Dollar stablecoins are private liabilities backed largely by cash and short-term financial assets, not government-issued dollars. Tether or Circle can fail, and regulation can freeze or restrict tokens, but destroying a stablecoin does not cancel the Treasury securities held in its reserves. Erasing those obligations would require a selective U.S. sovereign default, sacrificing far more credibility than the debt relief could justify. Washington’s current incentive runs in the opposite direction: regulated stablecoins create a global, internet-native distribution rail for dollars and new structural demand for short-term Treasuries. The durable distinction is among the value of the technology, the solvency of its issuer, and the credibility of the sovereign currency beneath it.
I was talking with my father today, and the conversation turned to stablecoins.
He does not know a great deal about crypto, but his view of stablecoins is unequivocal: sooner or later, he believes, they are bound to blow up. His reasoning is not the familiar claim that Bitcoin has “no intrinsic value.” It is a more macroeconomic chain of thought. The United States is carrying an ever-larger national debt, while the companies behind dollar stablecoins such as USDT and USDC hold enormous quantities of U.S. government securities. If America were one day to face a severe debt crisis, might it simply sacrifice the stablecoins—forcing their holders to absorb the losses—and use the wreckage to help deal with its debt?
He offered an intriguing historical analogy: Bretton Woods.
The dollar once came with a promise of convertibility into gold at a fixed price. Yet in 1971, the United States closed the gold window and ended that conversion. If America could unilaterally alter an international monetary system that had survived for more than two decades, why should we assume that a future U.S. government, under enough pressure, would be unable to turn USDT or USDC into worthless pieces of code?
It would be too glib to call this fear impossible. No financial asset is absolutely safe, and in extreme circumstances a government has far more power to rewrite the rules than any private institution. But I think the argument blends together three different questions: whether Tether or Circle can fail; whether dollar stablecoins can face policy risk; and whether the United States can solve its sovereign-debt problem by sacrificing stablecoins.
The answer to each of the first two is plainly yes.
The third, however, makes little sense to me—either on the balance sheet or in terms of America’s own interests.
First principles: what is a stablecoin?
The name can mislead people who have not spent much time around crypto. It sounds like another new currency in the mould of Bitcoin. In reality, fiat-reserve stablecoins such as USDT and USDC are not especially difficult to understand.
Suppose I give Tether $100 and Tether issues 100 USDT to me on a blockchain. In principle, those tokens should be backed by reserve assets worth at least $100. I can transfer or trade the 100 USDT onchain, and I may also be able to redeem them for dollars through the relevant channels.
USDT is therefore not trying to create a currency whose value is independent of the dollar. Its function is closer to this:
putting the dollar inside a container that can move natively across the internet.
Circle’s USDC follows much the same logic. Its reserves consist chiefly of cash, short-term U.S. Treasuries, and repurchase assets backed by Treasuries. At the end of March 2026, roughly 86% of USDC reserves were held in the Circle Reserve Fund managed by BlackRock. The fund itself primarily held U.S. government securities with remaining maturities of three months or less, overnight Treasury repos, and cash.[1]
How do stablecoin companies make money?
The answer is almost comically simple.
A user gives an issuer $100 and receives 100 USDC. The issuer uses the $100 to buy short-term Treasuries. If the risk-free rate is 4%, those assets generate roughly $4 after a year. The USDC holder ordinarily receives none of that interest; most of it belongs to the issuer.
At sufficient scale, this becomes a giant spread machine.
Circle disclosed to the SEC that reserve income accounted for 96% of its revenue in 2025. Reserve income for the year reached approximately $2.637 billion. Circle must, of course, pay a substantial share of that sum to distribution partners such as Coinbase and Binance. But the commercial engine remains the same: users lend the company money without interest, and the company invests it in low-risk, interest-bearing assets.[2]
Tether’s model is more adventurous. Beyond short-term Treasuries and repo, it holds gold, Bitcoin, secured loans, and other investments. For the second quarter of 2026, Tether reported roughly $1.5 billion of net operating profit. At the end of June it reported approximately $187.75 billion in assets, $183.64 billion in liabilities, a reserve buffer of about $4.11 billion, and roughly $184.6 billion of USDT issued.[3]
Seen in those terms, the stablecoin business is much less mysterious than it appears.
It resembles a narrow financial institution transported onto a blockchain: it issues liabilities that can circulate and be redeemed on demand, holds liquid financial assets against them, and earns the return on the asset side.
Why stablecoins are a valuable monetary innovation
People discussing stablecoins often combine two separate questions: “Is USDT safe?” and “Does the idea of a stablecoin have any value?”
The failure of a bank would not prove that the bank account was a pointless invention.
The real value of a stablecoin lies in the way it changes the transmission of money.
Most people have encountered the frictions of an international transfer, especially when multiple countries, banks, and currencies are involved. A payment may pass through SWIFT, correspondent banks, intermediary banks, compliance reviews, and restrictions imposed by business hours. A transfer initiated on Friday evening may not truly arrive until the following week.
Onchain money behaves differently.
As long as the blockchain is running, one address can send value to another on the far side of the world, 24 hours a day and seven days a week. On many high-performance chains and Layer 2 networks, settlement takes seconds and the network fee can be only a few cents. That does not mean the entire payment process is always free. Gas fees differ between chains, while fiat on- and off-ramps, exchanges, and cards may still impose charges. But in terms of the efficiency with which the money itself moves through a global network, this belongs to a different era from the traditional cross-border banking system.
Even the European Central Bank, often a cautious voice in the debate, acknowledges that stablecoins hold out the prospect of faster, cheaper, round-the-clock cross-border transfers. Properly designed and regulated euro stablecoins may also deliver programmability, atomic settlement, and global reach in specific payment use cases.[4]
The growing number of stablecoin-linked payment cards solves another part of the problem: the last mile. A user holds USDT or USDC in the account, and when the Visa or Mastercard is tapped, the back end converts the stablecoin into fiat. The merchant need not know anything about blockchains.
Stablecoins therefore do not have to persuade every convenience store in the world to “accept USDT.” They can sit invisibly behind the traditional card networks: the user spends stablecoins while the shop receives dollars, euros, or yen as usual.
That, to me, is what matters most:
stablecoins do not need to invent a new unit of account; they give existing money an infrastructure built for the internet age.
It is also a mistake to treat “stablecoin” as synonymous with “dollar stablecoin.”
Dollar stablecoins dominate today because the dollar already dominates global reserves, trade, and finance—not because blockchains are somehow capable of carrying only dollars. Circle also issues EURC, which is pegged to the euro. By August 2026, more than €400 million was in circulation, and the token operated as an e-money token under the EU’s MiCA framework. The United Kingdom, meanwhile, has published issuance rules and a proposed regime for systemic sterling stablecoins, with regulated stablecoins expected to begin operating there from 2027.[5][6]
There is no reason the future cannot contain dollar, euro, and sterling stablecoins, along with onchain versions of many other national currencies.
That reinforces a fundamental point:
a stablecoin is first a monetary technology, not a derivative of U.S. government debt.
The dollar is simply the technology’s largest user today.
Can stablecoins blow up? Of course they can
None of this means I consider USDT or USDC risk-free.
Quite the opposite. Anyone holding a stablecoin should understand that USDT is not the dollar, and USDC is not a liability of the Federal Reserve.
A $100 banknote is ultimately a liability of the U.S. central-bank system. Holding 100 USDT introduces an additional layer: Tether’s credit, reserves, custody, legal structure, and operations.
A stablecoin can lose its peg because the reserves were misrepresented, assets lost value, a bank failed, redemptions overwhelmed liquidity, regulators intervened, a custodian failed, or a smart contract broke.
USDC has already undergone a revealing stress test. When Silicon Valley Bank failed in 2023, Circle had $3.3 billion of reserves at SVB. Once that fact became public, USDC traded noticeably below one dollar. It returned to its peg only after the banking risk was resolved.[7]
Tether has attracted more suspicion over the years, and its asset mix is plainly more complex than Circle’s.
At the same time, regulation and transparency are genuinely improving. The United States enacted the GENIUS Act in July 2025. Permitted payment-stablecoin issuers must maintain reserves on at least a one-to-one basis. Eligible reserves consist principally of cash, demand deposits, U.S. government securities with 93 days or less remaining to maturity, and qualifying Treasury repo assets. Issuers must publish redemption policies and monthly reserve composition, and stablecoin holders receive priority claims against required reserves if an issuer becomes insolvent.[8]
The regime is still being implemented. It cannot be read as a promise that stablecoins have become absolutely safe. But the direction is clear: a product that grew up in the rougher corners of crypto is gradually becoming a formal category of financial infrastructure.
Even Tether, long criticised for never producing a complete financial audit, announced in August 2026 that KPMG US had completed a full independent audit of its 2025 financial statements and issued an unqualified opinion. One full audit does not eliminate future risk, and a quarterly reserve attestation is not the same thing as an annual financial-statement audit. Still, it is evidence that the industry is moving closer to the transparency standards of traditional financial institutions.[9]
I am therefore perfectly willing to accept the following sentence:
Tether can fail. Circle can fail too.
What does not follow is that stablecoins as a form of money must therefore disappear.
Credit Suisse could fail. Silicon Valley Bank could fail. Lehman Brothers could fail. None of those failures proved that banks, deposits, or bonds were failed financial inventions.
A financial instrument and the institution providing it are not the same thing.
Would America deliberately sacrifice stablecoins to solve its debt?
This was the most interesting part of the disagreement with my father.
U.S. public debt has just crossed a symbolically important threshold. According to the Treasury’s daily data, gross federal debt exceeded $40 trillion for the first time on 18 August 2026.[10]
Meanwhile, stablecoin issuers really are becoming increasingly important buyers in the market for short-term Treasuries.
That combination produces a story with an appealingly simple flow:
More stablecoins are issued → Tether and Circle receive more dollars → they invest those dollars in Treasuries → one day America cannot repay its debt → the government designs a rule that blows up the stablecoins → ordinary holders absorb the losses → America walks away from that portion of its debt.
The problem is that the story does not work on a balance sheet.
Take the simplest possible example.
I give Tether $100 and receive 100 USDT.
Tether gives that $100 to the U.S. Treasury and buys $100 of government debt.
There are now two layers of assets and liabilities.
For me:
My asset: 100 USDT
Tether’s liability: 100 USDT
For Tether:
Tether’s asset: $100 of U.S. Treasuries
The U.S. government’s liability: $100 of U.S. Treasuries
Now suppose the U.S. government abruptly announces that USDT will be illegal from tomorrow.
USDT liquidity might collapse at once. I might suffer an enormous loss.
But one fact has not changed:
the $100 that the U.S. government owes Tether has not vanished.
A stablecoin going to zero and the U.S. government owing less money are entirely different events.
If America genuinely wanted to reduce its debt through this route, it could not stop at attacking USDT. It would have to go further and say:
we no longer recognise the Treasuries held by Tether.
At that point, the nature of the event has changed completely.
It is no longer a “stablecoin collapse.”
It is a selective default by the United States on its own sovereign debt—or an outright confiscation of a creditor’s assets.
In theory, a sufficiently powerful government can change laws, freeze assets, impose capital controls, and even expropriate property in extreme circumstances. The GENIUS Act also requires stablecoin issuers to possess the technical capability to seize, freeze, or burn payment stablecoins when legally ordered to do so.[11]
I am not claiming that the U.S. government is literally incapable of such action.
The real point is different.
If the United States has reached the stage at which it must refuse to honour Treasuries held by otherwise legitimate creditors in order to manage its finances, then the problem before us is no longer stablecoin risk. It is a failure of U.S. sovereign credit itself.
USDT would hardly be the only asset affected.
Banks, money-market funds, pension funds, insurers, foreign central banks, sovereign wealth funds, and every institution holding U.S. government debt would have to reconsider the same question:
is a U.S. Treasury still the world’s most reliable risk-free asset?
Defaulting on a few hundred billion dollars in order to damage the credibility supporting a Treasury market measured in tens of trillions, the global dollar system, and America’s own financing capacity would be an extraordinarily poor bargain.
The disparity in scale makes the idea even weaker.
Research presented to the U.S. Treasury in early 2026 found that stablecoin issuers still held less than 1% of outstanding Treasuries. Even if stablecoins continue to grow rapidly, they are more likely to become important marginal buyers at the front end of the curve than a reservoir capable of absorbing tens of trillions of dollars in existing federal debt.[12]
Even under the almost absurd assumption that America repudiated every Treasury held by stablecoin issuers, the effect on a debt problem exceeding $40 trillion would remain modest. The potential cost would be the credibility of the entire U.S. financial system.
The gain is too small and the price far too high.
What does America actually want from stablecoins?
The striking thing is that current U.S. policy points in almost precisely the opposite direction.
Washington is not trying to eliminate dollar stablecoins. It is trying to institutionalise and expand them, using them to widen global demand for both dollars and U.S. government debt.
After the GENIUS Act was signed in 2025, Treasury Secretary Scott Bessent put the objective plainly. The dollar, he said, now had an “internet-native payment rail”; stablecoins could expand access to the dollar economy around the world and produce a surge in demand for the Treasuries backing them.[13]
The White House’s own explanation of the Act was even more explicit: stablecoins would increase demand for U.S. government debt and reinforce the dollar’s position as the global reserve currency.[11]
This is the relationship between stablecoins and Treasuries that is actually worth examining.
Imagine someone in Argentina, Turkey, or Southeast Asia who has traditionally saved in a local currency. Because USDT is so convenient, that person gradually moves part of those savings into it.
On the surface, the person has bought a “cryptocurrency.”
But where does the money ultimately go?
Local currency → USDT → Tether reserves → short-term U.S. Treasuries.
The blockchain has effectively given the dollar an exceptionally powerful new global distribution channel.
In the past, an ordinary person abroad needed a bank account and a foreign-exchange channel to hold dollars, and might still face capital controls. Today, a phone and a wallet address may be enough to hold a dollar-denominated asset.
From America’s point of view, this is not a system to destroy casually.
The way stablecoins can genuinely help the United States is not by “eliminating debt,” but by:
creating new demand for Treasuries.
Those are profoundly different ideas.
A steady supply of willing lenders can reduce financing pressure and improve demand at government-debt auctions, but the debt still exists. It is no different in principle from Japan, China, or a pension fund deciding to buy more Treasuries: the financing base expands; nobody has repaid the debt on America’s behalf.
The Treasury’s own advisory research similarly concluded that stablecoin growth could create structural demand for short-term government securities and concentrate more demand at the front end of the yield curve.[12]
I therefore think the great strategic temptation facing America is not “How do we fleece stablecoin holders later?” It is:
how do we make more people around the world hold dollars indirectly through stablecoins?
What is at stake is influence over the next generation of monetary networks.
Why Bretton Woods is the wrong analogy
That brings us back to the historical analogy with which the conversation began.
The United States did close the gold window in 1971.
That episode proves something important: under extreme pressure, sovereign states can change the rules of the game.
On that point, I agree completely.
But there is a crucial structural difference between Bretton Woods and a stablecoin.
Under Bretton Woods, the U.S. government itself promised to convert dollars into gold at a fixed relationship. The dollar was a liability issued by the American monetary system; gold was the external anchor into which that liability was meant to convert.
Closing the gold window was therefore, in essence:
the issuer of a liability changing the conversion terms of its own liability.
The structure of USDT is different:
Tether issues USDT → Tether holds dollars and Treasuries → the U.S. system issues dollars and Treasury securities.
The U.S. government is not the issuer of USDT.
America can regulate Tether, freeze particular addresses, or prohibit a stablecoin from operating in the United States. But smashing the USDT “shell” does not erase America’s own name from the Treasury security inside it.
If we insist on finding a modern event genuinely analogous to the end of Bretton Woods, it would not be “USDT goes to zero.” It would be:
America redefines the value promise of the dollar itself.
That might happen through sustained inflation that erodes the dollar’s real purchasing power, financial repression that lowers the government’s real financing cost, or—at the farthest extreme—a direct restructuring of sovereign debt.
If persistent inflation destroys the dollar’s purchasing power, holders suffer even if 1 USDT continues to equal 1 USD perfectly forever.
That is a much more realistic risk than a secret American plan to engineer a stablecoin collapse in order to walk away from Treasury debt.
Stablecoins can help users avoid some problems of banking systems and cross-border payments. They cannot protect anyone from the risk of the sovereign currency to which they are pegged.
Risk is unavoidable; the task is to identify which risk you own
I do not believe USDT or USDC should be treated as perfectly safe cash.
If someone keeps every asset with a single stablecoin issuer, that is needless concentration. Issuer risk, banking and custody risk, regulatory risk, onchain risk, exchange risk, and the purchasing-power risk of the dollar are all real.
But I equally reject the conclusion that because those risks exist, stablecoins must inevitably collapse and the monetary form has no future.
As of August 2026, the global stablecoin market was worth roughly $300 billion. USDT alone exceeded $180 billion and USDC exceeded $70 billion.[14]
Their largest use remains crypto trading rather than everyday payments, and there is no need to exaggerate the present. But the technological path has already demonstrated something important: money can move through a global network around the clock, behave like internet-native data, be called by software, and settle through smart contracts.
Having experienced that efficiency, I find it difficult to believe we will ultimately force money back entirely into a cross-border banking system designed decades ago.
The dominant form may not be today’s USDT or even USDC. It may be bank-issued tokenised deposits, a central-bank digital currency, a new generation of more tightly regulated stablecoins, or several forms living alongside one another for a long time.
But I find it hard to imagine that the movement of money onchain will simply reverse.
That is the real point of disagreement between my father and me.
He sees a private company that has issued hundreds of billions of dollars in tokens and naturally asks:
“What happens if this company blows up one day?”
It is a question that absolutely deserves to be asked.
But I am more interested in a different one:
if Tether really did fail one day, would the world still need a dollar that can move natively across the internet?
I believe the answer would still be yes.
Just as the collapse of a bank cannot prove that bank accounts have no value, the collapse of a stablecoin company cannot prove that stablecoins are the wrong form of money.
The distinction we need is not simply between “stablecoins are safe” and “stablecoins are dangerous.”
It is among three entirely separate questions:
does the monetary technology have value; is the company issuing the money trustworthy; and is the sovereign state beneath that money still worthy of trust?
The risk in USDT belongs to the second layer.
The ultimate risk in the dollar and in Treasuries belongs to the third.
If that third layer ever truly breaks, whether the USDT in our wallets is still worth one dollar will probably be among the least of our concerns.
Sources
- Circle Internet Group: Form 10-Q for the first quarter of 2026, May 2026.
- Circle Internet Group: 2025 Form 10-K, 9 March 2026.
- Tether: Q2 2026 reserves and operating results, 31 July 2026.
- European Central Bank: The international role of the euro, June 2026; and the Eurosystem’s comprehensive payments strategy, March 2026.
- Circle: EURC Surpasses €400 Million in Circulation, 17 August 2026.
- Bank of England: policy statement and draft rules for systemic stablecoins, 22 June 2026; and FCA: overview of cryptoasset-regime policy statements, 30 June 2026.
- Circle Internet Group 2025 Form 10-K: USDC’s depeg during the failure of Silicon Valley Bank, 9 March 2026.
- U.S. Congress: text of the GENIUS Act, signed into law 18 July 2025.
- Tether: KPMG US completes an independent audit of the 2025 financial statements, 13 August 2026.
- CBS News: U.S. national debt tops $40 trillion for the first time, 21 August 2026.
- The White House: GENIUS Act fact sheet, 18 July 2025.
- U.S. Department of the Treasury: Stablecoin footprint increasing, Treasury Borrowing Advisory Committee materials for the first quarter of 2026.
- U.S. Department of the Treasury: Scott Bessent’s statement on enactment of the GENIUS Act, 18 July 2025.
- DefiLlama: Stablecoin Market Cap, accessed August 2026.
This essay discusses monetary technology, financial structure, and policy logic. It is not investment advice.
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