U.S. Treasury Secretary Scott Besant deserves a new nickname. I once called him “The BBC.” While his radical maneuvers are reshaping the global financial system, that title doesn’t fully capture his impact. I believe a more apt moniker is needed to describe the impact he will have on two key areas: the eurodollar banking system and foreign central banks.
Like the serial killer in The Silence of the Lambs — a classic worth any late-night viewing for beginners — Scott “Buffalo Bill” Besant is poised to reshape the eurodollar banking system and take control of foreign non-dollar deposits. In ancient Rome, slaves and elite legionnaires maintained the Pax Romana; in modern times, the hegemony of the dollar maintains the Pax Americana. The "slavery" of Pax Americana doesn't refer solely to the historical African slaves transported to the Americas. It now takes the form of monthly debt repayments—generations of young people willingly taking on crippling debts to earn worthless academic credentials in the hopes of securing jobs at top firms like Goldman Sachs, Sullivan & Cromwell, or McKinsey. This form of control is far more widespread, insidious, and effective. Unfortunately, with the advancement of artificial intelligence, these heavily indebted individuals may face unemployment. This article will discuss the dollar's control over the global reserve currency under Pax Americana. Successive U.S. Treasury Secretaries have wielded the dollar as a financial cudgel with varying success. Their most notable failure was preventing the formation of the eurodollar system. The eurodollar system emerged in the 1950s and 1960s, initially intended to circumvent US capital controls (such as Regulation Q), circumvent economic sanctions (the Soviet Union needed a place to store US dollars), and provide banking services for non-US trade flows during the global economic recovery after World War II. Monetary authorities at the time could have recognized the need to provide US dollars to foreign countries and allowed major US financial institutions to undertake this service, but domestic political and economic considerations forced them to take a hard line. As a result, the eurodollar system continued to expand over the following decades, becoming a formidable financial force. Estimates indicate that eurodollar deposits in non-US bank branches worldwide range between $10 and $13 trillion. These capital flows triggered numerous postwar financial crises, each requiring the printing of money to rescue the market. This phenomenon was analyzed in the August 2024 paper "Offshore Dollars and US Policy" published by the Atlanta Federal Reserve. For "Buffalo Bill" Bessant, the eurodollar system presented two major problems. First, he had little idea of the size of the eurodollar system or what these funds were being used for. Second, and more crucially, these eurodollar deposits were not being used to purchase his low-quality U.S. Treasury bonds. So, could Bessant solve both problems simultaneously? Before answering, let's briefly review the foreign exchange holdings of non-U.S. retail depositors. De-dollarization is real. It began to accelerate significantly in 2008, when U.S. financial leaders chose to use unlimited quantitative easing (QE Infinity) to rescue banks and financial institutions facing collapse due to misguided bets, rather than allowing them to fail naturally. A useful indicator of how global central banks reacted to holding trillions of dollars in dollar-denominated assets is the proportion of gold in their foreign exchange reserves. A higher proportion of gold in reserves indicates lower trust in the US government. As can be observed, the gold share of central bank reserves bottomed out after the 2008 financial crisis and began a long-term upward trend. This is the TLT US ETF, which tracks US Treasury bonds with maturities of 20 years or longer and divides their prices by the price of gold. I've indexed it to 100 starting in 2009. Since 2009, the value of US Treasury bonds relative to gold has fallen by almost 80%. The US government's monetary policy is to bail out its own banking system at the expense of domestic and foreign creditors. No wonder foreign central banks are hoarding gold, just like Scrooge in "Donald Duck." US President Trump intends to adopt a similar strategy, but in addition to targeting bondholders, he also believes that tariffs can be used to tax foreign capital and trade flows in order to "Make America Great Again." Bessant actually has a difficult time convincing central bank reserve managers to buy more Treasury bonds. However, in the Global South, there is a large population that lacks access to dollar-denominated financial services and desperately wants a positive-yielding dollar account. As you know, all fiat currencies are garbage compared to Bitcoin and gold. But within the fiat currency system, the dollar remains the best option. Domestic regulators, who control most of the world's population, force their citizens to hold high-inflation, low-quality currencies and restrict their access to the dollar financial system. These people buy Bessant's Treasury bonds simply to escape the distressed bond markets of their own countries. So, can Bessant provide banking services to these people? I first visited Argentina in 2018 and have returned almost every year since. This chart shows the ARS/USD index (baseline: 100) since September 2018. Over seven years, the Argentine peso has depreciated 97% against the US dollar. Now, when I go there, I mostly ski, and I pay all service staff in USDT. "Buffalo Bill" Bessant has found a new tool to solve his problem—dollar-pegged stablecoins. The US Treasury is now promoting the development of these stablecoins, with the Empire supporting specific issuers to help them capture retail deposits in the eurodollar system and the Global South. To understand this, I will first briefly describe the structure of an "acceptable" dollar-pegged stablecoin and then discuss its impact on the traditional banking system. Finally, and most importantly for the crypto community, I will explain why the global adoption of dollar-pegged stablecoins supported by Pax Americana will drive the long-term growth of decentralized finance (DeFi) applications. What is an "acceptable" stablecoin? A dollar-pegged stablecoin is similar to a narrow bank. The issuer accepts dollars and invests them in risk-free bonds. In nominal dollar terms, the only risk-free bond is the U.S. Treasury. Specifically, because stablecoin issuers must be able to provide physical dollars upon redemption, they only invest in short-term Treasury bills (T-bills), which mature in less than a year. With virtually no duration risk, they trade almost like cash.
Take Tether USD (USDT) as an example:
1. An Authorized Participant (AP) transfers USD to Tether’s bank account.
2. Tether creates 1 USDT for every USD deposited.
3. To generate interest on these USD, Tether purchases Treasury bills (T-bills). For example, if an AP transfers $1,000,000 USDT, they receive 1,000,000 USDT. Tether uses this $1,000,000 USDT to purchase an equal amount of T-bills. USDT itself doesn't pay interest, but these T-bills pay the Federal Reserve Funds rate, currently around 4.25%-4.50%. Therefore, Tether earns a net interest margin (NIM) of 4.25%-4.50%. To attract more deposits, Tether or related financial institutions (such as crypto exchanges) will pay a portion of NIM to users willing to stake USDT. Staking means locking up USDT for a period of time in exchange for interest income. The redemption process for stablecoins is as follows: 1. An Authorized Participant (AP) sends USDT to Tether’s crypto wallet. 2. Tether sells T-bills for each USDT in USD. 3. Tether remits $1 for each USDT to the AP’s bank account. 4. Tether destroys the corresponding USDT, removing it from circulation. Tether's business model is simple: accept US dollars, issue digital tokens on a public blockchain, invest those dollars in T-bills, and earn the net interest margin (NIM). Bessent will ensure that stablecoin issuers backed by the Empire State can only deposit their dollars in chartered US banks or invest them in Treasury bonds. No "bells and whistles." The Impact of the Eurodollar System Before the advent of stablecoins, the US Federal Reserve (Fed) and the Treasury Department routinely bailed out eurodollar banks when they ran into trouble. A well-functioning eurodollar market is essential to the overall health of the empire. Now, however, Bessent has a new tool to absorb these capital flows. On a macro level, he must provide a legitimate incentive for eurodollar deposits to be on-chain. For example, during the 2008 global financial crisis, the Federal Reserve secretly lent billions of dollars to foreign banks left short of dollars by the collapse of subprime mortgages and related derivatives. Consequently, eurodollar depositors widely believe that the US government implicitly guarantees their funds, even though they are technically outside the US regulatory system. If it were announced that non-US bank branches would not receive assistance from the Fed or the Treasury in future financial crises, eurodollar deposits would be channeled into the arms of stablecoin issuers. If that sounds hyperbolic, a Deutsche Bank strategist has publicly questioned whether the US would use dollar swap lines to force Europe to comply with the Trump administration's demands. Trump is undoubtedly eager to weaken the eurodollar market by effectively "debanking" it—the very institutions that debanked his family business after his first term, now it's time for revenge. Karma, indeed, is cruel. Without protection, eurodollar depositors will find it in their own interest to move their funds into dollar-pegged stablecoins like USDT. Tether's assets are held entirely in US bank deposits or Treasury bonds (T-bills). Legally, the US government guarantees all deposits at eight "too big to fail" (TBTF) banks; following the regional banking crisis of 2023, the Federal Reserve and the Treasury effectively guaranteed deposits at all US banks or their branches. The default risk of T-bills is virtually zero because the US government can never voluntarily go bankrupt—it can always print dollars to repay bondholders. Thus, stablecoin deposits are risk-free in nominal dollars, whereas eurodollar deposits are no longer. Soon, $10-13 trillion in inflows will flow into dollar-pegged stablecoin issuers, who will then purchase T-bills. Stablecoin issuers will become large, price-insensitive buyers of Bessent's Treasury bonds! Even if Fed Chairman Powell continues to obstruct Trump's monetary agenda, refusing to lower the federal funds rate, end balance sheet reduction, or restart quantitative easing, Bessent can still offer T-bills at a rate below the federal funds rate. He can do this because stablecoin issuers must purchase his product at the offered rate in order to profit. In a few steps, Bessent controls the front end of the yield curve. The continued existence of the Federal Reserve becomes meaningless. Perhaps a statue of Bessent, modeled after Cellini's "Perseus Beheading Medusa," will stand in a Washington square, titled "Bessent with the Head of the Monster of Jekyll Island." The Impact of the Global South: American social media companies will become Trojan horses, weakening the ability of foreign central banks to control the money supply of ordinary citizens. In the Global South, Western social media platforms (Facebook, Instagram, WhatsApp, and X) have near-universal penetration. I've lived in the Asia-Pacific region for half my life. Converting depositors' local currencies into US dollars or dollar-equivalent assets (such as the Hong Kong dollar) so that the funds can earn US dollar yields and invest in US stocks is a crucial part of investment banking in the region. Local monetary authorities are implementing a whack-a-mole approach to traditional financial institutions (TradFi) to stem capital outflows. The government needs to control the funds of ordinary citizens and relatively apolitical wealthy individuals in order to absorb them through inflation taxes, prop up underperforming state-owned enterprises, and provide low-interest loans to heavy industry. Even if Bessent wanted to use major US financial center banks as a gateway to provide banking services to those desperate for funds, local regulations prohibit this approach. However, there is another, more efficient way to reach these funds. Almost everyone uses Western social media companies. What if WhatsApp launched a cryptocurrency wallet for every user? Within the app, users could seamlessly send and receive approved dollar-pegged stablecoins (such as USDT). What if this WhatsApp stablecoin wallet could also transfer funds to any wallet on a different public blockchain? Let's take a fictitious example to illustrate how WhatsApp could provide digital dollar accounts to billions of users in the Global South: Fernando, a Filipino, runs a click farm in his rural area, generating fake followers and views for social media influencers. Because his clients are all outside the Philippines, receiving payments is difficult and expensive. WhatsApp becomes his primary payment method because it provides a wallet for sending and receiving USDT. His clients also use WhatsApp and are happy to stop using the inefficient banking system. This works for both parties, but it effectively bypasses the local Philippine banking system. After a while, the Philippine central bank noticed a significant outflow of funds from banks. They realized that WhatsApp had widely promoted the dollar-pegged stablecoin domestically, effectively losing control of the money supply. However, there was little they could do. The most effective way to prevent Filipinos from using WhatsApp is to cut off the internet. Even trying to pressure local Facebook executives would be futile. Mark Zuckerberg rules Meta from his Hawaiian sanctuary and has received approval from the Trump administration to promote stablecoin functionality for Meta users globally. Any legal restrictions on the internet for American tech companies would invite threats of tariffs from the Trump administration. Trump has explicitly threatened the European Union with higher tariffs if it doesn't repeal its "discriminatory" internet legislation. Even if the Philippine government removes WhatsApp from the Android and iOS app stores, determined users can easily circumvent the blockade with VPNs. Of course, any friction will affect usage, but social media is essentially an addictive drug for the masses. After more than a decade of constant dopamine rush, ordinary people will find any way to continue using the platform. Finally, Bessent could use sanctions. Asian elites, with their wealth stored in overseas dollar banking centers, naturally don't want their wealth devalued through their own monetary policies. Do what I say, not what I do. If Philippine President Bongbong Marcos threatened Meta, Bessent could immediately retaliate by imposing sanctions on him and his cronies, freezing billions of dollars in overseas assets unless they yielded and allowed stablecoins to proliferate in their country. His mother, Imelda, knew the reach of the US legal system; she and her late dictator husband, Ferdinand Marcos, faced RICO charges for embezzling Philippine government funds to purchase New York real estate. It's a safe bet that Bongbong Marcos wouldn't want to go through a second round of turmoil. If my argument is correct, that stablecoins are a core tool of Pax Americana (US hegemony monetary policy) to expand the use of the dollar, then the empire would protect US tech giants from local regulatory retaliation while providing dollar banking services to ordinary people. These governments would be virtually powerless to do anything about it. Assuming my assumption holds true, what's the potential total addressable market (TAM) for stablecoin deposits from the Global South? The most advanced group of countries in the Global South is the BRICS. China is excluded because it has banned Western social media companies. The question is, roughly how large is the size of local currency bank deposits? I consulted Perplexity, and they gave a figure of $4 trillion. I know this might be controversial, but if you include the "eurozone" countries that use the euro, I think it's reasonable. The euro is already on its last legs under Germany-first and France-first economic policies, and the eurozone will sooner or later break up. With future capital controls, by the end of this century, the euro's only practical use may be paying for Berghain tickets and the minimum spending at Shellona. Adding in the $16.74 trillion in European bank deposits, the total approaches approximately $34 trillion, meaning the potential stablecoin deposit market is enormous. Go big or be outmaneuvered by the Democrats. Buffalo Bill Bessent faces a choice: go big or let the Democrats win. Does he want the Red Team to win the 2026 midterms and, more importantly, the 2028 presidential election? I believe he does, and the only way to achieve that is to support Trump in providing better benefits to ordinary people than the Mamdans and AOC. Therefore, Bessent needs to find a buyer for Treasury bonds who doesn't care about price. He clearly sees stablecoins as part of the solution, as evidenced by his public support for the technology. But he has to go all out. If Eurodollars from the Global South, the Eurozone, and Europe don't flow into stablecoins, he'll have to use his "heavy hand" to force the influx. That means either the required inflow of dollars or facing sanctions again. ● Purchasing power of government bonds generated by dismantling the Eurodollar system: $10–13 trillion. ● Purchasing power of retail deposits in the Global South and the Eurozone: $21 trillion. ● About $34 trillion in total. Obviously, not all of this capital will flow into USD-pegged stablecoins, but at least we can see a huge potential addressable market. The real question is, how will this $34 trillion in stablecoin deposits drive DeFi usage to new heights? If there's good reason to believe DeFi usage will grow, which crypto projects will benefit the most? The logic behind the influx of stablecoins into DeFi The first concept to understand is staking. Let's assume that some of this $34 trillion is already in stablecoins. For simplicity, let's assume that all inflows go into Tether's USDT. Due to intense competition from other issuers like Circle and large TBTF banks, Tether must share some of its net interest margin (NIM) with its holders. They do this by partnering with certain exchanges to allow USDT staked in exchange wallets to earn interest, paid in the form of newly minted USDT. For example: Fernando in the Philippines owns 1,000 USDT. The Philippine exchange PDAX offers a 2% staking yield. PDAX creates a staking smart contract on Ethereum. Fernando sends 1,000 USDT to the smart contract address, and the following happens: 1. His 1,000 USDT becomes 1,000 psUSDT (PDAX-collateralized USDT, PDAX's liabilities). Initially, 1 USDT = 1 psUSDT, but as interest accumulates daily, psUSDT gradually appreciates in value. For example, using a 2% annual interest rate and ACT/365 simple interest calculation, psUSDT increases by approximately 0.00005 per day. After one year, 1 psUSDT = 1.02 USDT. 2. Fernando receives 1,000 psUSDT in his exchange wallet. A powerful event occurred: Fernando locked his USDT on PDAX in exchange for an interest-bearing asset, psUSDT. psUSDT can now be used as collateral in the DeFi ecosystem, redeeming other cryptocurrencies, lending, and trading leveraged derivatives on DEXs. One year later, if Fernando wants to redeem his psUSDT back to USDT, he simply unstakes it on the PDAX platform. The psUSDT is destroyed, and he receives 1,020 USDT. The additional 20 USDT in interest comes from Tether's partnership with PDAX. Tether uses the NIM earned from its Treasury bond portfolio to create additional USDT, which it pays to PDAX to fulfill its contractual obligations. As a result, both USDT (the base currency) and psUSDT (the yield-generating currency) have become acceptable collateral in the DeFi ecosystem. This will drive a portion of overall stablecoin flows into DeFi applications (dApps). Total Value Locked (TVL) measures this interaction. Users must lock up funds when operating in DeFi dApps, and this amount of funds is reflected in TVL. TVL is a front-end indicator of trading volume and future revenue, and is an important basis for predicting the future cash flow of DeFi dApps. Model Assumptions I chose to forecast to the end of 2028 because that is when Trump leaves office. My baseline assumption is that a Blue (Democratic) president is slightly more likely to be elected than a Red (Republican) one. This is because, in less than four years, Trump will be unable to fully rectify the damage inflicted on his supporters by half a century of monetary, economic, and foreign policy. Worse still, no politician will fully deliver on his campaign promises. Consequently, voter turnout among Red voters will decline. Red grassroots voters lack enthusiasm for Trump's successor and will not turn out in sufficient numbers to be outnumbered by childless, cat-obsessed Blue voters swayed by Trump Delusion Syndrome (TDS). Any Blue member who comes to power will likely implement self-defeating monetary policies driven by TDS simply to prove their difference from Trump. Ultimately, however, no politician can resist money printing, making dollar-pegged stablecoins the ideal buyer of short-term Treasury bonds regardless of price. Therefore, while the new president may not initially fully support stablecoins, he or she will soon find themselves unable to proceed without these capitals and will ultimately continue the aforementioned policies. This policy swing will trigger the crypto bubble to burst, leading to an epic bear market. Furthermore, the numbers in my model are enormous. This is a once-in-a-century transformation of the global monetary system. Unless we receive lifelong intravenous stem cell injections, most investors may never encounter a similar event again. The potential returns I predict far exceed SBF's amphetamine habit. Driven by the popularity of dollar-pegged stablecoins, the DeFi ecosystem will experience an unprecedented bull run. Because I prefer using decimal numbers ending in zero for my predictions, I estimate that the total circulating supply of dollar-pegged stablecoins will reach at least $10 trillion by 2028. The reason it's so large is that the deficit Bessent must finance is enormous and growing exponentially. The more Bessent finances with Treasury bonds, the faster the debt piles up, because he must roll it over every year. The next key assumption is where Bessent and the new Fed Chair after May 2026 will set the federal funds rate. Bessent has publicly stated that the federal funds rate is 1.50% higher, while Trump has often called for a 2.00% rate cut. Given the tendency for policy to overshoot, I believe the federal funds rate will ultimately settle quickly around 2.00%. This number isn't strictly based on facts; like established economists, we improvise, so my numbers are as reliable as theirs. Political and economic realities demand cheap funding for the empire, and a 2% interest rate perfectly meets that need. Finally, my prediction for the 10-year Treasury yield: Bessent's target is 3% real growth, which, combined with a 2% federal funds rate (theoretically representing the long-term inflation level), yields a 10-year yield of approximately 5%. I will use this yield to calculate the present value of the terminal cash flows. As more people start using stablecoins to buy coffee, they will naturally want to earn interest. I mentioned earlier that issuers like Tether will distribute some of the net interest margin (NIM) to holders, but this amount will not be significant; many savers will seek higher returns without taking on too much additional risk. So, within the crypto capital markets, are there inherent returns that new stablecoin users can capture? The answer is yes, and Ethena offers the opportunity for higher returns. In the crypto capital market, there are only two ways to safely borrow and lend money: to speculators for derivatives trading, or to crypto miners. Ethena focuses on lending to speculators, hedging long crypto positions by shorting crypto/USD futures and perpetual swaps. This is a strategy I popularized at BitMEX, calling on entrepreneurs to package this trade into a synthetic dollar, high-yield stablecoin. Ethena founder Guy Young read the article and assembled a top-notch team to implement it. Maelstrom subsequently became a founding advisor. Ethena's USDe stablecoin quickly accumulated approximately $13.5 billion in deposits in 18 months, becoming the fastest-growing stablecoin and currently ranking third in circulation, behind Circle's USDC and Tether's USDT. Ethena's growth is so rapid that by next St. Patrick's Day, it will be the second-largest stablecoin issuer after Tether, giving Circle CEO Jeremy Allaire a chance to sober up with a glass of Guinness. Due to counterparty risk on exchanges, speculators typically pay higher interest rates on borrowed dollars to go long on crypto assets than on Treasury bonds. When I created perpetual swaps with the BitMEX team in 2016, I set a neutral interest rate of 10%. This means that if the perpetual swap price equals the spot price, long positions will pay short positions an annualized interest rate of 10%. Every exchange that has modeled its perpetual swaps after BitMEX has adopted this 10% neutral rate. This is important because 10% is significantly higher than the current cap on the federal funds rate of 4.5%. As a result, the yield on staked USDe is almost always higher than that of Fed Funds, offering new stablecoin savers willing to take on a small amount of additional risk the opportunity to double, on average, the returns provided by Buffalo Bill Bessent. Now that ordinary people can earn more interest income, the question is: how can they trade their way out of inflationary poverty? One of the worst effects of global currency debasement is that it forces everyone to become speculators in order to maintain their standard of living — if they don’t already have a large portfolio of financial assets. As more people who have long suffered from the rampant debasement of fiat currencies begin to save on-chain in stablecoins, they will trade the only asset class that offers them a chance to speculate their way out of poverty — cryptocurrency. The theory that DEXs will consume all other types of exchanges is not new, but what sets Hyperliquid apart is the team's execution. Jeff Yan has assembled a team of approximately ten people, and their product iteration speed and quality surpass any other team in the industry, centralized or decentralized. The simplest way to understand Hyperliquid is to think of it as a decentralized version of Binance. Since Tether and other stablecoins primarily support Binance's funding channels, Binance can be considered a predecessor to Hyperliquid. Hyperliquid also relies entirely on stablecoin infrastructure for deposits, but offers an on-chain trading experience. With the launch of HIP-3, Hyperliquid is rapidly transforming into a permissionless derivatives and spot trading giant. Any application desiring a highly liquid limit order book with real-time margin management can integrate the required derivatives markets through HIP-3. I predict that Hyperliquid will become the largest crypto exchange by the end of this cycle, and the growth of stablecoins to $10 trillion in circulation will further accelerate this growth. Using Binance as an example, we can project Hyperliquid's average daily trading volume (ADV) based on the level of stablecoin supply. "Buffalo Bill" Bessent's Strategy "Buffalo Bill" Bessent's control over global Eurodollars and non-USD deposits depends on the US government's fiscal policy. I believe Bessent's boss—US President Trump—has no interest in cutting spending or balancing the budget. His goal is simply to win the election. Political winners in late capitalist democracies often win votes by handing out benefits. Therefore, Bessent will make aggressive moves in the fiscal and monetary spheres, and no one will be able to stop him. As the US deficit continues to grow and Pax Americana's global hegemony wanes, markets are reluctant to hold weak dollar debt. Bessent's use of stablecoins to absorb Treasury bonds is inevitable. He will make extensive use of sanctions to ensure that US dollar stablecoins absorb funds flowing out of the Eurodollar and non-US retail banks. At the same time, he will mobilize tech giants like Zuckerberg and Musk to promote stablecoins and make them available to users worldwide. Even if local regulations prohibit them, they will be protected by the US government. If my judgment is correct, we may see the following trends: 1. The offshore US dollar market (Eurodollar) has attracted regulatory attention; 2. The US dollar swap lines between the Federal Reserve and the Treasury Department are linked to US technology companies entering the digital market; 3. Stablecoin issuers need to hold US dollars or government bonds; 4. Stablecoin issuers are encouraged to list in the United States; 5. American technology companies are adding crypto wallet functionality to their social media apps; 6. The Trump administration is actively supporting the use of stablecoins.
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