Can stablecoins save the US dollar? Or can you only delay the collapse of the US dollar?

Source: Wall Street News

While stablecoins like Tether have created new sources of demand for the U.S. dollar, can they truly save the dollar system, or are they merely delaying its inevitable decline?

Recently, Doug Casey‘s InternationalMan website published an in-depth analysis article exploring the impact of Tether (USDt), the world’s largest stablecoin, on the U.S. dollar system. The author of the article, Nick Giambruno, is a renowned speculator and international investor, known for his keen ability to capture major trends and identify geopolitical and economic changes in advance.

In this analytical article, author Nick Giambruno points out that we are witnessing a "profit monster" spawned by the crypto world—Tether, which has subtly become an unexpected "ally" of the U.S. dollar system.

However, the author notes that although Tether has created new sources of demand by purchasing huge amounts of U.S. Treasury bonds, which may help stabilize the dollar in the short term, this supporting role remains limited in the face of the U.S. government’s annual debt rollover and spending needs of nearly $9 trillion.

"Structural cracks are widening rapidly, and time is running out," he warns in the article.

Tether: A Profit Miracle in the Digital Age

Tether may be the most profitable company per employee in business history! The article opens with a shocking statistic that grabs everyone’s attention:

Last year’s profit of $13.7 billion was generated by only 165 employees, with a per-employee profit exceeding $83 million. This figure even surpasses that of tech giants like NVIDIA, making it perhaps the most efficient profit-making machine in business history.

The article’s author, Nick Giambruno, questions: "Has any enterprise in history ever achieved such high per-employee profits? If so, I have never heard of it."

The article states that Tether’s success stems from its unique business model. The company provides anyone with a smartphone access to instant, global digital dollars.

Currently, the market value of USDt has exceeded $162 billion and continues to climb, making it the world’s largest stablecoin and the fourth-largest cryptocurrency.

The article points out that this success has not only changed the way people in many developing countries store wealth but also indirectly made them demanders of U.S. Treasury bonds.

"Offshore Dollar" Demand in the New Era

The article writes that Tether claims to have over 400 million users worldwide, with 30 million new users added each quarter. This explosive growth is reminiscent of Facebook’s peak expansion period. The author writes:

"Not surprisingly, USDt is extremely popular in emerging markets and developing countries such as Argentina, Venezuela, and Turkey, where local currencies are depreciating rapidly, and people are turning to the U.S. dollar as a relatively more stable store of value."

For billions of people without access to traditional banking systems, Tether is like having a dollar-based checking account without needing a U.S. bank. The author explains: "The average person in Venezuela cannot open a U.S. bank account, but they can use USDt."

From a more macro perspective, the article points out: "Tether can be seen as the ‘retail version of Eurodollars’ in the digital age."

The traditional Eurodollar market refers to U.S. dollar deposits held in banks outside the United States, mainly used for global trade, finance, and interbank lending. According to estimates by the Bank for International Settlements (BIS) and the International Monetary Fund (IMF), the size of the Eurodollar market exceeds $13 trillion.

Although the current size of the Eurodollar market is about 80 times that of Tether, the latter is growing rapidly and has begun to provide similar functions for retail and small institutional investors.

This comparison reveals the increasingly important role of stablecoins in the global financial system. The article states that today, the value settled by stablecoins has exceeded that of Visa, and whether people realize it or not, this represents the future of dollar payments for billions of people.

How Does Tether Support the U.S. Bond Market?

The article points out that Tether generates revenue by investing its huge reserves in short-term U.S. Treasury bonds and earning interest, while USDt holders do not receive any returns. Last year, Tether became the seventh-largest buyer of U.S. Treasury bonds globally, surpassing entire countries such as Canada, Switzerland, Germany, and Saudi Arabia.

To cope with large-scale withdrawal and redemption demands (sometimes reaching billions of dollars in a single day), Tether has established a partnership with Cantor Fitzgerald, which owns 5% of Tether’s shares.

Notably, the former CEO of Cantor Fitzgerald, Howard Lutnick, is also the current U.S. Secretary of Commerce.

As a primary dealer, Cantor Fitzgerald is one of the few financial institutions authorized to trade directly with the Federal Reserve Bank of New York. This special status means it can easily handle any trading volume brought by Tether.

Tether CEO Paolo Ardoino recalled the experience of being attacked in 2022:

"At that time, Tether was clearly subjected to a capital attack attempting to cause a run on USDt. They hoarded billions of USDt, trying to sell them below par value in the secondary market and various cryptocurrency exchanges. But Tether never refused redemptions; there was never a time when redemption at $1 per token was not possible."

He further explained:

"During that attack, Tether was able to redeem $7 billion within 48 hours and $20 billion within 25 days. $7 billion accounted for 10% of our reserves, and $20 billion accounted for approximately 20% of our reserves. None of the other banks that failed since 2008 could withstand a 10% run. But we did it easily. Not only did we withstand it, but we performed exceptionally well.

This is the significance of having a sound repo market and a very deep, highly liquid U.S. Treasury bond market. All the U.S. Treasury bonds we hold are basically three-month bills. So I think we have created the best mechanism to handle any type of redemption and also provided the trust guarantee that our global users need.

In fact, we have proven that even in the face of an extremely fierce attack that could have destroyed every enterprise and financial institution in the world, we survived—and performed very well."

Can Only Support the Dollar in the Short Term

Although the author acknowledges in the article that stablecoins like USDt do benefit the U.S. dollar by creating significant new sources of demand for U.S. Treasury bonds, he is not optimistic about this. He writes:

"What I least want to see is the U.S. government being more capable of financing the damage it causes at home and abroad. Currency depreciation remains one of its main sources of funding. The larger the dollar-based monetary network, the more value the government can quietly extract from global dollar holders through money printing."

The article states that from a numerical perspective, Tether holds about $162 billion in U.S. Treasury bonds, which is indeed a considerable amount. But compared to the nearly $9 trillion the U.S. government needs to finance this year—funds used only for rolling over maturing debt and paying ongoing expenses—it is just a drop in the bucket.

The author warns: "Any additional demand for USD from Tether is likely to be far exceeded by the relentless surge in federal spending." He believes that due to the uncontrolled growth of spending on wars, welfare, entitlements, and national debt interest, the U.S. government’s fiscal prospects remain bleak.

Delaying Rather Than Saving

In the conclusion of this analysis, the author believes that stablecoins like Tether may slightly extend the life of the U.S. dollar, but they do not change the fundamental trajectory—the dollar still faces the fate of severe depreciation due to unstoppable government spending. He also points out:

"Ironically, Tether—a company founded by Italians in Europe, registered in the British Virgin Islands, and headquartered in El Salvador—has become the strongest advocate of the U.S. dollar outside the United States."

However, the author emphasizes in the article that this support does not fundamentally change the grim fiscal prospects of the U.S. government and warns:

"Tether may have helped stabilize the dollar in the short term, but this does not change the long-term trajectory. Structural cracks are widening rapidly, and time is running out."

Disclaimer: The views in this article only represent the author’s personal opinions and do not constitute investment advice for this platform. This platform does not guarantee the accuracy, completeness, originality, or timeliness of the information in the article, nor does it assume responsibility for any losses caused by the use or reliance on the information in the article.