As we peer into a future shaped by real-time, surge-priced liquidity demands, it’s becoming increasingly plausible that stablecoins will provide the plumbing. In a world where funding needs appear not just daily but intraday, and the Fed is increasingly hesitant to overextend its balance sheet or assume timing risk, market-based mechanisms are poised to take the wheel.
Enter the latest twist: the Trump-backed stablecoin, USD1, launched by World Liberty Financial and backed by short-term U.S. Treasuries, dollar deposits, and other cash equivalents. As reported by the Wall Street Journal, the token will operate on Ethereum and Binance chains, and will be safeguarded by BitGo with regular third-party audits.
This, we’d argue, is a clear signal that the U.S. is preparing to formalize and scale stablecoins as instruments of collateralized dollar liquidity — and to do so with a distinctly political imprimatur.
At the core of this emerging architecture is a simple idea: in a fragmented and overleveraged global monetary environment, dollars should only be extended against real collateral — namely U.S. government securities or cash-equivalent assets.
This represents a recognition that the chaotic overextension of the original eurodollar network, which helped precipitate the 2008 financial crisis, stemmed from its reliance on unsecured, offshore dollar promises.
The 2.0 version flips the model: no collateral, no liquidity. Though — perhaps — in a pinch, collateral held by dollar-linked stablecoin issuers can still be repo’d back into dollars via the Fed’s FIMA facility, giving it an implicit backstop — one that’s offshore-accessible but U.S.-controlled.
This isn’t just innovation, therefore, it’s a de facto attempt to reanimate the old eurodollar system, but this time on narrow banking principles to curb rentierism and free-riding of U.S. creditworthiness. At the same time, it’s a nod to former BoE governor Mervyn King and former BoE deputy governor Paul Tucker, both of whom have long argued in favor of reconfiguring the system around a “pawnbroker for all seasons” rather than a “lender of last resort”, if we want to preserve the best of a competitive bank model while shedding its most destabilizing aspects.
But here’s where it gets especially strategic: if the U.S. were to impose a withholding tax or holding cost on foreign USD reserves, as some suggest it might do, then U.S.-domiciled stablecoin issuers would gain a significant cost-of-capital advantage over offshore competitors. That would not only incentivize international usage of regulated, onshore stablecoins like USD1, but would also enhance recirculation of UST collateral globally — ensuring USTs aren’t just stored in central bank silos but actively repo’d, staked, and mobilized into real economic flows driving productivity and growth.
Tether, for example — one of the largest stablecoin offshore issuers — holds tens of billions of dollars in short-dated U.S. Treasuries. In theory, if it were to participate in a properly structured repo or staking market, it could lend those securities into the system against higher risk collateral [such as trade receivables or incoming payments] from counterparties who need short-term funding to cover anticipated outflows.
The set up would help with global reserve recycling. Many stablecoin issuers already serve offshore demand for dollars. But if their treasury holdings were actively repo’d intraday into U.S. payment chains, they’d become integral liquidity providers — not just wrappers.
In the long run, the set up could reframe the role of the U.S. fiscal deficit in backstopping the financial system. Today, a significant portion of U.S. Treasury issuance is absorbed not by domestic commerce or capital formation, but by foreign central banks and institutions that silo these reserves — often monetizing their own local currencies in the process. This practice allows them to hold down exchange rates and suppress domestic inflation while engaging in passive FX accumulation. In effect, this turns U.S. debt into a tool for competitive devaluation, where the collateral is never recirculated into productive use.
Moving to a collateralized stablecoin system, however, would move the U.S. from simply exporting dollars to exporting dollar infrastructure — representing a shift from “exorbitant privilege” to “exorbitant privilege as a service.” This would recognize that the U.S. doesn’t just make the world’s safe assets — it manufactures trust at scale and deserves to charge a fee for the service at the state level, if the assets it creates are not mobilized in trade.
Understandably, the Eurozone is growing increasingly anxious about the rise of such a regime — and for good reason. Any attempt by the ECB to support a euro-denominated stablecoin system would be structurally handicapped by the credit fragmentation of its sovereign bond markets. The need to apply variable risk weightings and haircut regimes across a diverse set of sovereign issuers makes it virtually impossible to construct a unified, reliable collateral base.
This would either result in disproportionate demand for German bund-backed stablecoins (a tacit rebirth of a Deutsche Mark system and an indication that the eurozone is fragmenting) or produce a costlier, riskier composite token due to the inclusion of lower-quality sovereign debt. In either case, the euro’s credibility as a seamless alternative to the dollar would be undermined at the very moment seamlessness matters most.
By contrast, the United States is uniquely positioned to capitalize on this shift. A two-tier dollar stablecoin regime — one that imposes a form of demurrage or access cost on non-domestic holders of dollar collateral — could supercharge the circulation of U.S. Treasuries, turning them from passive reserve assets into active and reciprocal conduits of global commerce. The key difference? These dollars wouldn’t just sit on balance sheets. They’d move.
This represents a profound pivot: from passive reserve accumulation to active reserve deployment. The dollar’s role as a global unit of account would, for the first time, be paired with a real-time, programmable delivery infrastructure, shaped not by central banks alone but by market actors.
With Trump’s team now openly backing stablecoins like USD1, the message is clear: the next phase of American monetary power won’t be about printing more dollars — it will be about building a competitive ecosystem that programs them. Crucially, it’s the decentralized, modular, and competitive nature of this emerging USD system that will become its greatest strength — and what may ultimately distinguish the dollar from the wave of centralized CBDCs other jurisdictions are likely to deploy.
In this new light, the U.S. fiscal deficit begins to look less like a burden and more like a strategic liquidity float — underwriting not just U.S. spending in real time via its intraday funding mechanism, but the rails of global trade, payments and settlement. No longer a subsidy for financial arbitrage or passive FX accumulation, the deficit becomes the engine room of dollar-based infrastructure-as-a-service, and an income generator in its own right.
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