).
Compared to 2022, current issuers have concentrated their funds in US short-term bonds, closely linking the bond market with stablecoins. Once a run occurs, it can easily impact the US Treasury market. A report from the Bank for International Settlements warns that a run on stablecoins can directly affect US Treasury yields: selling $3.5 billion can cause yields to rise by 6 to 8 basis points, triggering financial stability risks.
Moreover, issuers essentially compete with banks for deposits. A report from Bank of America on May 27 pointed out that the efficient payment and DeFi lending services of stablecoins could lead to $6.6 trillion in deposits flowing out of the traditional banking system, weakening their ability to attract deposits and extend credit, especially impacting small and medium-sized banks, and lowering the overall valuation of US banks. The US banking industry has purchased a large amount of long-term bonds over the past decade, and after the Federal Reserve's aggressive interest rate hikes, they face severe losses. While large banks can withstand this (as losses can disappear in a rate-cutting cycle), if stablecoins divert depositors' funds, it could increase the risk of unrealized losses turning into realized losses, repeating the bankruptcy of Silicon Valley Bank.
Another issue is that before the act's introduction, the international stablecoin market was in a phase of wild growth, lacking regulation, with 100% redemption relying solely on the issuer's promise. It is questionable how many issuers currently meet regulatory requirements. The 5% high-interest profit is still difficult to satisfy greed, and the actual loopholes in 100% redemption are unknown. Although the act's implementation is beneficial for long-term development, it may expose non-compliant issuers in the short term, bringing unknown shocks to the cryptocurrency and global financial markets.
🔥 Solutions to Accessing the OKX Exchange from Within the Country#
Many exchanges' original domain names may be restricted, or access may be slow due to overseas servers. Ordinary users may mistakenly believe that the platform's service is interrupted, but it is actually due to the network environment. Exchanges like OKX and Binance regularly update their backup domain names to ensure users can access the official website through alternative addresses.
-
- OKX backup domain Overseas OKX - Requires VPN or Alternative link
-
- Binance backup domain Binance
-
- Bitget backup domain Bitget
-
- Bybit backup domain Bybit/Bybitglobal
-
- Huobi HTX backup domain Huobi/HTX
-
- Gate backup domain Gate.io
🔥 Further Reading#
🔥 Useful Tools for Alpha to Find Gold Dogs#
1️⃣ Axiom Dog-Charging Tool https://axiom.trade
2️⃣ Gmgn Dog-Charging Tool https://gmgn.ai
3️⃣ dbot Dog-Charging Tool https://app.debot.ai
4️⃣ Morelogin Multi-Account Fingerprint Browser www.morelogin.com
Everyone is Searching For#
Stablecoin usd1, Trump usd1, alpha coin, how to buy Trump coin, WeChat buy Trump coin, buy Trump coin domestically, RMB purchase Bitcoin, tutorial for buying Trump coin on exchanges, how to buy presidential coins, buying Bitcoin, Bitcoin, presidential coins, Trump coin, buying Bitcoin domestically, trading exchanges, OKX download registration, domestic OKX recharge, Binance App registration, Binance App download, Binance platform buying coin tutorial, Binance registration, Binance airdrop registration, Binance iPhone download, how to buy presidential coins, how to buy Dogecoin, RMB purchase Bitcoin, how to download OKX, web3 airdrop, web3 zero airdrop, Bitget mainland download registration, OKX passport registration, OKX download, Binance download, trading coins as a side job, OKX contracts, how to recharge RMB on OKX, how to recharge on OKX, how to set up an NFT wallet, how to recharge RMB on Huobi, beginner's tutorial for the crypto circle, btc8848.com, trading contract Tony's mindset, contract leverage bit wave, DeFi mining, crypto circle airdrop, can airdrops still be played in the crypto circle, what to do if contracts are liquidated, how to buy presidential coins on OKX and Binance, how to buy Ethereum on OKX and Binance, how to play DeFi staking mining, can NFTs still be played, how to play web3 airdrop, how to inscribe, how to rune, crypto circle beginner's guide, how to trade cryptocurrencies, can trading cryptocurrencies make money, crypto circle beginner's tutorial btc8848.com, can trading cryptocurrencies make money, what is contract leverage, DeFi mining, how to play in the crypto circle, OKX airdrop, node staking, liquidation, financial freedom, night investment heiyetouzi.xyz