The U.S. Aims to Regulate and Bring Stablecoins within its Jurisdiction

According to David Sacks, Trump's newly appointed crypto czar, the Trump administration has revealed plans to regulate stablecoins and bring their market onshore, focusing on U.S. dollar-backed digital assets.

Stablecoins as a Key Policy Focus

Stablecoins are cryptocurrencies that attempt to tie or “peg” their market price to another asset, typically fiat currencies such as the U.S. dollar. Crypto enthusiasts have long viewed stablecoins as a means of bridging the divide between more volatile cryptocurrencies and the traditional financial system. However, stablecoins have recently come under increasing legislative and regulatory scrutiny due to concerns about their potential risks to consumers and the broader financial system. There have been multiple instances of "runs on the bank," lawsuits, and even insolvencies among stablecoin issuers, prompting calls for clearer oversight.

Speaking on CNBC’s Closing Bell Over Time on February 4, Sacks emphasized that stablecoins are a major priority for the administration, alongside Bitcoin adoption and blockchain development. He highlighted that the administration is "very committed to moving legislation through the House and the Senate this year in order to provide that clear regulatory framework that the digital assets ecosystem needs to sustain innovation in the United States."

“The stablecoin market has already taken off but mostly offshore,” Sacks stated. “Now, the U.S. wants to bring that innovation onshore.”

Sacks and lawmakers are supporting a stablecoin bill introduced by Sen. Bill Hagerty (R-Tenn.), which aims to establish clear regulatory guidelines for stablecoins. This legislation is expected to boost U.S.-based stablecoin issuance, reinforcing the dollar’s dominance in digital finance.

The stablecoin industry has reached a market capitalization of $227 billion, with U.S. dollar-pegged assets making up 97% of the sector. Tether’s USDT alone accounts for over 60% of the total market, according to CoinGecko data. Supporters like Sacks argue that U.S. stablecoin expansion could drive trillions of dollars in new demand for the dollar and help lower long-term interest rates.

Stablecoins as a Digital Dollar Alternative

Sacks underscored the potential of stablecoins to reinforce the dollar’s global dominance.

“I think the power of stablecoins is that they could extend the dollar’s influence internationally and bring it into the digital economy,” he said.

He further noted that stablecoins could generate “potentially trillions of dollars” in demand for U.S. Treasurys, which would support the country’s debt and potentially lower long-term interest rates.

Dollar-backed stablecoins can maintain demand for US government debt, while also strengthening the global position of the US dollar and expanding its reach to new digital platforms. These new platforms can empower users and protect both individual privacy and sovereignty.

Executive Order on Stablecoins, Ban on CBDCs

The White House has already taken legislative steps to support stablecoin growth. On January 23, President Trump signed an executive order aimed at promoting the development and expansion of lawful, dollar-backed stablecoins worldwide. The order also established a crypto working group tasked with developing regulations across various government departments.

However, the same executive order also prohibited the issuance of a central bank digital currency (CBDC), signaling the administration’s preference for private-sector stablecoins over a government-controlled digital dollar. Additionally, the order prioritizes the global growth of private, dollar-backed stablecoins as a means to reinforce the sovereignty of the U.S. dollar.

Regulation and the Role of USDC

As part of the administration’s stablecoin strategy, new legislative frameworks are expected to support stablecoin issuers. However, some stablecoins, such as Circle’s USD Coin (USDC), are already operating within U.S. regulations.

USDC, the second-largest stablecoin after USDT, accounts for roughly 24% of the market. Unlike USDT, which has faced compliance challenges in regions like the European Union, USDC has gained legal recognition in the U.S., Canada, and the EU. In July 2024, it became the first stablecoin to comply with the EU’s Markets in Crypto-Assets Regulation (MiCA) framework.

USDC distinguishes itself from algorithmic stablecoins by maintaining full collateralization with fiat reserves, specifically, U.S. dollars held in insured bank deposits or short-dated U.S. treasuries. Circle publishes regular audit reports to increase transparency and trust in its reserves. In contrast, algorithmic stablecoins rely on complex mechanisms, often using other cryptocurrencies to maintain their peg, which can make them more vulnerable to de-pegging events and market instability. Several high-profile algorithmic stablecoin failures have underscored the risks of such models, reinforcing USDC’s appeal as a more stable and reliable alternative.

Tether’s Influence and U.S. Debt Holdings

Stablecoins, with a total valuation of roughly $224.5 billion for the top five (USDT, USDC, BUSD, DAI, and TUSD), have become major holders of US Treasuries. Concerns about stablecoin reserve "cash and cash equivalents" earlier in the Bitcoin cycle led issuers like Tether to shift towards US Treasuries to mitigate risk. Tether (USDT) dominates the stablecoin market, comprising about 63.4% with a $142.4 billion circulating supply. This high valuation ranks stablecoins as the 16th largest sovereign holder of US treasuries.

Major holders of U.S. Treasury securities: (Source: U.S. Department of the Treasury) 

Notably, Japan and China, the two largest foreign holders, have been reducing their holdings. If stablecoin demand continues to grow, they could become a more significant segment of US treasury holders, amplifying their influence in the global financial market.

Aggregate Supply of Stablecoins: (Source: Glassnode)

This chart tracks the aggregate supplies of the following major stablecoins:

• Aggregate Stablecoins 🔴
• USDT 🟢
• USDC 🔵
• BUSD 🟡
• DAI 🟣
• TUSD 🔘

With USDT holding a dominant market position, it is likely to come under increased scrutiny as the Trump administration pushes to bring stablecoins onshore. Tether CEO Paolo Ardoino previously asserted that Tether is a “best friend” of the U.S. government, citing the company’s vast holdings of U.S. securities. As of June 2024, Tether Holdings owned $97.6 billion worth of U.S. Treasuries, surpassing the holdings of Germany, the United Arab Emirates (UAE), and Australia. 

In an October 2024 interview with Cointelegraph, Ardoino claimed that Tether's substantial ownership of U.S. debt strengthens the country's economic resilience.“We are happy to decentralize the ownership of the U.S. debt”, Ardoino said.

Conclusion

The Trump administration’s move to regulate stablecoins and bring them onshore marks a significant shift in U.S. crypto policy. With stablecoins already playing a crucial role in global finance, the administration sees them as a means to reinforce the dollar’s dominance while maintaining financial stability. The coming months will reveal whether legislative efforts will reshape the stablecoin industry or introduce new regulatory challenges for leading issuers like Tether and Circle.