Is this the inflection point, the start of a rally? This is an important question for crypto investors because USDC and USDT dominate the stablecoin market. Whatever happens in US dollar stable will reflect on crypto overall. A strong USDC and USDT are good for crypto overall. Major drawdowns are not good.

To answer the question of whether this could be an inflection point or not, we have to determine whether the positive movement of the US dollar this past week was due to US economic and financial optimism, or to problems in major currencies, like the Euro, the Yen, and UK pound. If it is due to problems in the Euro, Yen, or UK pound we have ascertain if the problems are short-term or structural.

If the move upwards in the US dollar is due to near-term negatives of other currencies, US dollar strength may not hold once the concerns have been resolved. To note, it is clear US dollar strength was not driven by improving economic fundamentals, or the rectification of structural or systemic problems such as the government shutdown and policy uncertainty.

When the Euro, Yen, and UK Pound are looked at, the common denominator explaining weakness seems to be political uncertainty. If a significant part of currency weakness is attributed to political uncertainty, negative pressure may not last long. Political problems are usually transitory in nature, not systemic of structural. Political uncertainty is like a cold or flu. With time, it passes and is rarely a chronic disease.

Looking at the political situations in Europe, Japan, and UK, it is not surprising they weakened against the dollar last week. The Yen was hit by political uncertainty when one of the coalition parties in the government said they were leaving the coalition. The Euro is being pressured by political turmoil in France, where President Macron has not been able to form a government. Given France’s economic position in the Eurozone, political concerns will weigh on the Euro. The UK pound was pressured as the government is pushing for higher taxes to remedy fiscal problems, and higher taxes do not shine well on governments in power.

So, nothing really changed with the weak dollar fundamentals, but it went up in value. Given the structural problems of the US dollar are still there, it may have seen most of its big move. The problems in Japan, Europe, and the UK look to be more transitory in nature, political, problems that are easier to clear than structural ones.

So, we can conclude that recent dollar strength is not attributed to a “strong dollar”, rather uncertainty in the other major currencies.

If the structural concerns of the US dollar exist, it is a good idea to increase exposure to an array of foreign currencies like the Euro, the Yen, and the UK pound. Use the dollar strength to take some profit in USDC or USDT and buy some stablecoins or bonds in Europe, Japan, and the UK.

This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.

To show how active this game is, Europe is talking about getting involved; the European Central Bank (ECB) is seriously considering issuing a stablecoin. Last week, a Bank of France Official Agnes Benassy-Quiere compared the US dominance in stablecoin, 90% of the $255 billion stablecoin market, to the Visa and Mastercard duopoly in Europe, a serious issue requiring a sense of urgency.

Let’s admit it, if someone has 90% share of anything, it makes sense to try and take market share away. It should be easy pickings.

Kenneth Rogoff in his outstanding book Our Dollar, Your Problem says, “If the digital euro develops during a period when Europe is becoming more cohesive and the United States less so, the possibility that a digital euro could extend the currency’s reach could suddenly become quite real”.

Can Kenneth Rogoff’s assertion happen, don’t know. But let’s look at some pros and cons, if for no other reason than to be ready for the battle to come.

The Pros

First, an ECB stable currency would jumpstart European banks to get going and develop digital products, a good thing for financial services overall.

Second, The European Union is pretty stable; the global tariff plan has had limited if any economic shock, and inflation is under control. Now may be a good time.

Third, the Euro is already the second largest reserve currency in the world, so there is a role for it in the new digital world.

Fourth, Euro has been stable to strong against the Chinese yuan +16% in three years, and the US dollar +12% ytd. The interest rate is only 2%, so investors aren’t holding for yield. Thus, there is some fundamental strength.

Fifth, the US is presently not cohesive in policy terms, which, in the eyes of Kenneth Rogoff, speaks for European chances.

The cons:

First, Europeans are very concerned about privacy, and an ECB digital currency would be a privacy risk. The mere fact the government knows so much about a person’s currency use will cause many Europeans to shudder.

Second, it could be pure FOMO (Fear of Missing Out). Long-term, decisions based purely on FOMO rarely work out.

Third, strength against the Chinese yuan could be a weakness. China is exporting a lot to Europe, and if Europe wants this to stop then they must devalue the currency. A potential devaluation due to China speaks against a solid stablecoin.

In the end, if Europe wants a good stablecoin, they can probably achieve it, and it can take market share from USDC. The economy has proven resilient. Investors are willing to hold currency at a low yield. There is probably more cohesiveness in European policy than in the US.

The real issue will be against the Chinese yuan. A stable coin needs a stable underlying currency. If there is risk that the Euro will go down to mitigate yuan weakness, a stable may not work.

We will see,

Many investors are confounded by the disparity between the US dollar and the US stock market. Non-US investors buy US dollars to buy US stocks. If foreigners are buying US stocks, why is the dollar going down? At a minimum, given demand from overseas investors in US stocks, the dollar should be unchanged or a little down year-to-date, not near minus 10% .

The answer lies in the concept of total return, a concept that has three main components 1) price or value appreciation 2) yield or interest earned 3) the change in the currency when money is taken back to home currency. Investors must consider all three.

Investors are, and have been all year, optimistic about the prospects for US stocks driven by shares in technology and AI. Thus, the US stock market has provided capital appreciation, the first component. Yield has been positive in total return, but not by a lot.

In the end, it all comes down to currency. Non-US dollar investors who have made 10% on their US stock holdings year-to-date would be break even if they took the money back into their country right now. They would have no gain.

What they made on stocks, they lost on the US dollar going down. To mitigate such a drag on return, investors hedge the US dollar, which protects the investor against currency losses when they return their money to the home. It is called “Hedge America”.

“Hedge America” can be tough to understand when using derivatives, but easy to understand when looking at ETFs (Exchange Traded Funds). With ETFs you can buy a hedged or unhedged vehicle. This is the first time this decade that more money has flowed into dollar hedged ETFS than non-hedged.

In short, non-dollar investors want to protect the returns US stocks have provided, while avoiding the risk of the US dollar.

With total return in mind, and the US total return outlook in question, where should investors that hold USDC or dollar fiat look for investments? In terms of Etherfuse’s offerings, Brazil and Mexico stand out .

Etherfuse’s Brazilian Tesouros offer an API of 13.13%%. The currency should be stable to appreciating against the US dollar, since US tariffs have had no effect, and since inflation is stabilizing. 13% yield plus more on the currency is a good total return for a dollar based investor. No promises, but total return could be near 20%.

Etherfuse Mexican CETES offer 6.2% API. Official interest rates have gone from 10% at the beginning of the year to 7.75%, while the currency has strengthened, which shows positive sentiment towards the Mexican peso and its forward outlook. 6% plus another 5 or so % on the currency is a good total return when the money is brought back to dollars, either fiat or USDC.

The point is there are opportunities out there to achieve a solid total return, a return that includes appreciation, yield, and currency. They may just not be in the US, at present.

This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.

Put simply, there is too much concentration in US dollar stablecoin. It is an oversized risk for crypto and investment overall.

Defenders brush off the concerns of 99% market capitalization by saying the US dollar is the world’s reserve currency, all either want to or need to hold it. But the reality is that US dollar is only 56% of global reserves.

99% stablecoin versus 56% global reserves? Something is wrong with this relationship; it’s out of balance. A stable coin number somewhere between 56% and 99% seems to make sense.

For the 99% to go down, a new stable coin must arise. What foreign currency stable coin can carry this load? What country could take US dollar stablecoin market share?

China is a contender. China has been preparing for the digital world. Digital payment platforms like Alipay and WeChat Pay have become two of the biggest payment companies in the world. In 2020 the Chinese government rolled out digital yuan in four Chinese cities. In 2021 they increased the number of cities to 28.

Recent announcements show preparation is ratcheting up. Until recently, Beijing was only committed to the development of a sovereign digital yuan. Now they are examining stablecoins backed by yuan, a yuan stablecoin with the exact same mechanics as USDC.

This is an astonishing about face for China. For years the currency has been subject to capital controls, and cryptocurrency trading and mining have been outlawed since 2023. This change of heart is serious.

As a first step, it looks like they are going to use Hong Kong, the hub for the offshore yuan. Hong Kong just launched its own regulatory regime, which opens this month for tokens and stable coins, with the requirement that all stable coins be backed by highly liquid assets held in reserve.

For a country that likes to control its currency, this is good news. Every yuan backed token will take offshore yuan out of circulation from the city’s pool, helping minimize currency weakness

Hong Kong Companies are wasting no time. Seazen Group, one of the few Chinese property developers that survived the property crisis, plans to issue tokenized private debt at the end of this year. They also want to tokenize shopping centers.

So, we have a market that is too concentrated (US stablecoin), which creates opportunity for a new entrant to take share. We have the second largest economy in the world that has a strong position in foreign trade, changing the regulations and embracing stablecoins. Powerful stuff.

Many investment careers have been stained by being overly pessimistic regarding the investment or financial outlook of China. Years ago, it was “it is a communist nation. It can never be a great economy or investment area”; China is now the world’s second largest economy. Later it was “the real estate crisis will finish China off”.; well, since the real estate crisis the market is up, and the crisis is not that big a deal anymore. Finally, “China will be hurt by US tariffs”; there may be some economic pain, but they are still standing

The conclusion is that over the long-term betting against China is not a good idea. Stablecoins are no different.

This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.

This did not happen; the Euro was -.57% shortly after the inflation announcement, and the US dollar, as measured by DXY, rose about the same as the Euro went down. In the case of the Euro, currency weakness may be explained by debt concerns. Borrowing concerns in Germany led to the German 30 year bond going to the highest yield since 2011, the time of the last European sovereign debt crisis. A move so strong in the 30 year expresses the fact that investors are demanding a high rate of interest to compensate for the risk of government financing in Germany. At the same time, French government debt is the key issue in the determination of the new prime minister.

As a general statement, regarding Europe, the risk of debt and borrowing is overpowering higher interest rates.

If debt and borrowing are the new concerns, the US must watch out. While the Fed decision on interest rates this month is monumental, investors should pay more attention to how the US government is going to stay open past September 30, 2025, without budget adjustments and a new debt ceiling. Also, the magnitude of the interest rate cut, supposedly coming this month, must be taken into consideration. A .25% rate cut is already discounted in bond prices, so its announcement will probably create a whimper for bond markets rather than a bang, hardly supportive.

Regarding the borrowing limit, it is no secret that congress cannot agree. Democrats and republicans disagree on almost everything, but there are some republicans who don’t agree with other republicans. These are the fiscal hawks who will push for spending cuts before they vote on more debt. Keeping the US government open will not be easy, which will create uncertainty among investors.

Congressional disagreement on borrowing aside, the real issue is upcoming debt issuances; the US 10-year bond auction will be September 10, the 30-year September 11, and the 20-year September 16. The Fed meeting is September 17. If the 10-year or 30-year bond auction go bad, experience low demand , the US dollar could be at risk.

To use president Trumps language, the bond market may get the “yips” like it did in April. If the bond market gets the yips, the US dollar will too.

When investors demand higher yields for longer maturity government bonds, they are demanding compensation for the risk over time of holding government bonds. Right now, investors are demanding higher compensation with the US 30-year bond hovering around 5%. They seem to believe they are taking a lot of risk in long dated US Treasuries. Investors are signaling that they are worried about the future financial state of the US long-term.

Once again, the true test of whether US bonds get the yips will be the upcoming auctions. Close attention be paid to these auctions, and the US had better hope they go well, or the concern that is building will accelerate and show up in dollar weakness, the yips.

Given concerns noted above, US dollar, investors, whether fiat of tokenized, should diversify away from the US dollar. At least until more is known regarding the upcoming auctions and the debt ceiling.

Although Etherfuse Euro bonds have a low APY of 1.47%, the currency can make up for a low yield if the dollar gets the yips. UK Gilts at an APY of 3.92% could make sense. Probably the standout investments for reducing US dollar exposure are the Mexican Cetes at 6.2%APY and the Brazilian Tesouro at 13.06% APY.

This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.

But the rules may be different for the public sector. By pushing for much lower interest rates than those at the present time, the US seeks to implement a “fiscal dominance”, scenario that makes government financing cheap.

Given the latest budget bill and the projected debt level it will create, they need lower rates. President Trump even stated this idea when he said the Fed’s benchmark rate should be three percentage points lower than the current 4.25% to 4.5% range, arguing that such a reduction would save $1 trillion a year in interest cost. A comment later shows he is aware of the risk of lowering interest rates when he said, if inflation is a problem the central bank could raise rates. Whiplashed rate movements would not build confidence in the US dollar.

He is also doing his best to stack the Fed Board of Governors by putting new members on the board that agree with his view that interest rates must go down. Most recently, a letter accusing Federal Reserve Governor Lisa Cook of falsifying documents for a private loan may give President Trump the chance to stack the board in his favor.

Further to stacking the board, President Trump has made his intentions clear to get Powell out and put in a chairman who is more likely to do his bidding.

Post Jackson Hole, Fed President Powell is hinting at lowering rates at the September meeting, due to weak labor numbers. In this case he will prioritize jobs over inflation. While this rate cut will probably not be big enough to appease the White House, it could be the start of multiple cuts. The key questions are “how big will cuts be in total” and “how fast”.

Will the start of rate cuts get President Trump off Powell’s back?

Will they be determined by the White House or will the US Fed stay measured?

Aggressive rate cuts support fiscal dominance, creating a lower interest rate to minimize interest costs in the budget.

Let’s review the negatives of fiscal dominance. First, it would require a less independent US Fed, which would cause investors to be worried and sell US assets. Second, it could create inflation that cannot be stopped by a quick about face saying, “oops we made mistake and have to raise rates again”. Third, the US dollar would take a hit, a hit too big to easily quantify beforehand. Fourth, a lower interest rate would lead to more borrowing and eventually an even bigger debt problem. All these things can weaken the US dollar.

So, if there is even a slim chance of President Trump getting his way, investors should start diversifying away from the US dollar.

In times of a weak dollar, emerging market currencies and investments standout, like bonds in Brazil and Mexico. European bonds, even though their rates are low, should do well in a time of a weakening US dollar. In Latin America you can get a good return versus US dollar from high rates and appreciating currencies. In Europe the return versus US dollar will be mostly from the currency.

Etherfuse bonds in Brazil, Mexico, and Europe are all good, tokenized options to diversify away from the US dollar.

This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.

Treasury secretary Bessent said in a televised interview “if you look at any model”, for the fed funds rate, it suggests “we should be 1.5% to 1.75% lower”. The current rate is 4.33%. Bessent says it should be 2.6%. This doesn’t make any sense, and it is certain that this level has never been discussed at a single Fed meeting, even if some members are lobbying for lower rates.

In secretary Bessent’s comment, the concerning words are “any model”. The US Treasury Secretary should not make comments like “any model”. This is naïve, silly, and embarrassing. If one of his analysts at his hedge fund had said something like this, he would have given him a dressing down. There are models that suggest rates should be higher, like the Taylor Rule, named for John Taylor a Stanford economist.

He tried to walk his statement back the next day, but the damage was done.

If Secretary Bessent keeps contradicting himself, he is going to lose credibility. On the one hand he says rates should go down, which he knows will crush the dollar, On the other hand he has been trying to convince investors that a strong dollar policy remains intact, and his boss has threatened 100% tariffs against anyone who dares challenge a strong US dollar.

No matter the threats from President Trump or the calming rhetoric from Secretary Bessent, the dollar is dancing to another tune, tumbling 10% in the first six months of this year, its worst performance since 1973.

The administration is saying strong dollar, while the market is saying weak dollar. Hard to say who is going to win, but when the dollar falls, it will fall fast and hard, too fast for anyone other than lightning-fast professional traders to benefit from the fall.

While a severe crack in the US dollar is probably still some time away, normal investors may want to start moving assets slowly out of the US.

So, where should an investor go to lighten exposure to the US dollar? Where can they go?

In a time of a declining US dollar, good opportunities can be found in high yielding emerging market bonds in countries like Mexico and Brazil. The yield pick-up versus the US dollar in both Mexico and Brazil will attract investment flows. An investor will not only get the higher interest rate, but currencies may rise in value due to strong demand from investors lightening up on US dollar exposure. Etherfuse’s Brazilian Tesouros and Mexican Cetes are good options for emerging market bond exposure. These tokenized assets not only generate a good yield and currency stability but can enhance other strategies on chain.

Non yielding assets that offer a store of value like Bitcoin and gold are also good options, if the US dollar goes down. Lower interest rates and a lower currency are generally inflationary, and gold and bitcoin have proven to do well in times of inflation.

There are certain US stocks that do well in a time of a falling US dollar, stocks that perform well are those with a high percentage of exports, because a weak dollar makes their products less expensive on the global market, which can support earnings.

While this is true, given the extended valuation of the US stock markets, it doesn’t matter what the composition of sales outside the US is. All US stocks will go down together if the US dollar falls fast in value.

Once again, this is not an emergency call. There is no need to throw US dollar assets out, but now is the time to slowly start making your way to the exit before the end of the game, encore, or curtain call.

This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.

This is not the situation today.

For July 2025, Brazil announced .26% monthly inflation, versus a consensus estimate of .37%. The annual inflation rate was 5.23%, which was down from the month before and better than consensus of 5.33%. These are good numbers.

It is important to realize that these were the lowest annual inflation numbers in five months. The annual rate announced in January was 4.56%. The rate went as high as 5.53% in April, and then went down. Given US policy uncertainties since tariff announcement in April, it would not have been unreasonable to see inflation go above the high points of 5.53%. At first glance there are good reasons for inflation to go up, such as excessive government borrowing, but it did not.

Inflation levels, both present and forward looking, are key for currency and bond yields. Higher inflation makes Brazilian goods more expensive, so investors will demand a quasi-discount on the currency. Regarding bonds, higher inflation leads to higher interest rates as investors require a high return to compensate for the risk of inflation eating away at the return.

Brazil’s inflation success has shown itself in the currency which has appreciated 12% versus the US dollar year to date. Brazilian 52-week yields have gone from 15.48% at the beginning of the year to 14.57% now.

It is possible that the US dollar’s value will decline in the months ahead on account of structural problems like excessive borrowings, and waning trust in policies and data. Any one of these issues can chisel away at confidence in the US dollar. Also, a Fed interest rate cut, which looks increasingly probable, will probably lower the price of the US dollar.

So, in sum, Brazil is a country controlling inflation better than expectations, which seems to be expressing limited currency risk against the US dollar, and high interest rates on short-term sovereign debt. This is about as good as it gets.

Put another way, fundamentals supporting the Brazilian Real are better than fundamentals supporting the US dollar.

Investors working on-chain can take advantage of this situation by buying tokenized bonds that can be used for yield pick-up versus dollars, staking, or providing them to a pool. One possibility is Etherfuse’s Brazilian Tesouro which yields 13.9%, a yield that can be supercharged by supplying to a pool.

This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.

We can say the same thing about demand for US treasury bonds at last week’s ten-year auction. The result of the ten-year bond was ok, 4.225%, a little above what was expected. A slightly weaker result than expected shows only slightly weaker demand than expected. But this was not the cockroach. The cockroach was what happened 90 minutes before the auction; the yield surged and then faded quickly. A surging yield probably highlighted a very large short position going into the auction. In effect, someone with big money anticipated demand, either now or in the future, will decline, sending yields up and prices down. Short interest is selling, the opposite of demand.

The aggressive selling was brief, fleeting, just like a cockroach in a kitchen or bathroom.

Given the fundamentals of the US treasury market at present, a case can be made for declining demand. Metaphorically, more cockroaches.

First, no matter what one says confidence in US data is at risk given the firing of the head of the NLS. Skepticism regarding data quality can lower demand.

Second, the US dollar is not the only reserve currency in town. Other currencies, like the Euro, are taking up a larger share of global reserves. Any time a reserve currency is substituted for the dollar, demand for treasuries will be less.

Third, if a new Fed Chairman lowers interest rates without inflation being under control, inflation could eat into interest returns, leading to lower demand.

Fourth, the US is nearing its debt limit. Few people lend money to people who are over extended, and treasuries are the key source of US borrowing. If investors are skeptical about lending, treasury demand will decline.

Finally, treasuries are getting a boost from US dollar stable coins, crypto currencies backed by US treasuries. But US dollar stable coins are not the only game in town. Other countries are issuing stablecoins. If investors shift allocations to non-US dollar stablecoins, demand for treasuries that back US stablecoins will go down.

So, there may be a colony of cockroaches living behind the walls of US Treasuries.

What to do? Start diversifying away from US bonds. Don’t dump them completely but lower exposure. Lowering exposure can be done by buying funds that have foreign bonds, but if you are comfortable with crypto, there is a better way. The better way is to buy tokenized bonds from issuers like Etherfuse. Etherfuse bonds are bought in crypto accounts on multiple platforms. They provide direct exposure to several non-US sovereign bonds, all backed by underlying government paper.

If demand for US treasuries declines, medium to long term yields will go up. The US Fed may lower short-term interest rates, but that will not effect medium to long-term rates which are determined by supply and demand at auction. The whole point of pushing the US Fed to lower interest rates is to make the cost of money across the whole yield curve, from short-term to 30 years, go down. If this doesn’t happen , the US dollar may weaken, and a weak US dollar is good for non-US bonds.

So, a good trade might be two sell USTRY (or any other treasury) and buy Mexican CETES or Brazilian short-term bonds. On either one you will get more yield than on US, and there may be a chance of currency appreciation when the dollar is under pressure.

This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.

But just because the discount rate, the rate that applies to primary credit extended to US financial institutions goes down, does not mean bond yields, like the 10-year US bond rate, a key borrowing rate for the US, will go down. The discount rate is determined by the Fed, while the US 10-year treasury is determined by the market.

If demand for US 10-year treasuries goes down, the yield offered to lenders will have to go up. If investors are skeptical, they have to be incentivized through higher interest rates.

Thus, the key question is “going forward, how strong will demand be for US 10-year and other long dated Treasuries”? This is important to gauge because a US treasury buyer is lending the United States money, taking credit risk.

If trust or confidence towards the US declines, demand for US bonds will decline. Unfortunately, there are reasons why trust and confidence in the US may decline in the coming months.

First, President Trump firing the head of the BLS will diminish trust and confidence in US data, potentially harming demand for treasuries. Investors base their actions on models with multiple interconnected variables. Labor is one of the inputs. If investors cannot trust the labor input because it is politically manipulated, they may be hesitant to invest more money into US treasuries, lowering demand.

Second, there may be a decline in the US dollar reserve status. Reserve currencies are held by foreign countries to facilitate transactions, and reserves are used to buy treasuries. As of now, the US dollar is the main reserve currency at 59% of total global reserves. But there is growing talk of new reserve currencies coming into the picture like Renminbi or Euro.

Third, if the US Fed lowers interest rates without inflation under control, investors will demand more yield to make up for the loss of purchasing power stemming from inflation.

Fourth, the US is nearing its debt limit. Yes, Congress may bow to President Trump and raise the debt ceiling, but that is just kicking the can down the road. Everyone knows the US has a debt crisis that is getting worse. No one wants to be the last pillar of demand before things go bad.

Finally, there is speculation that the growth of US dollar stable coins will keep demand for US treasuries high. Blockchain issued stable coins must be backed 1:1 by US treasuries. If the demand for US dollar stable coins goes up, demand for treasuries will too. However, US dollar stable coins represent 98% of the total stable coin market. There will be other stable coins; it cannot be assumed the US will continue to represent 98% of stable coins over time. Thus, a lower market share may lead to less demand for US dollar stable coins, and the treasuries backing them.

Over the past year, the US 10-year bond yield has gone from 3.98% to a high of 4.79% to its present level of 4.25%. If demand for US bonds from foreign investors goes down, the US 10-year yield could stay around this level.

If the US 10 year stays around this level, the attractiveness of higher yielding bonds like Etherfuse’s Brazilian Tesouro and Mexican CETES will be enhanced. Selling USTRY and buying one of these bonds can create a great yield pick-up in a time of uncertain US bond demand.

This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.

As example Etherfuse’s Brazilian short-term sovereign bonds have an APY of 13.06%. The US treasury Etherfuse short-term bonds have an APY of 3.91%. A dollar investor going to Brazilian Tesouros gets a yield pick-up or carry of 9% versus the US dollar. If the US dollar appreciates less then 9% in value versus the Brazilian real, the trade is profitable.

When tariffs were announced on April 1st the US dollar went up. Since that time, foreign currencies have recovered and yield pick-up trades have done well.

When tariffs were confirmed on July 31^st and implemented on August 1^st, the currency movements were interesting. On July 31^st foreign currencies declined and the US dollar rose, but they all bounced off the lows by the end of the day. Some like the Mexican peso were unchanged. Dollar strength did not hold.

On August 1^st, tariff implementation day, foreign currencies went up. The Euro appreciated more than 1%, the Brazilian real appreciated .74%, and the peso was unchanged.

Tariff implementation should boost the US dollar value. US tariffs slow exports to the US, and lower exports to the US reduce economic growth in foreign countries. To counter the impact of lower economic growth, Central banks lower interest rates, making the yield on their bonds less attractive, which normally causes their currencies to go down in value versus the US dollar.

But on August 1^st the day tariffs were implemented, the US dollar declined; the dollar index (DXY) went down 1.18% and the Euro rose 1.37% .

The US dollar move can be explained by the US labor reports, which showed labor market weakness; US job growth cooled in the past three months, and the unemployment rate rose. Given labor market weakness, investors now believe the US Fed will lower interest rates in September, which would put downward pressure on the value of the US dollar.

The key question is- will one month of US labor weakness lead the US Fed to begin an aggressive campaign of lowering interest rates in September? If they lower interest rates aggressively, the US dollar will go down, benefiting yield pick-up trades of bonds in foreign currencies.

Although there may be a cut in September, it is hard to imagine a large cut, or a signaling that more cuts are coming. The impact of tariffs on inflation is not yet known. In the end, rates not going down as fast as anticipated could keep the US dollar stable or allow for mild appreciation.

Given the potential a slower than expected rate cutting program, it is best to seek trades with the biggest yield pick-up, or currencies with low chances of depreciation against the US dollar. Brazil and Mexico fit this bill. The yield pick-up in Brazil is 9%, which means things must really change for the US dollar to go up 9% and wipe out the yield differential. The Mexican peso has shown its mettle by holding value in a tumultuous time, and the Mexican government seems to be in a good place with the US, unlike many other countries.

In conclusion, a portfolio composed of Etherfuse Tesouros and Mexican Cetes should perform well versus US treasuries until more is known on interest rates and tariffs.

This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.

It is hard to see how a trial of an ex-President is “an extraordinary threat”. Brazil does not share a border. There is no risk of an immigrant crisis. Civil war is not about to break out.

In the end the tariffs seem to be a big “Nothing Burger”. Many sectors are exempt. The stock market went up 1% post announcement. The Brazilian Real weakened .18%, which is basically a rounding error. And the Brazilian ten-year bond was unchanged.

It is important to mention the moves in bonds, stocks, and the currency. They are the great sources of interpretation as to how these tariffs will impact Brazil in the future. Spoken opinions and sound bites do not communicate the impact as well as numbers, markets.

The muted reactions are surprising. Normally such tariffs would have sent the currency on a downward path. The stock and bond markets would have cratered in price terms.

Given the whimper as opposed to bang of US tariffs on Brazil, it makes sense to reiterate the trade favoring Brazilan Etherfuse Tesouros versus the US bonds and currency. The news is out, and the price reaction was minimal.

To re-cap, the Etherfuse Brazilian Tesouro yields 13.06% and the US yields about 4.34%, an 8.72% yield pick-up, a good carry trade.

In a yield pick up trade the goal is for nothing to change in the currency or interest rates. You want the situation to carry on as it is. If a 50% tariff doesn’t cause change in the currency or interest rates, it is hard to imagine what will.

This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.

But, as of July the situation may have changed. Since the beginning of July, the currencies of Etherfuse’s stable bonds have mostly declined against the US dollar: The UK pound was the worst at -3.42%, the Brazilian Real -2.62%, the Euro -2.45%, and the Mexican peso unchanged. The dollar index, DXY was up 2.76%

This begs the question: Is the strategy of investing in foreign stable bonds for a yield pick-up over? Put another way, has the value of the US dollar versus foreign currencies bottomed? Is it onwards and upwards for the US dollar from here?

If an investor believes the US dollar is going to strengthen, they may want to stop chasing yields in countries like Mexico and Brazil, and back off forex exposure in the Euro and the UK pound.

The issues that pressured the US dollar are well known. Inconsistent policy surrounding tariffs, rising US debt, concerns over inflation from tariffs to name a few. More concerning long-term is the fact that there is a growing trend for foreign companies that buy goods from the US asking to be paid in their local currency, because they do not want to own the US dollar. For example, a lumber company in the Midwest now converts US cash into Euros before paying for hardwood imports from Europe; they get a 2% discount for paying in Euros. For the US dollar to appreciate investors all over the world must have confidence in the US economic fundamentals. As of now, confidence does not seem apparent.

As we come closer to August 1, one of the days President Trump said tariffs would be levied, foreign currencies have weakened. The big move was on the day the trade deal with Europe was struck. In the wake of that deal being announced, the DXY went up 1%.

The US dollar’s upward move in July may be a relief rally driven by tariffs that are not as severe as initially thought, more bark than bite. But just because the tariff outcome result was not as bad as anticipated does not mean the currency is going to make a sustainable move upwards. Relief rallies are not trend reversals.

There are a couple of ideas holding dollar appreciation back, even if tariffs are not as bad as expected.

First, the US does not want the US dollar to strengthen. A stronger US dollar makes exports more expensive and imports cheaper. In this scenario, imports would grow faster than exports and make the trade deficit worse.

Second, debt is still a problem. The US debt is reaching its ceiling. Yes, President Trump is pressuring Chairman Powell to lower interest rates, and if that happens the amount of interest the US pays on its debt will go down. But this is just kicking the can down the road. Until congress increases the debt ceiling, debt will continue to be a problem, a problem that could derail the US dollar

Third, although there is clarity on tariffs, no one knows what the impact on inflation will be. Until this is clear, the US dollar will have a hard time appreciating.

So, what currencies still make sense to buy versus the US dollar if the US dollar stays the same or weakens.

The Mexican peso may be at the top of the list. The Etherfuse CETES has an APY of 6.51% and the currency barely moved in July. A 4 plus percent pick-up in yield versus the US dollar with currency stability makes sense.

The Brazilian Real bonds might be a good choice. The Etherfuse Tesouro has an APY of 13.06%. which is 8.7% more than US dollar short-term yields. There is concern that the US will place a 50% tariff on Brazil, but if they do not, Etherfuse Tesouros will be a hit.

Probably best to hold off on exposure to the Euro and UK right now because the yields are low

In conclusion a portfolio of 60% CETES and 40% Tesouros seems to make sense for investing or staking or whatever you want to do with it.

This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.

If we look at the situation rationally, pushing back may reflect a Brazilian position of strength. First, the US has a trade surplus with Brazil (US sells more dollar value to Brazil than Brazil sells dollar value to America). Sanctions would harm this balance by cutting back on US sales to Brazil. The whole point of tariffs is that other nations are ripping the US off, as determined by a trade surplus with the US. If the US has a surplus with Brazil, is the US ripping Brazil off? Second Brazil is united against the US and President Trump’s threat; in a Brazilian poll, 50.3% of respondents view Trump’s move as an attack on Brazil’s sovereignty. When asked should Brazil retaliate with tariffs if the US applies them, 51.8% of Brazilians said they should hit back. 61% of poll respondents said Trump’s decision to target Brazil is unjustified

Without knowing it, President Trump may have given a gift to President Lula; Lula’s approval rating went from 47% to 49%.

So, the Brazil public is digging their heels in, steeling for a fight, the Supreme Court has weighed in, and public consensus is for retaliation.

What does this mean for investing in Brazilian stable bonds or the currency?

Well, quite a bit. On the day President Trump threatened tariffs regarding the treatment of Jair Bolsonaro, the Brazilian Real weakened 2% to a level of 5.57. This is where the currency is now. The first knee-jerk reaction of weakness was the only one.

This makes Brazilian tokenized bonds, like the short-term Tesouros offered by Etherfuse very attractive when compared to short term US bonds. Etherfuse Tesouro yields 13.06%, and short-term Etherfuse US bonds yield 3.93%. Thus, the yield pick-up from owning Brazilian bonds is 9%. Even if the US dollar fiat-based short-term bond is used, the yield pick-up is 8.75%.

Thus, Tesouros offer a great yield when compared to US dollar yields. That said, this risk as always is that the US dollar appreciates significantly and wipes out the yield differential. For this to happen the US dollar would have to go up almost 9% versus the Brazilian Real, to a level of over 6 Real to the USD. The last time the Brazilian Real reached the 6 level was in April when the first round of US tariffs was announced. That was a bad time for all foreign currencies, and probably the worst levels, given that US tariffs have not had a harsh impact on currencies.

The Brazilian currency may weaken from here as the fight with the US heats up, but 9% is a stretch.

The key to this trade is whether President Trump follows through on the threat of 50% tariffs, tariffs that are more driven by emotion then economics. If the tariffs come out, Brazil will probably hit back with something harsh. It could get ugly for no economic reason whatsoever.

But, ugly or not, a 9% yield pick-up versus US dollars seems a good bet.

This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.

When US tariffs were announced in April, the Brazilian currency, the real, weakened to its 2025 lowest value versus the US dollar. From this low point, given President Trump’s Taco behavior, the currency strengthened 7% to its present level of 5.58 Real to USD.

In the last few days it has weakened a bit, 3.37%, due to President Trump’s rhetoric regarding tariffs on Brazil. President Trump threatened Brazil with a 50% tariff. President Trump’s motivation to do this expresses a desire to meddle in Brazilian internal affairs. The stated rationale behind the tariffs is based on former President Bolsonaro’s trial, which President Trump called a “Witch Hunt”, for all sorts of bad things Bolsonaro allegedly did.

We must ask the question, what does a far-right buddy of President Trump have to do with US and Brazil tariff policy? In April Brazil was not one of the countries targeted by higher so-called reciprocal tariffs. They were exempt because the US has a trade surplus with Brazil; the US exports more to Brazil than Brazil exports to the US. A tit-for-tat tariff war could lead to a lower US trade surplus with Brazil, which is contrary to the goal of tariffs.

Sadly, President Trump’s policies seem to be rooted more in emotion than economics.

But there may be another reason for an aggressive tariff program towards Brazil. BRICS, a grouping of nations that includes Brazil, Russia, India, China, and South Africa held a meeting where they took a subtle swipe at President Trump’s policies saying they “voice serious concerns about the risk of unilateral tariff and non-tariff measures that distort trade”.

They did not mention the US or President Trump by name, but President Trump took it personally. And guess where the meeting that made this statement was held? Brazil.

In short, the threat of exorbitant tariffs on Brazil, a country the US has a trade surplus with, does not seem rational. Tariffs are designed for countries where the US has big deficits like China and Europe. The impact on US finances from high tariffs on Brazil will be negligible.

So, back to the markets. Let’s assume that President Trump’s threat is merely a “Taco Grande”. If that is the case, Brazilian tokenized bonds may make sense for investing and lending.

First, the currency weakened by about 4% from the date when BRICS made their statement and President Trump rose to the aid of Bolsonaro, but it is still higher in value than April of 2025.

The Etherfuse tokenized Brazilian Tesouro has an APY of 13%. Lending out on a crypto exchange can generate a return over 25% from the combination of owning the yield and getting paid for the lending to other crypto natives.

The risk to this action is that the Brazilian Real weakens significantly against the US dollar, or US dollar stable. A weaker Real (strong dollar) will reduce the overall return if the trade is taken back into US dollar stable.

But Brazilian real weakness would have to be very severe to negate the yield pick-up of the Tesouro versus the US dollar, about 9-10%, combined with the high rate that can be earned by lending the Real. A weakening of the real versus the US dollar of over 20% seems hard to imagine. That would be a crash, and there is no reason for a crash.

So, if President Trump’s threat to Brazil turns out to be a “Taco Grande”, the Brazilian real should hold its value against US dollar stable. Combing this with a high yield and loan rate seems to make sense.

This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.

It is easy to criticize such a ridiculous number, but what is the right number? Given the US is the biggest reserve currency in the world, and that it has been for years since Bretton Woods, a case can be made for dollar stablecoins being the highest percentage in the overall mix.

But 90%? Even for the “King” of Reserve currencies this is too big. After all, the US dollar is only 58% of total global foreign reserves.

Yes, there are other reserve currencies. The Australian dollar, British pound, Canadian dollar, Chinese renminbi, Euro, and Yen are official reserve currencies. A reserve currency is any currency countries hold to pay for future imports or other services. The US dollar is huge in the mix because commodities like oil and wheat futures are priced in US dollars.

Given there are other alternatives for reserve currencies aside from the US dollar, 58% of total reserve currencies does not seem to be carved in stone. If 58% of the US dollar as a reserve currency is not carved in stone, 90% share of US dollar stablecoin is surely questionable.

But how can we bring the 58% and 90% closer together, to assemble some sort of rationality? Well, if we split the middle we come up with 75% US dollar stable coin in the stablecoin mix.

Getting to 75% will not be a result of reducing the growth of the US dollar stable. Rather it will be done by the percentage of other stable coins growing equal to US dollar stable, or faster. The other reserve currencies like the Euro, UK pound, Yen, Canadian dollar, and Australian dollar all deserve a place in the stable coin mix.

From a regulatory perspective, this can be done by allowing all stable coins to trade on a global platform. After all, a big draw of crypto is its ability to transcend boundaries. Imagine a place where someone can buy Australian stable directly to pay for Australian imports. Right now, since most trade is done in US dollars, the money must go from the local currency to the dollar. After the goods are paid for, the dollars must be transferred into local currency to pay the bills, or kept in US dollars for future transactions.

This is not efficient. It would be better if the Australian importer could buy stable in the exporter’s currency directly. It is all is less costly, and crypto allows this.

The downside to this is that some markets may not be big enough to create their own stable coin to trade internationally right now. But the Euro, yen, Canadian dollar, UK gilt, and Australian dollar are big enough to have some representation in the stablecoin mix that is bigger than 10%. After all, they are reserve currencies too, accounting for about 40% of reserves.

This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.

These are not the metrics of a solid currency. But they are metrics of the US dollar. They are also the underlying metrics of the stablecoin market worldwide, as the US dollar represents over 90% of all stablecoins.

The dominance of the US dollar stable in the percentage of overall stablecoins will only get worse. When this happens countries and regions risk suffering economically at the hands of the US. If something goes wrong in the US bond market or economy, the reputations of crypto and stablecoins will suffer. Countries who depend on and put their trust in the US dollar will have serious problems. If a crisis hits, people in countries that have dollarized in crypto will ask governments “why did you do that?”

Bank of England Governor Andrew Baily said the rise of stablecoins risks undermining the public’s trust in money. Governor Baily’s comments reference US dollar stablecoins, because US dollar stablecoins are 90% of the market. They run the risk of undermining the global public’s trust in money.

The problem is not only the concentration of US dollar stable, but the speed at which it is growing. Since the Genius Act passed there have been significant developments around investing and financing in the crypto stable space. A group of tech billionaires have filed to open a new US bank that focuses on startups and cryptocurrency companies. They state their mission is to serve businesses other banks won’t take on.

They will be lending money to crypto companies, which are in essence US dollar stablecoin companies, which in turn will increase the concentration of crypto in all stable. It’s like putting gasoline on a fire.

In the end, US regulation will drive money into US dollar stablecoins, which will increase the demand for US Treasuries, which are the backing for stablecoins. US bond rates may go down, which would allow the US government to borrow more money at a lower rate, or refinance existing debt. This could lead to the US debt level going up to levels normally seen in emerging markets twenty years ago, not the number one reserve currency country.

For now, everybody will go merrily along the US dollar stablecoin path, embracing denial until something bad happens. And the odds are that sometime something bad will happen.

The solution is easy. Create regulation that allows treasury operations, institutional investors, banks, and private investors to hold a diversified portfolio of stablecoins. Presently, in the US stable securities are considered unregistered securities, so this cannot easily happen.

Hopefully the US government will realize that too much into one asset is a risk, especially when the underlying conditions are less than optimal.

This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.

My previous piece, Dangers of Digital Dollarization, outlined how stablecoins function as a soft extension of US monetary power. Most are pegged to the US Dollar, move easily across borders, and serve as a store of value in countries where local currencies can't hold. It wasn't regulated, but it was happening.

The GENIUS Act doesn't spark a transformation. It legitimizes what is already underway.

Grey Area to Green Light

The bill has passed through the Senate and is now on its way to the House. If signed into law, it would shift some stablecoins from a regulatory grey zone into a federally defined system. The relatively short bill outlines who can issue them, how reserves must be backed, and what technical standards must be met.

Many see this legislation as a long-overdue set of standards, but this goes beyond the regulatory framework. It accelerates the adoption of stablecoins and legitimizes GENIUS-compliant assets as part of US monetary strategy.

The Dollarization Continuum

In physics, a continuum moves without clear boundaries, in slow shifts rather than sudden leaps. Dollarization mirrors this model:

What began as physical cash has quietly evolved into stablecoins that now move US dollar value across borders. The shifts are gradual, but the underlying structure is changing.

Laying a Global Framework?

The US financial system often sets the tone for global economic policies. The GENIUS Act could quietly set an international standard.

If the US formally recognizes stablecoins through this bill, other countries may feel pressure to follow suit, either by accepting these tokens in their markets or by building a parallel framework.

This opens the door to two outcomes: broader recognition of stablecoins as a sanctioned currency or, more likely, a deepened global dependency on US economic infrastructure.

The Problem is Two-Fold

While regulation is beneficial, this bill has two high barriers: who can issue stablecoins and how they must back their tokens.

Issuer Restrictions

GENIUS narrows the field by limiting issuance to:

• FDIC-insured banks and their affiliates

• Nonbanks with a special federal charter

• State-regulated firms with < $10B in assets

This list overwhelmingly favors institutions that are already embedded in the US financial system. Crypto-natives, developers, and international projects are effectively excluded from recognition under this framework.

Instead of promoting competition, the act consolidates control amongst a handful of existing institutional players.

Backing Restrictions

GENIUS-compliant stablecoins must be backed by:

• US cash

• FDIC-insured deposits

• Central bank reserves

• Short-term US Treasuries (93 days or less)

There is no room for sovereign debt from other nations, crypto collateral, or diversified reserve systems. These assets aren't just pegged to the Dollar; they are private tokenized wrappers of public debt.

This ensures perceived stability but also embeds US infrastructure into every system in which the tokens circulate.

Guidelines or Gatekeeping

The GENIUS framework goes beyond compliance. It introduces technical standards to facilitate interactions across apps, wallets, chains, and payment systems.

These guardrails enable the scale of stablecoins, giving large issuers the foundation to operate across both decentralized and traditional platforms. While increasing usability, they also raise entry barriers, further entrenching institutions that can easily meet those standards and isolating smaller innovators.

Macroeconomic View

Concerns about dollarization aren’t new, but this framework introduces a deeper layer. These aren't just physical dollars entering a local economy. They're tokenized, Treasury-backed assets that can move instantly across markets.

GENIUS bypasses coordination and enters global systems through infrastructure, not diplomacy. It reshapes the kind of money people trust, how governments control capital, and how monetary power is distributed. This isn't market-driven dollarization; it's structured monetary expansion.

GENIUS is Good (for the US)

From a domestic perspective, the bill makes perfect sense. It standardizes a growing sector, reinforces demand for Treasuries, and builds new monetary infrastructure, all without the Central Bank.

But globally, the consequences are less clear and potentially more disruptive.

GENIUS doesn't just regulate the stablecoin, it legitimizes and extends US economic influence in a way that favors private actors aligned with American interests. Other frameworks excluded. Other currencies sidelined.

Whether this stabilizes or reshapes global framework remains to be seen. But one thing is clear: the US is taking the lead in defining the future of currency.

Food for thought:

Can non-USD stablecoins or alternative models maintain traction once only GENIUS-compliant assets are federally endorsed?

Does handing issuance rights to banks and chartered entities recentralize a system that was built to be decentralized?

What signal does it send that JP Morgan launched their stablecoin the same day the Senate passed GENIUS?

Secretary Bessent was ecstatic that there will be more demand for US Treasuries. US dollar stable, as per the Genius Act, must be backed 1 to 1 by US treasuries. Thus, the more demand for US dollar stablecoins, the more demand for US treasuries.

Further to this idea, an analyst predicted “stablecoin issuers will be the largest holders of US Treasuries in the world in years to come”.

Right now, the largest holders of US treasuries are sovereign nations, with Japan and China being the biggest, because US treasuries are used to manage their dollar reserves.

But there is a risk that demand from central banks to hold US dollar reserves is declining. The OMFIF-Official Monetary and Financials Institutions Forum released a report that says one in three central banks managing a total of $5 trillion US dollars, plan to increase exposure to gold over the next one to two years. Gold will substitute for the US dollar in terms of reserve management.

A survey of 75 central banks was carried out between March and May. The survey asked where central banks are looking to increase currency holdings over the next twelve to twenty-four months. The Euro was number one and the Renminbi was number two. The dollar ranked behind the Yen, Australian dollar, Canadian dollar, and UK sterling. In this survey, on a 12–24-month basis, central banks don’t like the US dollar.

Dollar optimists, like Secretary Bessent, would say a decline in demand from central banks is no big deal. Stablecoin issuers will buy US treasuries to back the coins. Stablecoin buyers will fill the demand lost from central banks.

Substituting solid, long-term reserve-oriented buyers with US stablecoin buyers may not be a good thing. Central banks move in and out of reserves slowly; stable coins are held by commercial and retail interests and are more transactional in nature. It is not a stretch to say that the holding period for stable coin may not be as long-term as demand from central banks for reserve holdings. If the holding period of stable coins is short, there might be more frequent selling pressure on US treasuries.

If there were some sort of crisis of confidence in the US dollar, the selling of US dollar stablecoin may be more aggressive, volatile than sovereign reserve selling. If stable coins really do become the largest owner of treasuries, and there is a crisis of confidence in the US dollar, we have a problem.

There is a solution. If you are going to have stablecoins, let there more than just US dollars. There should be yen, euro, peso, UK gilt and others. In this case, if there is rising concern regarding the US dollar or US treasuries, the holder of the stablecoin can merely trade USDC for another stable coin. The US treasury collateral does not have to be sold. If the US treasury collateral does not have to be sold, there will be less pressure on the US treasury market.

The Genius Act is a great first step. But if it leads to a shift in the demand composition for US treasuries from longer-term to short-term holders, volatility will increase and there may be financial pain ahead.

This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.

Regarding stablecoins, one might conclude that this message has been heard, as the US Senate just passed the Genius Act, a policy that provides a regulatory framework for stablecoins.

After Circle’s mammoth IPO success, passing such a law was easier. Stablecoins, particularly US dollar stablecoins, are hot right now.

But are they too hot? If they are too hot, problems could arise.

Aaron Brogan of Brogan Law in his newsletter

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Non-Newtonian Liquidity in Treasury Markets

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10 months ago · Aaron Brogan

provides insight into rising complacency in the US dollar stablecoin market.

In short, Aaron Brogan highlighted US dollar stablecoins and their relationship with US Treasuries. Circle’s USDC currently has $60 billion circulating supply, which combined with USDT is about 90% of the stable coin market. Circle’s coins are backed with collateral mostly held in short-term Treasury bills. At present, given the $900 billion daily secondary market for Treasuries, Circle should have no problem meeting redemptions by selling Treasury bills.

But, if the stablecoin market continues to grow as more supportive regulation comes about, and there is a confidence crisis in US Treasuries, the assumption of an easy unwind for dollar stablecoins may not hold.

There is a solution. Legislation that leads to a lower concentration of US dollar stablecoins in the overall stable coin market. Stablecoins will grow, but the growth must be spread among vehicles other than USDC and USDT. Thus, the US should permit US investors to hold stable coins and bonds in Mexico, Europe, Japan, UK, and Brazil along with other countries.

This becomes even more important when we look at the risks of the US dollar and treasury market. Aside from the structural issues like tariff uncertainty, the ratings downgrade of US government bonds, and the increasing debt burden as a percentage of GDP, there is an event coming; on May 26, 2026, Federal Reserve Chair Jerome Powell’s term ends. President Trump will appoint a new chairman, naming the candidate soon, and it is highly probable that the new chairman is going to cut interest rates more aggressively than Chairman Powell ever did.

A key question is how much? Will it be so much that investors don’t feel compensated for the risks of owning the US dollar and treasuries? Severe rate reductions can cause weakness in the US dollar and treasury market. US dollar and bond risk creates a severe headwind for US stablecoin companies like Circle to unwind collateral to meet redemptions.

Even more concerning is the possibility of a vicious cycle. If dollar, deficit, and policy concerns prompt foreigners to take money out of treasuries, US borrowing costs will go up. If US borrowing costs go up, the US fiscal position will worsen; the more money out of US Treasuries, the higher the US borrowing rate. If the borrowing rates continue to go up, there will be more fiscal pressure, and so on, and so on.

Such a vicious circle can really make unwinding USDC or USDT collateral tough.

The US government must realize that a release valve is needed for stable coins; stable coins cannot grow at a high rate, and have the growth driven by two coins, USDC and USDT. The Genius Act which puts some regulatory guard rails around stablecoins is great, but they must do more. If they do not do more and crisis hits, US dollar stable coin investors will have big problems.

If a government can react, but doesn’t react, and a crisis could have been mitigated, it is logical to conclude they own it, or at least part of it.

This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.