The "Guiding and Establishing National Innovation for U.S. Stablecoins Act," known as the GENIUS Act, is transforming the stablecoin market and quietly turning stablecoin issuers into significant buyers of U.S. debt. Signed into law in July 2025, the act establishes a comprehensive regulatory framework for stablecoins in the United States, with the intention of fostering innovation and clarifying the rules surrounding digital dollars. However, a deeper look reveals a strategic motive: addressing the growing U.S. national debt.
The GENIUS Act requires stablecoin issuers to back their coins 1:1 with cash, short-term U.S. Treasuries, or reserve balances at the Federal Reserve. This regulation is designed to ensure the stability and security of stablecoins, but it also creates a large, captive market for U.S. government debt. As stablecoin adoption increases, so does the demand for U.S. Treasuries, effectively allowing the government to finance its debt more easily. Secretary of the Treasury Scott Bessent stated that the GENIUS Act will lead to a surge in demand for US Treasuries, which back stablecoins and buttress the dollar's status as the global reserve currency.
To comply with the GENIUS Act, stablecoin issuers must hold reserves in the form of cash or short-term U.S. Treasuries. Choosing to hold U.S. Treasuries is more appealing because it allows the issuers to earn interest on their holdings. This simple rule creates a reliable, domestic buyer for U.S. debt. For example, if a company like Amazon were to issue $50 billion of its own stablecoin, it would need to back it with $50 billion in reserves, incentivizing the purchase of U.S. Treasuries.
The impact of the GENIUS Act on the demand for U.S. debt is potentially massive. As of March 2025, the combined U.S. Treasury bill holdings of the two largest stablecoins, Tether (USDT) and USD Coin (USDC), were estimated at $114 billion. The reserves of USDT alone represent the single largest, non-sovereign concentration of demand for short-term U.S. government debt. By channeling global digital liquidity into U.S. sovereign debt, the GENIUS Act establishes a policy-mandated demand floor for the short-term U.S. Treasury market.
Stablecoin issuers function as financial intermediaries. They deposit a dollar to receive a stablecoin and then set aside a fraction of those dollars to meet redemption requests, using the remaining fraction to buy interest-earning assets. The GENIUS Act mandates that these issuers hold their assets in cash, short-term U.S. Treasury securities, or reserve balances at the Federal Reserve. This requirement aims to expand global access to dollars, with issuers investing a portion of those dollars into U.S. government debt.
While the GENIUS Act is seen as a forward-looking regulatory framework for a new technology, its passage is also influenced by the rising national debt. Some members of Congress believe that stablecoins can expand the reach of the U.S. dollar globally and create growing demand for U.S. government debt.
However, some have voiced concerns regarding the GENIUS Act. A sudden, large-scale run on a major stablecoin could force a "fire sale" of reserve assets, including U.S. Treasuries, which could introduce volatility into sovereign debt markets. The European Systemic Risk Board (ESRB) has also expressed concerns about non-compliant stablecoins, such as Tether (USDT).
