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 fashion but additionally symbolizes a restructuring of financial pursuits and political energy — a phenomenon referred to in economics as “political economic system intertwining.” Because the world’s largest economic system and issuer of the worldwide reserve forex, each coverage shift within the U.S. serves as a bellwether for international 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 part of worldwide 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 influence on worldwide finance, this installment focuses on the $36 trillion U.S. Treasury market, inspecting how blockchain expertise and crypto instruments may assist solidify and develop the greenback’s dominance within the international 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 solely with U.S. Treasuries. Whereas we consider such a mandate is unlikely until overcollateralization is required, Armstrong’s feedback spotlight the crypto market’s sturdy 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 development started with the Nixon administration’s 1971 choice 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 traders, lengthy accustomed to “footing the invoice” for this $36 trillion market, are shedding curiosity. Blockchain might be the brand new frontier for reinvigorating demand for U.S. Treasuries.
In 2025, the U.S. Treasury market faces a “onerous mode” situation, with almost $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 improve.
Beneath Trump’s management, his choice for free financial coverage may additional exacerbate market uncertainty. Throughout his earlier time period, Trump steadily pressured the Federal Reserve to decrease rates of interest, viewing financial coverage as a key instrument for exciting the economic system and boosting market confidence. If he succeeds in pushing for charge cuts, it may considerably decrease Treasury yields, scale back their enchantment to overseas traders, and improve depreciation strain on the greenback, disrupting international overseas alternate reserves. Concurrently, Trump’s growth-centric insurance policies might drive increased fiscal spending, increasing deficits and straining Treasury provide.
On the demand facet, overseas central banks seem much less drawn to U.S. Treasuries. Based on OKG Analysis, the expansion charge of overseas central banks’ Treasury holdings is simply 11%, far under the 28.5% improve in issuance. Among the many prime 20 overseas holders, solely France (35.5%), Singapore (31%), Norway (40%), and Mexico (33%) elevated their holdings sooner than the issuance charge in 2024.
Furthermore, some overseas central banks are actively decreasing their holdings. Since April 2022, China’s Treasury holdings have persistently fallen under $1 trillion, dropping one other $2.6 billion to $772 billion in September 2024. Japan, the biggest overseas holder, lowered its holdings by $5.9 billion to $1.12 trillion throughout the identical month. As diversification of overseas alternate reserves rises, demand for U.S. Treasuries is visibly weakening.
The mixture of speedy debt development and declining overseas demand poses twin challenges for the Treasury market, making an increase in threat premiums nearly inevitable. If the market can’t soak up 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 belongings, 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 includes 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 belongings, predominantly U.S. Treasuries. Presently, USDC’s Treasury holdings exceed $40 billion, whereas USDT’s surpass $100 billion. Collectively, stablecoins soak up roughly 3% of maturing short-term Treasuries, outpacing Germany and Mexico within the rankings of overseas Treasury holders.
Though the Trump administration may pursue a Bitcoin reserve technique to draw worldwide capital and increase 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 at present would yield solely $100 billion in positive factors.
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 may surpass $400 billion by the top of the yr. This development would generate over $100 billion in new Treasury demand, doubtlessly making stablecoins one of many prime 10 Treasury holders globally.
If this development continues, stablecoins may turn into the Treasury market’s most crucial “invisible pillar,” with their direct demand for Treasuries far outweighing the oblique advantages of Bitcoin. Bitwise’s senior funding strategist has even urged that stablecoins’ Treasury holdings may quickly develop to fifteen%. A U.S. Treasury report additionally highlighted that stablecoin development would structurally increase demand for short-term Treasuries.
As Trump’s financial stimulus insurance policies take impact, stablecoins and their Treasury-backed reserves may characterize a novel type of greenback enlargement. Given the greenback’s standing as the worldwide reserve forex, Treasury issuance primarily 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. Based on RWA.xyz, the tokenized Treasury market grew from $769 million at the start of 2024 to $3.4 billion by early 2025, a fourfold improve. This speedy development 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 provided yields of as much as 5.5%.
Extra importantly, tokenized Treasuries present conventional traders with acquainted belongings, attracting institutional capital to DeFi and accelerating its maturity. Initiatives leveraging tokenized Treasuries are sometimes seen as “low-risk improvements” and usually tend to achieve regulatory approval.
For Treasuries, tokenization gives a brand new instrument to ease debt pressures. By enabling seamless cross-border and cross-chain transactions, tokenization breaks down geographical limitations in conventional finance, opens new purchaser markets, and enhances Treasuries’ international liquidity and enchantment. This expanded on-chain liquidity may set up Treasuries as a cornerstone of worldwide monetary markets.
With expectations that Trump’s return will sluggish the Federal Reserve’s charge cuts in 2025, short-term Treasury yields might rise, decreasing threat urge for food and driving traders towards safer belongings. Within the close to future, we are able to anticipate extra Treasuries emigrate on-chain, with DeFi ecosystems leveraging tokenized Treasuries to reshape wealth administration and funding methods.