Treasuries, Crypto and Genius

We haven’t written a full-length post in a long time, but ever so often something comes up that benefits from some writing to better articulate a flow of logic. Hopefully we haven’t lost our touch, but we certainly won’t run this through an LLM!

As always, we never purport to know what’s going on behind the scenes, but consider this a bit of a mental exercise.

In recent weeks and months there’s been a lot said about US Treasuries, yields, Scott Bessent’s strategically left-behind notepad about buying JPY, Treasury buybacks etc. And it’s all boiled down to a conclusion of great schadenfreude for many: the US is dead, the dollar’s over, Trump’s messed it all up, these clowns have caused cataclysmic damage to the economy etc.

As it stands, the US treasury sells USTs of varying maturities up to say 30y, to a wide variety of financial institutions and sovereigns: banks, primary dealers, other central banks etc. USTs are used both as reserves and collateral for borrowing/trading, and they are good insofar as the Treasury is good for the money.

Death to the USD

The narrative now is that sovereigns are selling because they don’t trust the USD, and the profligacy is coming to a head. Probably true, and we’d add to that list geopolitics as another reason for selling, as well as an outright need for liquidity for domestic purposes (e.g. supporting a domestic currency, as Japan did; and as Turkey did before, selling gold). That’s what reserves are for.

The story is, no one actually wants to buy USTs, hence Bessent and the Treasury were forced to do a buyback recently, and that’s a bad thing.

To this point, we’d posit the following: if a company does a buyback of stock, it’s EPS accretive; if a company buys back its debt at a discount, it’s EPS accretive; so if a country buys back its debt below face value when it owes face value and extinguishes the debt at a discount, why is that a bad thing?

That aside, the other issue the narrative has taken up is the maturity of new issues: new issues are increasingly shorter-dated, which on the basis of traditional Asset-Liability Management principles is growing risk. After all, if liabilities are shorter-dated, then the money borrowed is coming due sooner, with less time to repay, thereby increasing the risk of default.

This observation in itself is true, factually and on paper. But there’s a subtle caveat here: the assumption that the buyer of debt wants the debt repaid and redeemed to cash.

In most cases that remains probably true, but indulge the hypothesis here: given price is made by demand/supply at the margin, then there’s a new marginal buyer in town. Stablecoin issuers.

The likes of Tether (USDT) and Circle (USDC) have come on the stage as a credible buyer at the margin of net new treasury issuance. The BIS estimated that USD stablecoins purchased nearly US$35bn of US treasury bills in 2025, vs a net issuance of about $360bn in bills outstanding from the US Treasury in the same period, putting stablecoin issuers’ purchases at just under 10% of new treasury issuance. Sounds small, but price is made at the margin.

These numbers are expected to grow over the coming years – spurred on by the GENIUS act and supportive SEC and CFTC policies, the estimates for stablecoin issuance growth are broad. It’s anyone’s guess what the number will be but with transaction volumes at US$33tn, +72% YoY in 2025, adoption is empirically and visibly growing.

More stablecoin demand leads to more stablecoins in issue, more stablecoins in issue leads to more collateral demand, more collateral demand leads to more treasuries demanded.

Maturity date: never.

But that’s not the key here: the key is that with these stablecoins, the end users (think individuals and small businesses, especially but not only in the developing world – Africa, Southeast Asia, Eastern Europe, South America etc) can almost NEVER redeem.

Tether, for example, is only redeemable with a minimum of US$100k by a KYC-verified Tether customer onboarded with them, with a minimum redemption fee of 0.1% or $1,000, whichever is greater. In short, “you can’t redeem” applies to more than 99% of USDT holders. So, on a volume-weighted basis, the maturity of Tether’s liability to USDT holders is effectively “infinity”.

Tether, Circle and other SEC-regulated stablecoin issuers have very little if not any incentive to call on the obligations owed to them by the Treasury, especially when they’re pocketing all the surplus yield on reserves on the basis that they aren’t allowed to pay yield to the tokenholders (yet). So, it’s pure profit minus the fixed costs of operating a software business. The more stables they issue, the better; the more stable issued, the more collateral demanded.

Put differently, Treasury and Crypto have now teamed up to substitute the incremental buyer of USTs from potentially demanding, problematic and politically motivated sovereigns to undemanding, small-ticket, emerging-world retail users who just want a hedge against their local currencies, moving average maturity of Treasury liability from something with a date to “impossible for most people to redeem” aka infinity.

Additionally, at the margin, new demand for Treasury issuance is moved onshore – even better, they’re all SEC regulated now. Need them to buy more? Increase the collateral requirements and there’s some excess UST demand on tap.

Ultimately, there’s nothing to stop the Treasury from rolling these shorter-dated, higher-yielding bills into longer-dated, lower-yielding bills when rates come back down. If handed the keys to the Treasury, that would certainly be our plan!

Who wants dollars anyway?

All of the above sits on a very important premise: that the developing world (or even the world, in general) wants dollars.

And why wouldn’t they? The current situation of energy shortages and inflation is wiping out currencies all around the world, especially where governments turn to populist policies of subsidising costs. The escape valve is to crypto, not through the centralised exchanges, but just a metamask app on a phone (typically android, really hard to gatekeep android OS and block crypto), so short of shutting the internet down, most governments have very little scope to limit access to crypto payments. Transaction costs have collapsed from where they were years ago – even ETH mainnet costs cents where it used to cost dollars per transaction.

The more messed up the world gets, the more people look to exit their local currencies, and for many in the developing world, they don’t have the luxury of fancy investment products. But they do have an android phone and someone who will trade their local cash p2p for USDT.

And there’s no shortage of messiness in the world today.

And if they wanted to take things one step further – how about KYC-free access to the US stock markets? Robinhood et al rolling out tokenised stocks tradeable on chain is the biggest expansion of the stock market casino in a long time. No more brokerage accounts – now anyone can buy and self-custody (yes, it’s a technicality because Robinhood counterparty risk etc etc but truth is it wasn’t an issue with fractional stocks so why would it be one now?) without going through painful KYC. Developing world USDT holders can now invest their USDT in US stocks – what more can one ask for?

Reserve currencies

Bottom line here is that taking a different perspective on things gets to a very different conclusion (a bullish one) for the dollar and US rates. Just one final thought on the USD being replaced as reserve currency: I read this years ago, but I can’t remember where – for a currency to become a reserve currency, it necessarily must be a debtor economy. It must have lots of IOUs floating around, with credible ability to repay (or at least non-probable risk of default) such that these IOUs are passed around as collateral for borrowing and payment. So, when theorists come up with the idea of for example the CNY becoming a reserve currency, that makes little sense since China doesn’t run huge external debts (11.9% of nominal GDP). Chances are we’re stuck with the USD for some time more to come, given how embedded USD is in the entire collateral and trade financing system. And with stablecoins going around the world, it’ll frustrate many local governments, but such is life – whole economies can get dollarised as long as their internet is running.

And when they do so, the dollar becomes the reserve currency not of sovereigns, but of individuals. Once entrenched, it’s a habit that’s hard to kick.

Which if it turns out to be true, makes us understand why this is called the Genius Act in the first place.