The Secret Stablecoin Bailout Plan

Bitcoin & Markets | August 26, 2026

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Secret Stablecoin Plans

Over the last two years, a persistent theory has circulated in bitcoin circles: stablecoins will be used to redesign the global financial system and perhaps even bail out the US government by absorbing enormous quantities of Treasury debt. While there is a kernel of truth to these claims, most versions go far beyond what is realistically possible. They often misunderstand both how the system works today and how it could change in the future.

I recently listened to a seven-minute clip from a Fred Krueger Spaces discussion. I’ve embedded the video below, but if you cannot play it, here is the original link.

In the recording, DarkSide describes a supposed plan to use stablecoin issuers to circumvent or neutralize the Federal Reserve by turning them into captive buyers of Treasury debt. The theory goes something like this: The Treasury will require licensed stablecoin issuers to purchase special, below-market Treasury bills, creating captive demand that lowers the government’s borrowing costs and reduces its dependence on the Fed.

While there is some truth underlying this theory, it widely misses the mark on what is actually possible.

The Kernel Of Truth

It's true that stablecoin issuers have a special relationship with US Treasuries. Treasury bills are highly liquid, interest-bearing cash equivalents that issuers can hold as backing for their dollar-denominated tokens.

The process works like this: Stablecoins provide utility for certain transactions that legacy payment rails cannot match as easily. That might include international settlement, around-the-clock transfers, access to digital asset markets, or simply holding dollar exposure outside the traditional banking system. Because people value that utility, they want to buy, hold, and use stablecoins.

To acquire them, customers send dollars to an issuer and receive tokens with the same face value. The issuer holds the dollars as reserves. Because it is unlikely that every token holder will redeem simultaneously, the issuer can invest much of that money in highly liquid, relatively safe assets. This is where US Treasuries enter the picture, along with smaller allocations to assets such as gold and bitcoin, depending on the issuer.

This has created an important new source of demand for Treasury bills. Tether alone reports approximately $141 billion in direct and indirect US Treasury exposure. Circle has roughly another $62 billion, meaning the issuers of the two largest dollar stablecoins collectively have around $200 billion in Treasury exposure.

That role is likely to expand. It is entirely plausible that stablecoin reserve holdings of Treasuries could approach $1 trillion within the next several years. At that level, stablecoin issuers collectively would rank alongside the largest foreign holders of US government debt, although they would not be the second-largest Treasury owner overall.

Why The Plan Won't Work

There are several reasons stablecoins will not be used in the manner speculated about in the video. The first is that the theory appears to require an entirely new stablecoin structure.

Under the traditional model, customers voluntarily exchange bank dollars for USDT, and Tether invests those dollars in reserve assets, including Treasury bills. This is a straightforward redirection of existing dollar savings into government debt. It does not create an independent source of deposits or allow Tether to fund the government without first receiving dollars from customers.

Presumably, they aren't proposing this structure.

The second possible structure would involve Tether creating new USDT directly in exchange for newly issued Treasury debt. This would represent a radical change to the legal and monetary structure of the system. The Treasury could then spend or sell the tokens, placing them into circulation without any prior inflow of bank dollars.

That would be genuinely new private money creation used to finance government deficits. Stablecoin supply would no longer be strictly downstream of market demand and preexisting dollar inflows. Government borrowing itself would create new circulating token money. A radically inflationary proposal.

Security Price Differences

Now consider what would happen under this second structure if, as DarkSide suggested in the Spaces discussion, Tether were forced to accept Treasury securities yielding only 1% while equivalent securities traded at a market yield of 5%.

The securities transferred to Tether would be artificially overpriced relative to the market. If they were marked to market, Tether would immediately suffer a substantial loss in the value of its reserves.

Assume the Treasury issues $1 billion in face value of one-year bills at a 1% yield. Tether would deliver approximately $990.1 million in newly created USDT in exchange for those bills. However, if comparable one-year Treasury bills yielded 5% in the open market, the securities would have a market value of only approximately $952.38 million.

In other words, Tether would mint $990.1 million in liabilities while receiving assets worth only $952.38 million. It would become undercollateralized by approximately $37.72 million at the moment of the transaction.

Scale that mechanism into a major source of government financing and the numbers become enormous. For every $1 trillion in face value issued under those conditions, stablecoin issuers would absorb roughly $37.7 billion in immediate mark-to-market losses.

That would also create serious pressure on the USDT peg. If the market believed Tether’s reserves were worth less than its outstanding tokens, USDT would likely trade at a discount to bank dollars. At the same time, the US government would be attempting to push large quantities of those tokens into circulation.

The result would be a contradiction at the heart of the plan: The Treasury would need USDT to be widely trusted and accepted, while the mechanism used to obtain the tokens would actively undermine their backing and credibility.

The creation and government spending of USDT without a preceding dollar inflow could also massively increase inflationary pressure by expanding the quantity of circulating dollar-like money. This very point is often dismissed or underrepresented. I'm not talking about 5-10% inflation, we're talking 50-100%, a level so high it would be unacceptable in a global reserve currency. That is if the market will accept them in the first place. Few people will hold more volatile tokens over bank money, and credit markets will be turned upside down.

Legal Issues

This section could be very large so I'll summarize the legal issues with directly swapping Treasuries for USDT tokens.

1. Stablecoin reserve requirements: The recent Genius Act, signed by Trump last year, requires a 1:1 liability to reserve ratio, essentially prohibiting this type of undercollateralized swap. A transaction that left an issuer materially undercollateralized on a recognized valuation basis would conflict with that requirement.
2. Treasury auction and settlement rules: Treasury securities are currently purchased through established auction and book-entry systems. Settlement occurs through deposit accounts, Federal Reserve funds accounts, clearing arrangements, or other specifically authorized dollar mechanisms. The Treasury is not currently authorized to accept privately issued tokens as payment for newly issued public debt. Creating such a system would require substantial regulatory changes and likely an act of Congress.
3. Federal spending and disbursement: Federal disbursements draw on the conventional TGA and move through established Treasury and banking channels. Even if the Treasury received USDT, it could not simply begin using those tokens to pay contractors, employees, Social Security recipients, or other beneficiaries. Congress would have to authorize the government to hold, account for, transfer, and spend private stablecoins.
4. Acceptance and redemption: USDT is not legal tender, but Congress would not necessarily have to make it legal tender for the government to use it. It would, however, need to establish when payment in USDT legally satisfies a dollar-denominated federal obligation. It would also have to address whether recipients could refuse the tokens, demand bank dollars instead, or redeem them at a guaranteed one-to-one rate.

Congress would therefore need to construct an entirely new statutory monetary architecture. It would have to authorize special Treasury securities, token-based debt settlement, government custody and expenditure of stablecoins, new reserve-valuation rules, tax acceptance, recipient protections, and probably some form of federal liquidity or redemption support.

Such a system could conceivably evolve over several decades. It is not something the Treasury can quietly implement under existing authority, nor is it an imminent workaround that allows the government to neutralize the Fed or obtain trillions of dollars in cheap financing.

Conclusion

The kernel of truth is that market-driven stablecoin growth can create substantial new demand for Treasury bills. The speculation goes off the rails when it turns that organic demand into a captive funding mechanism. Once stablecoin issuers are required to create tokens against artificially priced government debt, the plan no longer resembles a serious proposal. It becomes an entirely new monetary regime, one that would require Congress to rewrite major parts of federal financial law while simultaneously placing the stablecoin peg, private issuers, and potentially taxpayers at risk.

Considering that Congress struggles to pass far simpler legislation with overwhelming public support like the Save Act saying only citizen can vote in federal elections, the idea that it will soon rebuild the dollar system around government-spent USDT is, to put it mildly, implausible.

That's it for this short update. Thanks for your support, and please share this with anyone you think would find it valuable.

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