Outsourcing the US National Debt via Stablecoins

How Stablecoins Like Tether and USDC Are “Backed by Treasuries” and Help Offload U.S. National Debt Globally

What Does “Backed by Treasuries” Mean?

When a stablecoin such as Tether (USDT) or USDC says it is “backed by Treasuries,” it means:

• The issuer (such as Tether or Circle) receives dollars from users and issues digital tokens in exchange.
• To maintain the $1 peg, the issuer holds reserves—primarily in short-term U.S. Treasury bills (T-bills), along with some cash and other liquid assets.
• Every time new stablecoin tokens are created, a corresponding amount of money is invested by the issuer into U.S. Treasuries.

Treasury bills are short-term U.S. government debt securities considered very low risk and highly liquid.

How Does Stablecoin Use “Outsource” U.S. National Debt?

1. U.S. government debt is sold as Treasury securities.
2. Stablecoin issuers use user funds to buy these Treasuries as backing for their tokens.
3. Stablecoin users, many outside the U.S., become indirect funders of U.S. debt.

In effect: When a person anywhere in the world buys USDT or USDC, their money is funneled (via the stablecoin issuer) into U.S. government bonds. The user gets a digital dollar. The U.S. government gets more buyers for its debt.

This is “outsourcing” the debt because: Instead of just American banks, companies, and institutions funding U.S. deficits, anyone, anywhere who holds stablecoins is now helping to fund the U.S. government. This expands the U.S. government’s funding base globally.

Why Does This Matter?

• Global demand for stablecoins = global demand for U.S. Treasuries.
• The U.S. benefits by having a broader, more diverse group of buyers for its debt, which can help keep interest rates lower than they might otherwise be.
• Stablecoin issuers (not users) collect the interest paid on Treasuries, earning revenue from global demand for digital dollars.

Illustrative Example

• 1,000,000 people worldwide each want $1,000 in stablecoins.
• This is $1 billion sent to issuers like Tether or Circle.
• The issuers buy $1 billion in T-bills as reserves.
• The U.S. Treasury gets $1 billion to help fund government spending.
• The stablecoin users hold digital dollars, and the interest from the T-bills goes to the issuer.

Summary Table

Flow	Mechanism	Effect
User buys USDT/USDC	Issuer buys U.S. Treasuries	Funds U.S. government debt
User holds USDT/USDC	Backed by Treasuries, not cash	Digital dollars are U.S. debt-backed
Global users	Global demand for stablecoins	Outsources U.S. debt to world

Benefits and Risks

Benefits to the U.S.:

• More, broader demand for U.S. debt.
• Strengthens the global dominance of the dollar.

Risks:

• If demand for stablecoins drops quickly, issuers might need to sell Treasuries rapidly, potentially disrupting financial markets.
• Regulatory or technical issues with stablecoins could reduce this demand channel.
• The U.S. government may face less pressure to be fiscally disciplined if it is easy to find new buyers globally.

Bottom Line

Stablecoins act as a global on-ramp for savings into U.S. government debt. The more people worldwide want digital dollars, the more they indirectly buy U.S. Treasuries—helping the U.S. fund its national debt with international capital.