The Underpriced Geopolitical Risk of Stablecoins

Countries do not usually race to regulate things they consider unimportant. The speed with which the US, EU, UK, Japan and South Korea are developing stablecoin regimes suggests the stakes are more than just consumer protection. Rather, this is a contest to capture the infrastructure, liquidity and monetary influence of the digital economy, and so far the US is winning it through its firms.

Stablecoins have the potential to ensure American dollar dominance internationally to increase the usage of the US dollar digitally as the world's reserve currency. — David Sacks

Much like traditional finance, crypto is built around the US. On centralised exchanges, USDT and USDC are core quote currencies for trading pairs, meaning users enter crypto markets through dollar-denominated liquidity by default. In decentralised finance, dollar stablecoins are the base asset of onchain credit markets on Morpho. Hyperliquid uses USDC as its main collateral and settlement asset for perps. Aave performs a similar function in onchain lending using USDC and USDT. Over time, the dollar became crypto's 'natural' unit of account. This is what Bourdieu called habitus: a preference so embedded through repeated practice that it is no longer a conscious choice.

This means Circle does not need to be a state actor for USDC to extend US influence overseas. Every USDC transaction runs through an asset controlled by a US-regulated company.

Once that asset is embedded as the 'natural' collateral and settlement layer of the onchain economy, US law reaches every market built on top of it.

This legal power includes the ability to block or freeze stablecoins associated with sanctions evasion, terrorist financing, ransomware, stolen assets or money laundering. Such jurisdiction, however, can affect financial sovereignty. Circle's terms state that it can block USDC addresses and freeze associated funds, complying with legal orders from government authorities. Tornado Cash illustrates this in practice: after the Office of Foreign Assets Control (OFAC) sanctioned associated Ethereum addresses in 2022, Jeremy Allaire stated that Circle "followed the US Treasury sanctions against Tornado Cash and blocked the related addresses". Although those sanctions were later legally challenged and ultimately lifted, the episode showed how stablecoins can become an enforcement layer for US legal authority. The GENIUS Act has now written this power into statute, requiring issuers to maintain the technical capability to "block, freeze, and reject" unlawful transactions and to comply with lawful orders to "seize, freeze, burn, or prevent the transfer" of the stablecoins they issue.

Of course, regulation could require locally compliant alternatives in some markets, thereby reducing reliance on overseas issuers. Locally compliant, however, does not guarantee financial sovereignty. A token's denomination and its issuer are separable: EURC is euro-denominated and issued in France under MiCA, but its issuer is a subsidiary of Circle, a US company. Even Tether, registered in El Salvador, recently froze $344mn linked to the Central Bank of Iran; Tether's total frozen assets sit north of $4.4bn, with over $2.1bn connected to US law enforcement. No court compels this cooperation.

But Tether's reserves sit largely in US Treasuries held in New York, and the GENIUS Act ties access to the American market to the capacity to comply with US orders; for an offshore issuer, collaboration is the simpler option. Those Treasuries sit with Cantor Fitzgerald, whose former chief executive is now the US Commerce Secretary.

Stripe extends this beyond crypto-native markets into retail commerce. It already processes nearly $2tn in payments for millions of businesses and is vertically integrating the stablecoin payment stack: checkout, merchant distribution, custody, FX, and now the settlement layer itself through Tempo. In June, a consortium of more than 140 firms announced Open USD, a stablecoin Stripe intends to make the default for businesses on its platform, with reserves held at US-regulated institutions under the GENIUS framework.

The issue, therefore, is not only which jurisdiction writes the rules, but which firms control the rails that users, merchants, and platforms actually rely on. Stripe can make dollar stablecoins useful not because users ideologically prefer dollars, but because merchants and platforms already use Stripe and benefit from its distribution, liquidity and payment infrastructure. This matters because the geopolitical power of stablecoins does not require users to choose the dollar consciously. A merchant may choose the cheapest payment option; a platform may choose the easiest off-ramp; an agent may choose the most liquid settlement asset. But if those rails settle in dollar stablecoins by default, dollar dominance spreads through convenience rather than coercion, and US jurisdiction spreads with it.

If those stablecoins are issued by US-regulated companies, then the US can govern the rails themselves. In moments of geopolitical conflict, US authorities could compel issuers, custodians, exchanges or payment platforms to freeze assets, block addresses, restrict counterparties or enforce sanctions across supposedly borderless financial networks. The risk for other nations is that their currencies become peripheral while their citizens, firms and platforms remain dependent on dollar rails, ultimately subject to US legal authority. It is therefore unsurprising to see thirty seven financial institutions, including ING and BNP Paribas, launching a euro stablecoin this year on the premise of financial sovereignty; the Bank of England expects regulated sterling coins from 2027; Japan's yen tokens are already live. It remains doubtful that the dollar's liquidity moat can be overcome. Yet the point remains: stablecoin dominance is not just about who issues digital money, but about who controls the default infrastructure through which future value moves.