Just recently, the U.S. was proceeding with the so-called Operation Chokepoint 2.0 — a plan designed to restrict crypto’s access to traditional finance, primarily the banking services.
The approval of spot ETFs on BTC and ETH in 2024 signaled that the attitude of American regulators towards cryptocurrencies has started to change. However, the general trend persisted and regulators continued to file lawsuits against crypto projects.
The regulatory landscape has changed dramatically after Donald Trump entered office. Discussions about restrictions for crypto were substituted by discussions about a strategic Bitcoin reserve. Apparently, the regulatory landscape will also change for stablecoins.
One of the key problems Trump has to solve at the start of his second term is the erosion of investor confidence in the U.S. dollar. The heavy use of sanctions and the ballooning government debt serve as a key negative catalysts that push global investors out of the U.S. dollar.
While the U.S. dollar managed to gain ground against other major currencies, it is rapidly depreciating against real assets — be it Bitcoin or gold. The dollar’s weakened dominance is an existential risk for the U.S. economy since it is the key pillar that holds the current government bond debt construction.
In this environment, dollar-backed stablecoins, which use U.S. debt securities as collateral, come in handy. Donald Trump has already signed an executive order to promote the development of “legitimate dollar-backed stablecoins worldwide”.
Even the conservative Federal Reserve feels the wind of change. Fed Governor Christopher Waller has recently announced that he supports regulated stablecoins as they would cement the U.S. dollar’s status as a reserve currency.
What do these developments mean for the ordinary users of stablecoins? Most likely, the U.S. will require issuers of stablecoins to use U.S. government debt as collateral for their products. Such demand would ensure stable demand for the U.S. Treasuries, which could push their yields lower and decrease U.S. debt servicing costs.
According to the latest USDT reserve report, 82.3% of USDT reserves were held in U.S. government debt and other cash equivalents, like overnight reverse repurchase agreements and money market funds. The remaining reserves are held in precious metals, Bitcoin, secured loans, “other investments”, and a tiny bit of corporate bonds.
Overall, Tether, which issues USDT, should have no problems selling these assets to buy U.S. debt if the U.S. regulations force stablecoin issuers to do so. Given the fact that the U.S. has a pro-crypto administration, it is highly unlikely that Tether would choose to risk its business and go against regulations when they emerge.
Clear stablecoin regulation will mark the end of the “FUD on Tether” era for USDT users. Year after year, articles claiming that something was wrong with Tether appeared in the mainstream press. None of such claims were confirmed and USDT remained the undisputed market leader. There’ll be no visible changes for USDC users, as Circle already holds all of its reserves in the U.S.