The World Can't Quit the Dollar

99% of stablecoins are denominated in US dollars. Ninety-nine percent. That number hasn't budged, even as the market exploded from $10 billion to $300 billion.

The EU built the most comprehensive stablecoin regulatory framework on earth. Result? Euro stablecoins total €350 million—0.15% of the global market.

Why is digital money, built on borderless technology, even more dollar-dominated than traditional finance?

The Flywheel That Won't Stop

Liquidity attracts liquidity. The deepest markets are dollar-denominated because the biggest stablecoins are, and businesses go where liquidity is. USDT and USDC have tight spreads with proven infrastructure. Euro alternatives? Thin markets, uncertain counterparties.

Network effects compound. Every USDC user makes USDC more useful for existing users. Merchants accept it because customers hold it. Customers hold it because merchants accept it. Each integration attracts more users, attracting more integrations.

The dollar was already winning. Stablecoins inherited dollar dominance. When a business in Vietnam or Nigeria wants stable digital assets, they want dollar stability. The existing system created demand for digital dollars.

The $13 Billion Year

Tether made $13 billion profit in 2024—comparable to Goldman Sachs or Morgan Stanley. They did it with a few hundred people and a napkin-sized business model.

How? Accept dollars, issue USDT, invest in Treasury bills (yielding 4-5%), pay users zero. With $170+ billion circulating, modest yields generate billions.

This is only possible because treasury yields are sitting at levels we haven’t seen in well over a decade.

This quirk of macroeconomics helped to cement USD as a safe harbor asset for the stablecoin industry. In 2010-2021's near-zero era, the same model would've generated almost nothing.

Some might argue that a collapse in interest rates might drive a reduction in dollar dominance across the industry, but we believe this misunderstands what’s actually keeping the flywheel spinning.

Dollar dominance isn't driven by issuer profitability but by network effects and demand for dollar stability. The same forces that have allowed the USD to become the primary global reserve currency – liquidity and trust – will continue to exist even after inflation cools. Tether's margins might evaporate, but the forces keeping 99% of stablecoins dollar-denominated will persist.

The U.S. And Everyone Else

For the US, this is ideal. Dollar stablecoins expand American monetary reach without government action. Private companies export dollar dominance; Washington just regulates.

As stablecoins grow, so does U.S.Treasury demand. JPMorgan estimates $1.4 trillion in additional dollar demand by 2027. Tether and Circle hold more US Treasuries than Saudi Arabia—two private companies have become major sovereign debt participants.

For everyone else, the situation is more fraught.

Europe's problem: The ECB is watching euro-denominated activity get replaced by dollar alternatives. If Europeans use USD stablecoins for payments and savings, the ECB's power to regulate its own monetary policy erodes. Their solution—the digital euro—won't launch until 2029. By then, dollar stablecoins will have had a decade to dominate.

Emerging markets: USD denominated stablecoins can offer extraordinary advantages for countries facing volatile local FX markets. For citizens dealing with high inflation and thin liquidity, this can mean faster settlements and lower costs. For governments, it often means becoming even more beholden to U.S. monetary policy.

Eroding sovereignty: Historically, seigniorage (profit from issuing currency) belonged to governments. Stablecoins privatize it. Tether's $13 billion is seigniorage that would've typically flowed into state coffers. A $2 trillion market earning 4% generates $80 billion annually, money that now belongs to private issuers.

The Flywheel Outlasts All

The dominance of USD is being exacerbated by stablecoins, but stablecoins are not the cause of it. Instead, they are one turn of a flywheel that has been spinning for decades. Even if the outsized profits driven by elevated interest rates normalize, the historic systems that made the USD the global reserve currency will remain.

Dollar concentration reflects structural advantages compounding over time, and these advantages are unlikely to diminish in the near term.

The question still left unanswered is how will countries balance the obvious structural advantages of USD denominated stablecoins with their desire to maintain seigniorage and keep control of their monetary policy.

This is one piece of a much bigger puzzle. Want to understand why Europe is freaking out, why bank tokens might be bigger than public stablecoins, or how regional dynamics from Latin America to Asia are shaping who wins and loses?

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