The rise of stablecoins—cryptocurrencies designed to maintain a stable value, typically pegged to the U.S. dollar—has transformed global finance. Tether (USDT), the largest stablecoin by market capitalization (over $140 billion as of late 2025), plays a central role. While some critics claim the U.S. is "stealing" global liquidity through these instruments, the reality is more nuanced: stablecoins, especially dollar-pegged ones, have strengthened U.S. dollar hegemony by channeling trillions in demand into U.S. assets while providing offshore dollar access.
This blog explores the mechanics of stablecoins, Tether's role, criticisms of liquidity extraction, the evolving Binance ecosystem, and the broader implications for global finance.
What Are Stablecoins and How Does Tether Work?
Stablecoins aim to solve cryptocurrency volatility by pegging their value to a fiat currency or asset. Most are fiat-collateralized, meaning issuers hold reserves (primarily U.S. dollars or equivalents) to back each token 1:1.
Tether (USDT), issued by Tether Limited, dominates with ~60-70% of the stablecoin market. Users deposit dollars (or equivalents) with Tether, receive USDT, and can redeem them later. Tether invests reserves primarily in U.S. Treasuries (short-term government bonds), generating interest income.
As of Q3 2025 attestations (independent reviews by BDO, not full audits), Tether's reserves exceeded liabilities by ~$6-7 billion, with:
- $135 billion in U.S. Treasuries exposure
- Gold (~$13 billion)
- Bitcoin (~$10 billion)
- Other assets like secured loans
This makes Tether one of the world's largest non-sovereign holders of U.S. debt—ranking ahead of many countries.
The "Stealing Liquidity" Critique: Is the U.S. Exporting Inflation?
Critics argue stablecoins like USDT "steal" liquidity from the global economy by:
- Siphoning dollars from emerging markets, where users seek stability amid inflation or currency devaluation (e.g., in Argentina, Venezuela, or Russia).
- Exporting U.S. inflation: When users buy USDT with local currency, they effectively export demand for dollars, potentially weakening local economies.
- Creating shadow dollar liquidity offshore, bypassing traditional banking and sanctions.
This creates a parallel system that extracts value from the rest of the world to fund U.S. debt. However, the opposite holds: stablecoins increase demand for U.S. Treasuries, as issuers buy them with user deposits. This:
- Supports low U.S. interest rates.
- Reinforces dollar dominance: Over 99% of stablecoins are dollar-pegged, extending U.S. monetary influence digitally.
- Provides offshore dollar access without traditional banking friction, benefiting users in sanctioned or unstable economies.
The IMF notes this could "hollow out" local banking in emerging markets but also strengthens U.S. seigniorage and sanctions power.
Tether's Controversies: Transparency, Reserves, and Risks
Tether has faced scrutiny:
- Historical issues — Fines from the CFTC ($41 million in 2021) for misleading reserve claims.
- 2025 concerns — S&P downgraded USDT's stability rating to "weak" due to Bitcoin/gold exposure and disclosure gaps.
- No full audit — Only quarterly attestations (snapshots), not comprehensive audits.
- Illicit use — USDT is popular in money laundering and sanctions evasion, though Tether cooperates with law enforcement to freeze wallets.
Despite this, USDT has maintained its peg through crises and processed billions in redemptions.
Binance's Role and the Shift to USD1: Draining Liquidity from China?
Binance, the world's largest crypto exchange, has historically been a major USDT hub, with significant trading volume and liquidity. Chinese users—despite China's crypto ban—have used USDT via Binance's P2P (peer-to-peer) features (e.g., Alipay/WeChat) to access dollar-pegged liquidity offshore.
Critics argue this facilitates capital flight from China, where the yuan is tightly controlled, by converting local currency into USDT and moving it globally. This drains domestic liquidity, weakens the yuan, and funnels demand into U.S. assets.
In 2025, Binance pivoted dramatically. After winding down its own BUSD stablecoin under regulatory pressure, Binance partnered with Circle to boost USDC adoption (a more compliant, regulated alternative to USDT). More strikingly, Binance integrated USD1, a new dollar-pegged stablecoin from World Liberty Financial (linked to Donald Trump and his family).
Key developments:
- Binance converted all BUSD collateral to USD1 at a 1:1 ratio, embedding it into margin trading and liquidity operations.
- Zero-fee trading pairs for USD1/USDT and USD1/USDC.
- Yield programs offering up to 20% APR on USD1 holdings.
- USD1's market cap surged past $3 billion by late December 2025, with massive trading volume on Binance.
This shift promotes a U.S.-backed stablecoin ecosystem, potentially diverting liquidity from USDT and offshore dollar demand (including from China) toward regulated, Treasury-backed alternatives. While not directly "draining" China, it reinforces U.S. dollar access in restricted markets, amplifying dollar dominance amid geopolitical tensions.
Global Implications: Dollar Hegemony 2.0
Stablecoins represent a digital evolution of dollar dominance:
- They compete with alternatives like China's digital yuan (e-CNY) or BRICS currencies.
- They provide a "shadow" dollar system, potentially reducing U.S. sanctions effectiveness if unregulated.
- But regulated frameworks (e.g., U.S. GENIUS Act) could integrate them, further embedding the dollar.
In short, stablecoins like Tether (and emerging players like USD1) aren't "stealing" liquidity—they're channeling it into U.S. assets, amplifying dollar power in a digital world.
What do you think—do stablecoins empower users or entrench U.S. financial control?
0 Comments