Stablecoin Economics and Regulatory Framework

The rise of digital dollar stablecoins on public blockchains has reshaped how we think about monetary systems. At its core, stablecoin regulation operates through what's essentially a sophisticated market mechanism—government maintains a buyer-of-last-resort function for US short-term Treasury securities, which essentially represent government-backed liquidity.

This framework emerged from regulatory guidance issued between 2020 and 2021, establishing how stablecoin issuers could operate within the existing financial infrastructure. The mechanism is elegant: stablecoins maintain their peg to the dollar while Treasury holdings serve as the reserve backbone, creating a direct link between blockchain-based money and traditional government debt markets.

The system essentially uses stablecoins as a bridge between decentralized networks and conventional monetary policy tools. When stablecoin reserves hold US Treasuries, they're not just collecting yield—they're participating in a nested structure where blockchain rails carry government-issued debt instruments across permissionless ledgers.