The cost to convert local currencies into dollar-backed stablecoins often includes a premium over the official FX rate. This "stablecoin access premium" is highly correlated with FX volatility, suggesting the newer stablecoin market is already taking pricing cues from the larger, more mature FX market.

By creating a regulatory framework that requires private stablecoins to be backed 1-to-1 by U.S. Treasuries, the government can prop up demand for its ever-increasing debt. This strategy is less about embracing financial innovation and more about extending the U.S. dollar's lifespan as the global reserve currency.

Widespread adoption of blockchain, particularly stablecoins, has been hindered by a "semi-illegal" regulatory environment in the U.S. (e.g., Operation Chokepoint). Now that this barrier is removed, major financial players are racing to integrate the technology, likely making it common within a year.

To extend the solvency of U.S. debt, create a one-to-one stablecoin backed by treasuries. This would grant global citizens, particularly in countries with unstable currencies, a direct way to save in a dollar-denominated asset. This new demand could lengthen the runway for U.S. fiscal policy.

Stablecoin adoption by U.S. entities merely shifts existing dollar assets from bank deposits or money market funds. True new demand for the U.S. dollar only materializes when foreign households or corporates convert their local currencies into dollar-backed stablecoins for the first time, creating a net FX conversion.

For hundreds of millions in developing nations, stablecoins are not an investment vehicle but a capital preservation tool. Their core value is providing a simple hedge against high-inflation local currencies by pegging to the USD, a use case that far outweighs the desire for interest yield in those markets.

For stablecoin companies like Tether seeking legitimacy in the US market, the simplest path is to back their assets with US treasuries. This aligns their interests with the US government, turning a potential adversary into a welcome buyer of national debt, even if it means lower returns compared to riskier assets.

According to Keith McCullough, historical backtesting reveals the rate of change of the U.S. dollar index is the most critical macro factor for predicting performance across asset classes. Getting the dollar right provides a significant edge in forecasting moves in commodities, equities, and other global markets.

As foreign nations sell off US debt, promoting stablecoins backed by US Treasuries creates a new, decentralized global market of buyers. This shrewdly helps the US manage its debt and extend the life of its reserve currency status for decades.