Crypto’s Trojan Horse: How Stablecoins Could Wreck The US Financial System
In Brief
Recent US developments advancing stablecoin legislation and political engagement signal crypto progress but also raise concerns about financial stability, regulatory challenges, and the future role of the dollar.
This week might feel like a victory lap for crypto in America. A major piece of legislation known as the Genius Act just advanced in the Senate, offering legitimacy to stablecoins — a class of cryptocurrency pegged to assets like the U.S. dollar. Meanwhile, Donald Trump, freshly re-energized on the political stage, hosted a glittering dinner for the top 220 holders of his personal memecoin.
But what feels like progress for digital currency advocates may be a ticking time bomb for the U.S. financial system. While proponents claim stablecoins will “expand the dominance of the U.S. dollar,” the reality is far more complex — and far more dangerous. Rather than reinforcing America’s economic might, stablecoins could open the floodgates to financial instability, sanctions evasion, and global distrust of the U.S. dollar.
The Rise of the Dollar-Mimics
Stablecoins are meant to be the “responsible” cousins of volatile cryptocurrencies like Bitcoin and Ethereum. They claim to offer the innovation of crypto with the stability of traditional finance by pegging their value to existing fiat currencies, typically the U.S. dollar. Trump’s own entry into the space, USD1, was launched through World Liberty Financial, with promises that the coin would be backed by short-term Treasury bonds, dollar deposits, and similar instruments.
The goal, at least on the surface, is to give users a way to move money quickly and globally without relying on banks. In theory, stablecoins could help solidify the dollar’s grip on international finance by embedding it directly into the crypto ecosystem. In practice, however, they may end up doing the opposite — undermining the very dominance they claim to support.
Breaking the Firewall Between Crypto and Traditional Finance
The push to integrate stablecoins into the mainstream economy is being driven by a crypto industry that wants to straddle both worlds. On one side lies the unpredictable, often anarchic realm of digital currencies — where fortunes are made and lost on “memecoins” and speculative tokens. On the other side sits the regulated world of securities, deposits, and central bank guarantees.
Crypto interests want the best of both. If stablecoins can be accepted within the U.S. financial framework, users could freely move money between crypto exchanges and traditional institutions. But that hybrid status also creates major vulnerabilities. These assets would exist in a regulatory gray zone — not entirely within the banking system, yet too interconnected to ignore.
And crypto has powerful allies. Industry donations have flooded both Republican and Democratic campaigns. In 2024 alone, the industry spent $40 million targeting candidates deemed unfriendly to crypto — successfully ousting some of its most vocal critics. This bipartisan backing has helped shield the industry from deeper scrutiny.
Geopolitical Anxiety and Libertarian Fantasy
Supporters of stablecoins argue that strengthening crypto will ultimately strengthen the dollar. Senator Kirsten Gillibrand, a Democrat from New York and co-sponsor of the Genius Act, has voiced concern that the U.S. is “just watching while our opponents move pieces on the chessboard.” Her warning reflects a broader anxiety that America is “at risk of falling further behind” Europe and China in the race to digitize currency.
While Europe builds a digital euro and China pushes its e-yuan, the U.S. remains gridlocked — in part because Trump and others on the right vocally oppose a Federal Reserve-issued digital dollar.
This geopolitical concern — that the U.S. might lose ground by doing nothing — fuels bipartisan interest in stablecoins as a private workaround. But the vision embraced by some in Trump’s circle goes far beyond modernization. David Sacks, now serving as Trump’s informal crypto and AI czar, has previously expressed hopes that Bitcoin or other cryptocurrencies could become “the new world currency.”
That vision doesn’t just sidestep the dollar — it replaces it. In such a scenario, American financial leadership is voluntarily surrendered to a decentralized free-for-all, where private platforms and foreign actors dictate terms once set in Washington.
The National Security Blind Spot
While supporters of stablecoins speak of innovation and competition, national security experts are ringing alarm bells. Cryptocurrencies — and stablecoins in particular — have become tools of choice for those looking to avoid detection. Democratic staffers on the Senate Banking Committee have warned that the Genius Act would allow U.S. exchanges to handle stablecoins issued by offshore entities beyond the full reach of American oversight.
Tether, the dominant offshore stablecoin, has been repeatedly linked to illicit activities. Critics say it’s been used to launder money, evade sanctions, and obscure financial flows in ways that challenge existing laws. Mixer services — platforms designed to disguise the origins of crypto transactions — have already been tied to multi-million-dollar hacks by North Korean cybercriminals.
Even the U.S. Department of Justice, in a revealing policy shift, announced it would not prosecute certain crypto platforms — despite acknowledging their use by terrorist groups like Hamas and ISIS. This unwillingness to enforce existing laws only heightens the risk of chaos.
The Bailout Dilemma That No One Can Solve
Beyond criminal abuse, the greatest concern around stablecoins is what would happen if they fail. These digital assets occupy a murky space — not quite private securities, not quite government-issued money. That ambiguity creates a trap. If a stablecoin implodes, does the U.S. government intervene?
Backing these tokens with public funds could saddle taxpayers with enormous liabilities. But letting them collapse could trigger a panic. If international users begin questioning whether their digital dollars are safe, we could face a “bank run” — not on actual banks, but on the crypto platforms and the smaller banks that support them.
An example isn’t hard to imagine. Executives at Tether have admitted that larger banks often refuse to do business with them, forcing them to deposit funds with smaller institutions. If trust in the coin wavers and users rush to redeem even 20% of their holdings, these smaller banks could be overwhelmed — destabilizing the broader financial system. In that moment, someone would need to step in with real dollars, not digital promises.
Other Countries Are Already Hedging Against the U.S.
Stablecoins were supposed to reinforce the dollar. Instead, they’re incentivizing the rest of the world to look for an exit ramp. European leaders, concerned about the creeping influence of dollar-based stablecoins, are racing to build an alternative: a public, government-issued digital euro.
Philip Lane, chief economist at the European Central Bank, has warned that relying on stablecoins would draw financial activity away from the euro — and toward private, dollar-linked currencies. That, in turn, would leave Europe more “vulnerable to economic coercion” from the U.S.
Europe’s response is not just defensive. ECB officials are framing their digital euro as a tool for global use — one that “respects the sovereignty” of other countries and reduces dependence on American-led financial infrastructure. If successful, this could be the beginning of a new international payments system — one that cuts the U.S. out of the loop.
Crypto Chaos in the Cloak of Stability
What makes stablecoins so deceptive is that they wear the language of trust — “backed,” “pegged,” “dollar-based” — while inviting instability. Crypto’s appeal lies in its distance from regulation. But when that same philosophy is applied to something that mimics a government-backed asset, the result is not freedom — it’s fragility.
The fusion of Trump’s political ambitions with the crypto world only amplifies this risk. When regulatory enforcement is relaxed because of personal or political interest, the result is a system where scams flourish and oversight vanishes. Memecoins promoted by public figures have already led to “rug pulls” — where coins are dumped on buyers and the promoters vanish — yet few face consequences.
In such an environment, the boundaries between public interest and private gain are blurred beyond recognition. Instead of bringing discipline to crypto, stablecoins may infect the dollar with the volatility and opacity that define the digital asset world.
A Dangerous Path Disguised as Progress
Stablecoins were never just about making crypto safer. They are a mechanism for integrating the wild west of digital finance into the heart of the global financial system. Their rise has been cloaked in patriotic rhetoric — protecting dollar dominance, staying competitive, catching up with China — but the reality is more unsettling.
Rather than reinforcing trust in American financial leadership, stablecoins may accelerate the loss of it. They pose an unsolved threat to regulatory stability, invite foreign retaliation, and open new vectors for criminal exploitation.
In short, stablecoins are not America’s answer to the future of money. They’re the crypto industry’s answer to how much risk a democracy will tolerate — and whether it’s willing to find out the hard way.
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About The Author
Alisa, a dedicated journalist at the MPost, specializes in cryptocurrency, zero-knowledge proofs, investments, and the expansive realm of Web3. With a keen eye for emerging trends and technologies, she delivers comprehensive coverage to inform and engage readers in the ever-evolving landscape of digital finance.
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Alisa, a dedicated journalist at the MPost, specializes in cryptocurrency, zero-knowledge proofs, investments, and the expansive realm of Web3. With a keen eye for emerging trends and technologies, she delivers comprehensive coverage to inform and engage readers in the ever-evolving landscape of digital finance.
