Washington’s love affair with stablecoins likely has more to do with keeping the government’s debt machine turning than revolutionising payments or empowering crypto users.
That’s the view of BitMEX co-founder Arthur Hayes, who argues the technology’s biggest beneficiaries won’t be the decentralised finance platforms that pioneered it, but “too-big-to-fail” Wall Street banks and the officials shaping US financial policy.
“The stablecoin Trojan horse is already inside the fortress,” Hayes wrote in a new blog post, arguing the same players will use them to bankroll the government’s ballooning deficits.
The surge in stablecoin adoption, backed by inbound legislation like the Genius Act, could unlock as much as $10 trillion in Treasury-buying power, he claims.
This covert liquidity injection could pump risk-on assets like Bitcoin and equities even without the Federal Reserve reviving quantitative easing, Hayes argued.
His comments underscore a growing sentiment among crypto market stakeholders that the marriage of traditional finance and digital assets is going to be the main focus for both venture capital investors and the industry as a whole — not DeFi projects.
Genius Act implications
The Genius Act, passed in the Senate last month, lays out new rules for stablecoin issuers. Industry leaders have hailed it as a major step toward mainstream crypto adoption.
But Hayes contends the legislation’s biggest effect will be to entrench big banks and give them a direct path to fund US government borrowing.
Under the bill, firms with more than $10 billion in outstanding stablecoins will fall under Federal Reserve oversight. The act also bars tech companies from issuing their own stablecoins, effectively shutting out competitors like Meta and smaller fintech players.
“This isn’t DeFi or financial freedom. It’s debt monetisation dressed in Ethereum drag,” Hayes wrote.
He pointed to JPMorgan’s planned JPMD stablecoin as an example of how the system could look.
By nudging customers to convert traditional deposits into stablecoins, banks can lower compliance costs, increase profits, and channel funds into Treasuries.
Paired with easing capital requirements for Treasury holdings and potential changes to the Fed’s interest payments on bank reserves, Hayes estimates the banks could unlock over $10 trillion in buying power for government debt.
Analysts at Bernstein predict the stablecoin market itself is on track for explosive growth, projecting that the supply could swell nearly 1,500% to $4 trillion over the next decade.
The Genius Act now heads to the House of Representatives, where lawmakers will decide whether to adopt it or push for stricter rules.
Kyle Baird is DL News’ Weekend Editor. Got a tip? Email at kbaird@dlnews.com