Can Stablecoins Extend the Dollar’s Hegemony?: Demand for U.S. Treasuries and the Reality of On-Chain Finance

The declining share of the dollar in foreign exchange reserves, China’s reduction of U.S. Treasury holdings, and the diversification of payments within the BRICS nations are real changes. However, these trends alone do not necessarily signal the collapse of the dollar’s hegemony. At the same time, dollar-pegged stablecoins are evolving into a new distribution network that enables individuals and businesses to hold and transfer digital dollars across borders. The key question is not whether stablecoins will replace the dollar, but whether they can serve as a private-sector infrastructure that expands the dollar’s reach and boosts demand for U.S. Treasuries.

Key Conclusions

Both the phrases “the collapse of dollar hegemony” and “stablecoins are America’s secret weapon” may be exaggerated. The reality revealed by the data is more complex.

• Although the dollar’s share of official foreign exchange reserves has declined over the long term, it remains the central currency in trade settlements, international financing, safe-haven assets, and foreign exchange markets.
• Dollar-pegged stablecoins can link users’ demand for digital dollars to issuers’ demand for cash and short-term U.S. Treasuries.
• While this structure may benefit the United States, it also creates risks such as the insolvency of private issuers, large-scale redemptions, decoupling, outflows of bank deposits, and the erosion of monetary sovereignty.
• To conclude that the United States controls the entire Bitcoin network based on the approval of Bitcoin spot exchange-traded products or blockchain traceability is an interpretation that goes beyond the available evidence.
• While tokenization can streamline asset trading, the tokens themselves do not automatically guarantee real estate ownership or legal settlement finality.

1. Four Concepts That Must First Be Distinguished

The international status of the dollar is not determined by a single number. The Federal Reserve Bank of New York also explains the dollar’s role as the result of a combination of the size of the U.S. economy, confidence in price stability, deep and liquid financial markets, and trust in the payment infrastructure and legal and regulatory frameworks. Stablecoins are a new layer of circulation added on top of this foundation, not a single factor that replaces the entire foundation. ([New York Fed][7])

2. The Weakening of the Dollar and the Growth of Stablecoins, as Seen Through Data

The IMF’s COFER statistics for the fourth quarter of 2025 put the dollar’s share at 56.77%. However, since changes in quarterly shares are influenced by valuation effects from exchange rate fluctuations, a simple decline in share should not be interpreted solely as actual sales. ([IMF Data][8])

According to U.S. Treasury TIC data, mainland China’s holdings have fallen significantly from their 2013 peak. However, TIC figures by country may be influenced by the location of the custodian rather than the ultimate beneficial owner, so they do not fully reflect a specific country’s actual exposure. ([U.S. Department of the Treasury][9])

The BIS estimated the stablecoin market at approximately $320 billion as of the end of May 2026 and explained in its 2025 report that more than 99% of stablecoins are denominated in U.S. dollars. In its first-quarter 2026 disclosure, Tether reported direct and indirect exposure to U.S. Treasuries of approximately $141 billion. However, this figure is based on the issuer’s classification and does not follow the same criteria as the “direct holdings” by country compiled by the U.S. Treasury. ([Bank for International Settlements][2])

3. The Mechanism by Which Stablecoins Drive Demand for U.S. Treasuries

The basic flow of fiat-backed stablecoins is as follows:

1. Users deposit U.S. dollars or other assets with the issuer or an intermediary.
2. The issuer issues the corresponding stablecoin.
3. The issuer manages its reserve assets in the form of cash, bank deposits, short-term U.S. Treasuries, repurchase agreements, and money market funds.
4. Users use the tokens for payments, remittances, and as collateral for trades.
5. When a redemption occurs, the issuer pays out dollars using cash from its reserve assets or funds from maturing securities, and burns the tokens.

To simplify this, new demand for U.S. Treasuries can be viewed as follows:

Additional demand for U.S. Treasury bonds ≈ Net increase in stablecoin supply × Proportion of U.S. Treasury bonds in reserve assets

However, this is merely an approximation of total demand. The net effect on the financial system as a whole varies depending on whether users purchased the stablecoin with existing bank deposits or by selling Treasury bond funds they already held. If there is a rush of redemptions, issuers must sell short-term assets; thus, the channel that normally drives demand for Treasury bonds could turn into a selling channel during times of stress.

Federal Reserve research also notes that while stablecoin reserve assets composed primarily of short-term Treasury bonds could increase demand for Treasuries and lower yields, the net effect varies depending on the source of funds and the reactions of other investors. Therefore, while the argument that “stablecoins directly substitute for China’s demand for U.S. Treasuries” is understandable in principle, it remains a hypothesis whose scale and net effect must be verified. ([Federal Reserve][1])

4. U.S. Institutionalization: Strategic Benefits Exist, but There Is No Evidence of a “Secret Plan”

On July 18, 2025, the United States enacted the GENIUS Act. This law requires licensed issuers of payment stablecoins to maintain at least a 1:1 reserve ratio, disclose reserve assets, establish redemption procedures, comply with anti-money laundering obligations, and possess the technical capability to respond to lawful orders. Permitted reserve assets include cash equivalents and short-term U.S. Treasury bonds. At the same time, it clarifies that payment stablecoins are not products guaranteed by the U.S. government or covered by FDIC deposit insurance. Detailed implementing regulations, including customer identification requirements, are currently being developed for 2026. ([GovInfo][10])

The benefits this system can provide to the United States are clear.

• As more users worldwide choose dollar-denominated tokens, the dollar-based accounting and settlement network expands.
• If reserve asset regulations are designed to center on short-term U.S. Treasury bonds, the demand base for Treasury bonds could grow.
• Authorized issuers and exchanges create touchpoints for anti-money laundering, sanctions enforcement, and law enforcement.
• Since private companies handle the technology and distribution, the government can expand the use of the digital dollar without directly operating a retail central bank digital currency.

However, based on publicly available information alone, it cannot be conclusively stated that “the United States designed a single, secret strategy from the outset to use stablecoins to expand the dollar empire.” Even within the United States, conflicting interests exist regarding financial stability, bank deposit outflows, consumer protection, state and federal regulatory authority, and privacy protection. A more accurate statement would be that the U.S. is seeking to secure strategic benefits by incorporating market-driven dollar-pegged stablecoins into a financial infrastructure it can regulate.

5. Examining the Claim: “Bitcoin Is About Control, Stablecoins Are About Expansion”

The SEC’s January 2024 statement approving spot Bitcoin exchange-traded products (ETPs) explains that this was the result of a review of its previous rationale for denial following a court ruling. There is no basis in public documents to interpret this as evidence of an official strategy to control Bitcoin. ([SEC][5])

On the other hand, it is true that the traceability of public ledgers is useful for law enforcement. The U.S. Department of Justice announced that it had used blockchain analysis to track and recover 40,000 USDT in a case of identity theft fraud. While this demonstrates “traceability,” it does not imply “automatic real-name verification for all transactions.” ([Department of Justice][11])

6. Are On-Chain Remittances Cheap and Fast?

According to World Bank data from September 2025, the global average cost of a $200 international remittance was 6.36%. Therefore, the argument that the cost of traditional remittances is a significant issue is valid. However, it cannot be generalized that an 8% fee is uniformly applied to all countries, providers, and amounts. ([Remittance Prices][12])

Stablecoins offer the advantages of 24-hour processing, fast transaction confirmation, and fewer intermediary steps. However, calculating the total cost based solely on the network fees displayed on the blockchain underestimates the actual cost to users.

Total Remittance Cost = Won–local currency exchange fee + on-ramp fee + network and bridge fees + off-ramp fee + local withdrawal fee + spread + taxes and regulatory fees

Therefore, while stablecoins can be a strong alternative in some remittance corridors, “fees of less than 0.1%” may refer only to the cost of a single step in the network transfer and do not represent the total cost of the entire process, including the recipient’s conversion to local currency.

7. Opportunities and Risks of “Digital Dollarization”

Since dollar-pegged stablecoins provide access to dollar-denominated assets even without a local bank account, demand for them may grow in countries with currency instability or restricted access to foreign exchange. The BIS views this as a subtle path to dollarization and warns of its potential impact on monetary sovereignty and capital flows. ([Bank for International Settlements][13])

Benefits for the United States

• Widespread adoption of dollar-denominated settlement and savings units
• Additional demand for short-term U.S. Treasury bonds and dollar-denominated liquid assets
• Network effects in dollar-based fintech, exchanges, custody, and analytics industries
• Points of contact for sanctions and law enforcement through licensed issuers and fiat currency deposit/withdrawal locations

Risks Other Countries Must Manage

• Substitution effect: Shifts of domestic currency deposits into dollar-pegged stablecoins
• Increased capital outflows and exchange rate volatility during times of stress
• Weakening of monetary policy transmission channels and banks’ credit supply
• Dependence on overseas private issuers for operations, legal matters, and reserve assets
• Risks related to user protection, hacking, fraud, suspension of redemptions, and depegging

However, this does not mean that the spread of dollar-pegged stablecoins is automatic or irreversible. User trust, redemption convenience, the stability of local currencies, regulations, taxation, exchange accessibility, and acceptance by payment processors will determine actual adoption. Non-dollar stablecoins such as the euro, yuan, and yen, as well as tokenized deposits and central bank digital currency-based payment networks, are also competitive factors.

8. What the Tokenization of All Assets Means

Tokenization is a technology that represents ownership or economic rights to an asset as a programmable record, thereby automating parts of the issuance, trading, and settlement processes. This technology enables simultaneous settlement—combining asset transfer and payment into a single transaction—as well as fractionalization, automatic dividends, collateral reuse, and shorter post-trade processing times. The IMF and FSB highlight these potential efficiency gains alongside legal certainty, operational risks, liquidity disconnects, and interconnectedness risks. ([IMF][14])

What Is Needed to Divide a Gangnam Apartment into 0.01% Tokens

Simply issuing tokens is not enough. At a minimum, the following structure is required.

1. Legal Definition of Rights: It must be clear whether the token represents a registered equity interest, a trust beneficiary interest, or an interest in a special-purpose entity.
2. Ledger Reconciliation: It must be determined which record takes precedence when there is a conflict between blockchain records and the ledgers of real estate registries or custodians.
3. Securities Regulation: If tokens are sold to multiple investors with a promise of returns, securities offering and distribution regulations are likely to apply.
4. Transfer Restrictions: Investor eligibility, anti-money laundering requirements, restrictions on foreign ownership, and regional regulations must be incorporated into smart contracts and operating rules.
5. Cash Settlement: Not only the transaction tokens but also the cash portion of the payment must be settled atomically using a trusted payment asset.
6. Valuation and Liquidity: Even if 24-hour trading is possible, actual liquidity may be low without market makers and reliable price information.
7. Taxes, Dividends, and Dispute Resolution: Priorities must be established for rental income, capital gains, management fees, voting rights, and the order of priority in the event of enforcement or bankruptcy.

In other words, tokenization is not about “replacing laws with code,” but rather the process of precisely linking legal rights and payment infrastructure to code.

The Dual Nature of the Gamification of Finance

Fractional ownership and real-time trading can lower barriers to entry. Conversely, when combined with price alerts, leverage, automatic liquidation, and point/reward systems, even long-term assets can be consumed like short-term speculative products. Increased trading frequency does not necessarily equate to greater efficiency in the allocation of social capital. Investor protection and suitability assessments remain necessary even after tokenization.

9. The Response Needed in Korea

The Bank of Korea proposed that, in tokenized finance, central bank money and bank deposits should be designated as core settlement assets, with stablecoins playing a complementary role in a phased approach. It also pointed out the importance of monitoring that considers both on-chain and off-chain data, interoperability, and the management of risks related to monetary sovereignty and financial stability. As of March 2026, the South Korean government was still discussing the issuance structure and regulatory measures related to the Framework Act on Digital Assets. ([Bank of Korea][6])

South Korea’s priorities can be summarized as follows:

1. Protection of Redemption Rights: Clarify the segregation of reserve assets, frequent disclosures, external verification, redemption deadlines, and fees.
2. Monetary and Foreign Exchange Monitoring: Integrate monitoring of not only the issuance volume but also domestic holdings, overseas transfers, and flows between exchanges, self-custody wallets, and banks.
3. Hierarchical Classification of Settlement Assets: Distinguish the roles and risk ratings of central bank money, tokenized deposits, and private stablecoins.
4. Legitimate Pathways for Innovation: Provide regulated pathways for experimentation and commercialization in sectors with genuine demand, such as international remittances, trade settlements, and tokenized securities.
5. Technical and Operational Safety: Establish minimum standards for smart contract audits, key recovery, cyber incident response, bridge risks, and oracle manipulation.
6. International Cooperation: Establish a framework for mutual cooperation regarding supervisory information on overseas issuers, reserve assets, sanctions and anti-money laundering measures, and user rights in the event of bankruptcy.

An approach that views regulation as either a “complete ban” or “unrestricted permission” is unrealistic. While fiat currency deposits, withdrawals, and redemptions, reserve assets, and consumer touchpoints can be regulated, it is difficult to fully control the use of overseas protocols on open networks using domestic rules alone.

10. Checklist for Users and Investors

• Who is the issuer, and which country’s laws apply?
• Can token holders directly request redemption from the issuer?
• What are the minimum redemption amount, processing time, fees, and account restrictions?
• Are the types, maturities, custodians, and collateral arrangements of the reserve assets disclosed?
• Is the information provided simply a self-disclosure, a certification, or an audited financial statement?
• Who has the authority to freeze specific addresses or burn tokens?
• Which blockchain and bridges are used, and what are the smart contract risks?
• In the event of depegging, is there sufficient actual trading depth and liquidity to liquidate holdings?
• Are the total costs, including conversion to Korean won, lower than those of traditional remittance and payment methods?
• How do domestic foreign exchange regulations, tax laws, and anti-money laundering obligations apply?

11. Key Metrics to Monitor Going Forward

To assess whether stablecoins represent a new infrastructure for the U.S. dollar, the following metrics are more important than price appreciation.

• Net issuance volume of stablecoins and actual redemption volume
• The proportion of short-term U.S. Treasury bonds, cash, deposits, and other assets held by each issuer
• The magnitude of depegging, redemption speed, and the sale of reserve assets during market stress
• The proportion of trade, remittances, payroll, and commercial transactions relative to crypto asset trading
• The impact on bank deposit outflows and short-term money market yields
• Detailed regulations under the U.S. GENIUS Act and access conditions for overseas issuers
• South Korea’s issuer regulations, foreign exchange and tax laws, and the won-based settlement token system
• The legal finality of tokenized assets and investor rights in the event of bankruptcy

Conclusion

Rather than a “panacea to prevent the collapse” of the dollar’s hegemony, stablecoins are closer to a private digital distribution network that circulates the dollar via smartphones and blockchain. This distribution network can link global users’ demand for dollars to demand for short-term U.S. Treasury bonds and reinforce the dollar’s network effect. At the same time, it can exacerbate risks such as issuer concentration, redemption risks, the possibility of monitoring and freezing, as well as the weakening of domestic currencies and risks to financial stability.

The future of the dollar depends not on a single stablecoin, but on a combination of U.S. fiscal credibility, price stability, the rule of law, financial market liquidity, geopolitics, and technological infrastructure. Therefore, the most accurate conclusion is as follows: De-dollarization and the digital dollar can proceed simultaneously, and while stablecoins are an important tool in this competition, they are not an absolute weapon that predetermines the outcome.