Concerns over stagflation and recession dominate the news as nations around the world continue to endure an economic slowdown. In recent years, international trade has stalled, foreign exchange has become more volatile, and consumption across the world has slowed. Many of these problems are significantly influenced by the US economy, particularly the Federal Reserve's high interest rates that were hiked to curb inflation stemming from debt and high expenditure in the wake of the pandemic. Despite this, there are hopes that US dollar stablecoins can help solve some of these issues.

A number of experts recently stated that stablecoins may occupy a significant place in the government debt market as foreign holdings of this debt decrease. Several countries have been decoupling their reliance on the US economy and banking system to reduce risk by shifting focus to other countries for trade, denominating transactions in local currencies, and selling US Treasury bills.

A decrease in demand for US government debt, as expenditure and interest on the debt add up, places the future of the US economy in a very uneasy position. Economists and politicians have been concerned about a possible failed Treasury auction, which would likely lead to drastic cuts to the US budget and restricted ability for the government to influence growth.

Former US House speaker Paul Ryan recently wrote that crypto can help stave off a debt crisis because many stablecoin firms are backing their value with purchases of US government debt. These purchases have not been insignificant, as Ryan said that if stablecoin issuers were a country, they would be in the top 10 holders of US Treasurys.

Centralized stablecoin issuers such as Circle (USDC) and Tether (USDT) back their US-denominated digital currencies with a number of investments such as Bitcoin, Money Market Funds, and U.S. Treasury Bills, the latter accounting for around 80% of Tether's $1.1 billion reserves. Paolo Ardoino, CEO of Tether, also wrote that more than 300 million people are using USDT, especially in developing countries.

Stablecoins have the potential to benefit the broader economy, but it is uncertain which stakeholders these companies are ultimately benefiting. Tether released their Q1 2024 attestation report, revealing a record-breaking $4.52 billion profit, mostly due to their US Treasury bill holdings. While this enormous profit highlights the success of the BVI incorporated company, it doesn't go far enough to resolve the economic problems many hope it can.

This past year in crypto saw the rise of yield-bearing stablecoins, such as BitU Protocol, which can be a true hedge against systematic risk from US debt, inflation, and economic uncertainty. While $BITU functions as a standard US-dollar denominated stablecoin, it does not rely on US Treasurys for value. The upside of this is that value is sourced from overcollateralized positions of deposited Bitcoin, further enabling true decentralization and transparent stability.

While the benefit of dependency on US Treasurys is the yield from interest rates, stablecoins using Treasurys may have to find new investment sources to maintain their value and generate profit for those firms once the US economy begins to recover. This is why BitU Protocol enables users to stake $BITU and receive $sBITU, which grants holders passive yield from delta neutral strategies and interest from lending. Staked $BITU maintains the underlying value of 1 US Dollar per token while accumulating yield from interest, helping holders fight against inflation, which has averaged more than 4% annually over the past five years.

Yield-bearing stablecoins bring new stakeholders to the conversation who have been left out at a loss. Holding Treasury-backed stablecoins turns holders into products that receive diminishing returns due to inflation. Holding yield-bearing stablecoins turns holders into stakeholders that gain from yield that would otherwise go to corporate profits. These stakeholders also have a greater impact on the success of the company as competition increases to provide better security, avenues for use, and sustainable yield.

Lastly, centralized stablecoins struggle to promise true financial freedom to their holders. With US elections nearing, politicians are also becoming more open to blockchain technology and cryptocurrencies despite a long history of siding against it. While there have been efforts in the US to ban CBDCs, the US financial system is a complex labyrinth that punishes low-income workers with fees, delays, and restrictions on transactions.

In politically volatile times, such as during the 2011 Occupy Wall Street movement and the 2022 Canadian convoy protest, the freedom to transact, withdraw savings, or even pay for regular goods and services was restricted. Centralized stablecoins can be programmed to follow these restrictions, but BitU Protocol isn't able to arbitrarily freeze users' funds.

The true hedge against debt, inflation, and uncertainty lies in decentralized yield-bearing stablecoins. As these tokens become more popular, US dollars will flow to purchase decentralized assets such as $sBITU or Bitcoin, which can be accepted as collateral for $BITU, instead of US Treasurys that only enrich companies that become an extension of the status-quo. Real innovation aims to disrupt a faulty system instead of making it more efficient.

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