Is the USD stablecoin bill really a genius bill?
Recently, there was a major event in the crypto community. That is, the US Senate passed a procedural motion for the so-called US dollar stablecoin bill by 66 votes to 32, and entered the federal legislative stage.
The full name of this bill is the “National Innovation Act to Guide and Establish a US Dollar Stablecoin”. The English acronym happens to be GENIUS (Genius), so it is nicknamed the “Genius Act.”
There was a lot of discussion in the world financial community and financial circles for a while. Was this so-called genius bill the last struggle before the total collapse of the US dollar and US debt system, or was it a genius to resolve the US debt crisis and help upgrade the US dollar hegemony to version 3.0?
As we all know, the original dollar was nothing more than a gold voucher. The United States relied on World War II to gain 1.0 hegemony over the US dollar. As part of the overall post-war world order, the gold dollar was fixed by systems and institutions such as the Bretton Woods system, the World Bank, and the International Monetary and Financial Organization. According to the Bretton Woods system, the US dollar and gold are linked at a fixed exchange rate, and the fiat currencies of other countries around the world are linked to the US dollar. (Refer to reading Liu Jiaolian“Bitcoin History”(Chapter 10, Episode 42)
However, just 25 years after the war, the US was unable to maintain the anchor of the dollar and gold. American economist Robert Triffin (Robert Triffin) discovered that for the US dollar to become an international currency, it is necessary for the US to continue to export US dollars to foreign countries, and since the US dollar is linked to gold, exporting the US dollar means exporting gold. This will inevitably lead to a decrease in US gold reserves, which cannot support more and more dollars, so it will inevitably break anchor.
Specifically, the following three goals are the “impossible triangle” that cannot be achieved at the same time: first, the US balance of payments maintains a surplus and the external value of the US dollar is stable; second, the US maintains sufficient gold reserves; and third, the value of the dollar can be maintained at a stable level of 35 US dollars/ounce of gold. These three goals are an “impossible triangle” where it is impossible to reach at the same time. (See Liu Jiaolian“Bitcoin History”(Chapter 10, Episode 42)
This congenital bug is also known as the “Triffin Dilemma” (Triffin Dilemma).
When President Nixon suddenly unilaterally destroyed the agreement with the world in a televised speech in 1971 and announced that the US dollar was no longer linked to gold, he declared that 1.0 of the US dollar's hegemony had fallen into a crisis of collapse. Having lost the support of gold, the value of the dollar is faltering.
It is also up to the Sri Lankans to descend from heaven. In 1973, Kissinger became President Nixon's Secretary of State. He proposed a “petrodollar” strategy. He convinced President Nixon to fully support Israel in the Yom Kippur War (4th Arab-Israeli War). Under the strong military pressure of the United States, Saudi Arabia and the US secretly reached a key agreement on the “oil - dollar - US debt” bundle: (See Liu Jiaochain's 2024.6.9 article“Every Bitcoiner Will Eventually Become an Internationalist”）
1. Saudi oil is only priced and settled in US dollars; other countries need to reserve US dollars to buy oil.
2. Saudi Arabia invests surplus oil revenue into US treasury bonds to form a dollar return mechanism.
Many people are confused by the superficial meaning of the term “petroleum dollar,” and they say that the US dollar 2.0 changed its anchor from gold to oil. What money can buy has never been an anchor for money. The anchor of a currency is the thing that controls and supports the issuance of a currency.
From the perspective of commodity production, the capital process of petroleum dollars is: oil -> dollar -> US debt.
From the perspective of capital movements, this process has become a pure capital proliferation process: US dollar -> US debt -> dollar. ' Oil production is nothing more than a by-product of the capital movement process.
When China began to reform and open up in the late 80s of the last century, the capital movement of US dollars and US bonds was also applied to drive the production of a large number of industrial products in China, and amazing results were achieved. As far as this capital cycle is concerned, it actually doesn't matter if the by-product is petroleum or industrial products. Financial capital requires only a steady stream of profits extracted in a high-speed cycle.
Now the US no longer has to be afraid to export dollars. In the past, exporting dollars meant exporting gold, and the US didn't master alchemy, so it couldn't turn out gold out of thin air. Soon, its gold inventory would be emptied. Now it's fine. Exporting US dollars is nothing more than exporting US debt, and to put it bluntly, US debt is just a white strip written by the US Treasury; then you still can print as much as you want?
This is the era of USD hegemony 2.0. From the 70s of the last century to the 20s of this century, about 45 years. The US dollar at this stage is not so much a petroleum dollar or any other dollar; in fact, it is essentially a debt dollar, that is, a blank dollar.
The most important thing about debt to the US dollar is to firmly anchor the US dollar to the US debt. To do this, there are two prerequisites:
First, US bonds must be first in the world in all aspects such as issuance, interest payments, and transactions. They must have the strongest discipline, the most reliable mechanism, the most reliable payments, the strongest liquidity, etc.
Second, the US must have the world's number one military deterrent, forcing countries that have earned large amounts of US dollars to actively buy US debt.
To this end, the US dollar 2.0 system is designed as a double spiral structure with decentralized checks and balances: the Ministry of Finance issues bonds “in a disciplined manner” according to the debt ceiling approved by Congress, but cannot directly issue dollars; the Federal Reserve is responsible for monetary policy, issues dollars, and achieves interest rate control through open market trading of US bonds.
However, although USD 2.0 solved the problem of lack of gold, it introduced an even bigger bug, that is, in the end, no artificial restraint can really restrain the desire to print money. Congressional approval is not an insurmountable obstacle. Since then, the US dollar has embarked on an unmanageable path of unlimited debt expansion, and in just a few decades it has swelled to 36 trillion dollars.
When Alaska breaks down in 2020, the entire US dollar 2.0 system will collapse. Nothing else, because China is shooting the table.
The huge amount of US debt is like a bunch of dominoes towering into the clouds. At the bottom are a few small dominoes supporting the entire crumbling behemoth. Any movement that causes enough vibration may cause a landslide above.
Even without external shocks, the size of US debt is slowly unable to keep rolling, and it falls into the expectation that it will collapse sooner or later.
As a result, genius solutions came out of nowhere. This is the US dollar hegemony 3.0 that is being nurtured — the US dollar stablecoin. We might as well call it blockchain dollars, or cryptographic dollars.
It must be said that America is still far ahead in financial innovation. Obviously, if the on-chain dollar, or dollar stablecoin strategy, succeeds greatly, we may see the following five dramatic changes in the near future:
1. The Federal Reserve's monopoly on issuing US dollar notes has been deconstructed. US dollar stablecoins have become “new dollars,” and the right to issue these “new dollars” is scattered among many stablecoin issuers.
2. US bond assets in the Federal Reserve's balance sheet have been digested. US dollar stablecoin issuers will grab US debt like sharks compete for food as legal reserves to support the issuance of US dollar stablecoins.
3. As more and more traditional US dollar assets are mapped as tokens (tokens) on the blockchain through RWA (real world assets) or other names, large-scale daily transactions of RWA assets plus cryptographic native assets (such as BTC) will generate huge demand for US dollar stablecoins, thus driving the large-scale development of US dollar stablecoins.
4. With the blowout development of the transaction scale of “RWA assets-US dollar stablecoins”, the transaction scale of “traditional assets-US dollars” has gradually been surpassed and reduced to tomorrow.
5. When the US dollar's mediating role in asset transactions gradually declined, it became a vassal in the closed loop of “US debt-dollar-dollar stablecoin.”
The traditional US dollar issuance mechanism is: the Treasury issues US bonds to the market to absorb US dollars. The Federal Reserve issues dollars to buy US bonds from the market. In this way, airborne linkage was achieved, and US bonds were used to support the issuance of US dollars.
The issuance mechanism for US dollar stablecoins is that stablecoin issuers receive US dollars from customers and issue US dollar stablecoins on the blockchain. The dollars received by stablecoin issuers then buy US bonds from the market.
Let's use a semi-quantitative numerical assumption to deduce it.
Traditional method: The Federal Reserve issues an additional 100 million US dollars, purchases US bonds worth 100 million US dollars from the market, and injects 100 million US dollars of liquidity into the market. The Treasury Department issued US bonds worth 100 million US dollars to the market, absorbing 100 million US dollars in liquidity.
The problem is: if the Federal Reserve insists on so-called policy independence and refuses to take on the task of buying US bonds to inject liquidity, then it will put a lot of pressure on the Treasury to issue bonds, forcing US bonds to be issued and auctioned off at a relatively high interest rate. This is definitely very bad for the US government to repay its debts in the future.
Let's say there is a sufficient amount of US dollar stablecoins: stablecoin issuers absorb 100 million US dollars and issue an additional 100 million US dollars in stablecoins. Stablecoin issuers spent $100 million to buy US bonds and inject $100 million of liquidity into the market. The Treasury Department issued US bonds worth 100 million US dollars to the market, absorbing 100 million US dollars in liquidity.
Note that there can be circular leverage here. If the vast majority of tradable assets go on the chain and become RWA assets in the future, then the 100 million US dollars absorbed by the Ministry of Finance will eventually flow to various RWA assets after spending. Specifically, the Ministry of Finance spent 100 million US dollars, and institutions that received US dollars exchanged all of this 100 million US dollars for US dollar stablecoins (note that this is an additional stablecoin worth 100 million US dollars) to buy various RWA assets or simply hoard BTC, thus returning 100 million US dollars to stablecoin issuers.
Once stablecoin issuers get this 100 million US dollars, they can continue to buy 100 million US dollars in US bonds to inject liquidity into the market. The Treasury can then issue an additional 100 million US dollars in US debt and absorb this 100 million US dollars. It's like this, it's constantly cycling.
As we can deduce from here, we can see that using only 100 million US dollars as a tool in the entire cycle, US bonds and US dollar stablecoins can be increased almost indefinitely. After one cycle, US bonds were issued an additional 100 million US dollars. Corresponsively, US dollar stablecoins were also issued an additional 100 million US dollars. After N cycles, US bonds and US dollar stablecoins both increased by 100 million US dollars.
Of course, in reality, a cycle cannot be 100% lossless. There will always be some dollars that won't flow back into stablecoins. Assuming this loss ratio is 20%, then it can be easily calculated. The total leverage ratio is 5 times. This should be similar to a currency multiplier in a partial reserve banking system.
Currently, the size of US debt is 36 trillion US dollars. In a situation where the Federal Reserve's banknote printing is unsustainable, that is, with the US dollar stablecoin in circulation, assuming a 5-fold increase in leverage, then it is possible to suddenly open up room for expansion of US debt to 36 trillion dollars multiplied by 5 times equal to 180 trillion US dollars.
The US Treasury, or the US government, can happily continue to increase US debt without looking at the Federal Reserve's face!
The additional US debt of 180 - 36 = 14.4 billion US dollars supports not the US dollar printed by the Federal Reserve, but the US dollar stablecoins printed by stablecoin issuers on various chains.
The Federal Reserve's dollar minting rights were deconstructed and replaced by the stablecoin issuer's dollar stablecoin minting rights.
And when US dollar stablecoins are widely used for various cross-border payments or daily payments, the US dollar can actually cool off and completely become a supporting role in the “US debt-dollar stablecoin” cycle.
What role does BTC play in this whole process?
The teaching chain used an analogy: a black hole.
Black holes in the universe have a strong gravitational force, and all the light must be sucked in and cannot escape.
BTC is like a black hole in the blockchain universe. It has a strong gravitational pull on the liquidity of the US dollar and is inescapable of absorbing value. In this way, dollar liquidity is continuously being sucked into the blockchain universe and converted into a US dollar stablecoin. The US dollar is then re-released into liquidity by replacing US debt, and continues to circulate.
However, if the daily increase in US dollar stablecoins cannot be sold to all parts of the world, at least to the corresponding multiple of the economy, then it is conceivable that the actual purchasing power of the US dollar or the US dollar stablecoin will depreciate.
Today, the total amount of US dollar stablecoins is still far from doubling US debt; in total, it is estimated to be less than 200 billion US dollars. 200 billion was multiplied by 5 times to 1 trillion, then increased 36 times before reaching the size of US debt. Only then can we continue to double on this basis to provide greater help for the expansion of US debt.
Even according to the 5x leverage expansion estimate above, the sum of these multiple factors is 5 * 36 * 5 = 900 times, which is almost 1000 times.
According to the 10-fold relationship between the current stablecoin of 200 billion US dollars and the market value of BTC 2 trillion US dollars, if the stablecoin is successfully expanded 1,000 times, the market value of BTC may increase 1000* 10 = 10,000 times, from 2 trillion US dollars to 2 trillion US dollars. Corresponsibly, one BTC may grow from $100,000 to $1 billion, that is, 1 Satoshi is equal to $10.
If you consider that much of the future liquidity will be diverted by RWA assets, so unlike the current market where BTC has attracted the vast majority of liquidity, then take a 1/10 to 1/100 discount based on the numbers above, that is, the market value of BTC is 200 trillion to 2000 trillion US dollars, and the corresponding BTC is worth 10 million to 100 million US dollars, that is, 1 Satoshi is equal to 0.1 to 1 US dollar.
