By Hedy Bi and Jason Jiang | OKG Analysis
Trump’s return to White Home has introduced an unprecedented intertwining of politics and economics. This “Trump phenomenon” not solely displays his management type but additionally symbolizes a restructuring of financial pursuits and political energy — a phenomenon referred to in economics as “political financial system intertwining.” Because the world’s largest financial system and issuer of the worldwide reserve forex, each coverage shift within the U.S. serves as a bellwether for world capital flows. Waiting for 2025, the Trump administration’s acceptance of crypto might catalyze “Trumponomics” to ripple into the blockchain world, the place the crypto market is transitioning from fringe innovation to a important element of world finance.
As a part of OKG Analysis’s “Trumponomics” collection, this report dives into the core logic and future developments of this transformation. Whereas the primary article within the collection explored Bitcoin’s affect on worldwide finance, this installment focuses on the $36 trillion U.S. Treasury market, inspecting how blockchain know-how and crypto instruments might assist solidify and broaden the greenback’s dominance within the world monetary system.
Coinbase CEO Brian Armstrong, talking on the World Financial Discussion board in Davos, said that forthcoming U.S. stablecoin rules may require issuers to again their dollar-denominated stablecoins completely with U.S. Treasuries. Whereas we consider such a mandate is unlikely except overcollateralization is required, Armstrong’s feedback spotlight the crypto market’s robust demand for U.S. Treasuries.
The U.S. Treasury market has grown at an astonishing tempo: it took over 200 years to achieve $1 trillion however simply 40 years to develop from $1 trillion to $36 trillion. This exponential progress started with the Nixon administration’s 1971 resolution to desert the gold normal, enabling limitless greenback printing and creating an uncontrollable debt drawback.
Whereas the U.S. debt market has ballooned, OKG Analysis observes that conventional buyers, lengthy accustomed to “footing the invoice” for this $36 trillion market, are shedding curiosity. Blockchain could possibly be the brand new frontier for reinvigorating demand for U.S. Treasuries.
In 2025, the U.S. Treasury market faces a “onerous mode” state of affairs, with practically $3 trillion of Treasuries maturing, most of that are short-term. In the meantime, in 2024, internet issuance by the U.S. Treasury reached $26.7 trillion, a 28.5% year-over-year enhance.
Beneath Trump’s management, his choice for free financial coverage might additional exacerbate market uncertainty. Throughout his earlier time period, Trump continuously pressured the Federal Reserve to decrease rates of interest, viewing financial coverage as a key device for exciting the financial system and boosting market confidence. If he succeeds in pushing for fee cuts, it might considerably decrease Treasury yields, scale back their attraction to overseas buyers, and enhance depreciation stress on the greenback, disrupting world overseas trade reserves. Concurrently, Trump’s growth-centric insurance policies might drive larger fiscal spending, increasing deficits and straining Treasury provide.
On the demand aspect, overseas central banks seem much less drawn to U.S. Treasuries. In keeping with OKG Analysis, the expansion fee of overseas central banks’ Treasury holdings is simply 11%, far beneath the 28.5% enhance in issuance. Among the many high 20 overseas holders, solely France (35.5%), Singapore (31%), Norway (40%), and Mexico (33%) elevated their holdings quicker than the issuance fee in 2024.
Furthermore, some overseas central banks are actively decreasing their holdings. Since April 2022, China’s Treasury holdings have persistently fallen beneath $1 trillion, dropping one other $2.6 billion to $772 billion in September 2024. Japan, the most important overseas holder, lowered its holdings by $5.9 billion to $1.12 trillion throughout the identical month. As diversification of overseas trade reserves rises, demand for U.S. Treasuries is visibly weakening.
The mixture of fast debt progress and declining overseas demand poses twin challenges for the Treasury market, making an increase in danger premiums nearly inevitable. If the market can’t take in this debt successfully, larger-scale monetary instability might ensue.
The crypto market might maintain modern options for absorbing this debt.
As one of many world’s most secure property, U.S. Treasuries are taking part in an more and more pivotal function within the crypto market, primarily by stablecoins. Over 60% of on-chain exercise entails stablecoins, which rely closely on Treasuries as collateral.
Take USDC and USDT, the world’s largest stablecoins. Their issuance mechanisms require a 1:1 backing with high-quality property, predominantly U.S. Treasuries. At the moment, USDC’s Treasury holdings exceed $40 billion, whereas USDT’s surpass $100 billion. Collectively, stablecoins take in roughly 3% of maturing short-term Treasuries, outpacing Germany and Mexico within the rankings of overseas Treasury holders.
Though the Trump administration might pursue a Bitcoin reserve technique to draw worldwide capital and enhance Bitcoin costs, the direct fiscal advantages can be restricted. Even when Bitcoin’s value rose to $200,000, reaching a $4 trillion market cap, buying 1 million Bitcoin immediately would yield solely $100 billion in positive aspects.
In distinction, stablecoins like USDT and USDC are creating direct demand for Treasuries. With the stablecoin market cap hitting a document $210 billion on January 22, 2025, OKG Analysis estimates that the market might surpass $400 billion by the tip of the 12 months. This progress would generate over $100 billion in new Treasury demand, probably making stablecoins one of many high 10 Treasury holders globally.
If this pattern continues, stablecoins might develop into the Treasury market’s most important “invisible pillar,” with their direct demand for Treasuries far outweighing the oblique advantages of Bitcoin. Bitwise’s senior funding strategist has even prompt that stablecoins’ Treasury holdings might quickly develop to fifteen%. A U.S. Treasury report additionally highlighted that stablecoin progress would structurally enhance demand for short-term Treasuries.
As Trump’s financial stimulus insurance policies take impact, stablecoins and their Treasury-backed reserves might symbolize a novel type of greenback growth. Given the greenback’s standing as the worldwide reserve forex, Treasury issuance basically exports U.S. inflation, not directly making the world bear its debt burden whereas increasing the cash provide. This dynamic reinforces the greenback’s dominance but additionally challenges different nations’ regulatory and tax methods.
Past serving as collateral for stablecoins, U.S. Treasuries are additionally the preferred asset class within the tokenization wave. In keeping with RWA.xyz, the tokenized Treasury market grew from $769 million at the start of 2024 to $3.4 billion by early 2025, a fourfold enhance. This fast progress underscores each the potential of blockchain innovation and the market’s recognition of tokenized Treasuries.
Tokenization is quickly integrating Treasuries into decentralized finance (DeFi). From serving as a low-risk yield-generating asset to facilitating staking and lending, tokenized Treasuries are bringing real-world stability to DeFi. Ondo’s tokenized short-term Treasury fund (OUSG) has even supplied yields of as much as 5.5%.
Extra importantly, tokenized Treasuries present conventional buyers with acquainted property, attracting institutional capital to DeFi and accelerating its maturity. Tasks leveraging tokenized Treasuries are sometimes seen as “low-risk improvements” and usually tend to acquire regulatory approval.
For Treasuries, tokenization presents a brand new device to ease debt pressures. By enabling seamless cross-border and cross-chain transactions, tokenization breaks down geographical boundaries in conventional finance, opens new purchaser markets, and enhances Treasuries’ world liquidity and attraction. This expanded on-chain liquidity might set up Treasuries as a cornerstone of world monetary markets.
With expectations that Trump’s return will gradual the Federal Reserve’s fee cuts in 2025, short-term Treasury yields might rise, decreasing danger urge for food and driving buyers towards safer property. Within the close to future, we will anticipate extra Treasuries emigrate on-chain, with DeFi ecosystems leveraging tokenized Treasuries to reshape wealth administration and funding methods.
