To: Federal Reserve and Treasury Officials, White House Economic Advisors

Date: August 4, 2025

The United States faces a national debt exceeding $35 trillion, with rising interest costs straining fiscal sustainability. To address this challenge, we propose a hybrid financial system combining decentralized, blockchain-native Treasury bonds and a centralized U.S. digital coin (USDC). This innovative framework leverages digital technologies to enhance liquidity, reduce risks, and reinforce the U.S. dollar’s global dominance, while tackling the national debt crisis head-on.

1. Decentralized Treasury Bonds: A New Debt Market Paradigm

Concept

Tokenize U.S. Treasury securities (T-Bills, T-Notes, T-Bonds) on permissioned or public blockchains, issuing them directly to digital wallets for 24/7 trading on decentralized finance (DeFi) platforms. Fractional ownership enables broader investor access, from institutions to retail.

Benefits for the National Debt

• Increased Liquidity: Real-time trading and fractionalization boost demand for Treasuries, potentially lowering borrowing costs. For example, tokenized bonds could attract global investors, including those in emerging markets, expanding the buyer base.
• Reduced Custodial Risk: Self-custody via wallets or smart contracts minimizes reliance on intermediaries, reducing systemic risks and costs associated with traditional custodians.
• Transparent Issuance and Auditing: Blockchain’s immutable ledger allows real-time tracking of bond issuance, transfers, and redemptions, enhancing investor trust and reducing fraud. This transparency could improve market confidence, stabilizing yields.

Precedents

• JPMorgan’s Onyx: Successfully piloted tokenized repo transactions and money market funds, demonstrating blockchain’s potential for securities.
• Euroclear’s DLT Platform: Tested tokenized bond settlement, proving feasibility for large-scale debt markets.
• Singapore’s Project Ubin: Explored tokenized bond issuance on Ethereum-based platforms, showing scalability.

Implementation

• Technology: Use permissioned blockchains (e.g., Hyperledger, Corda) for regulatory control or public chains (e.g., Ethereum with layer-2 solutions like Arbitrum) for broader access. Smart contracts can automate interest payments and redemptions.
• Cost Savings: Tokenization reduces intermediation costs (e.g., clearinghouses), potentially saving billions annually, which could offset debt servicing costs.
• Debt Impact: Increased demand for tokenized Treasuries could lower yields, reducing the $1 trillion+ annual interest burden (projected for 2028 by CBO).

2. Centralized U.S. Digital Coin: Strengthening Monetary Control

Concept

Issue a government-backed stablecoin pegged 1:1 to the USD, centrally managed by the Federal Reserve or Treasury. This U.S. Digital Coin (USDC) would facilitate payments, stimulus distribution, and cross-border transfers.

Benefits for the National Debt

• Efficient Stimulus Delivery: Direct-to-wallet payments reduce administrative costs for programs like COVID-era relief, freeing up fiscal resources to manage debt.
• Monetary Policy Precision: Real-time transaction data provides insights into money velocity, enabling the Fed to optimize interest rate policies, indirectly supporting debt sustainability.
• Global USD Dominance: A USDC reinforces the dollar’s reserve currency status, ensuring continued demand for U.S. debt. This counters competition from China’s e-CNY and other CBDCs.

Precedents

• FedNow (2023): The Fed’s instant payment system lays the groundwork for digital payments, though not blockchain-based.
• China’s e-CNY: Over 260 million users by 2024, used for retail and cross-border transactions, showing centralized CBDC scalability.
• Project Hamilton (MIT + Boston Fed): Demonstrated a CBDC prototype with 1.7 million transactions per second, proving technical feasibility.

Implementation

• Technology: A centralized ledger or permissioned blockchain ensures AML/KYC compliance and high transaction throughput.
• Fiscal Impact: Streamlined payments reduce overhead, potentially saving $50-100 billion annually in administrative costs (based on GAO estimates for federal program inefficiencies).
• Debt Strategy: A USDC could facilitate debt repayment mechanisms, such as direct deductions from digital wallets, improving fiscal discipline.

The Hybrid Advantage: Balancing Control and Freedom

Synergy

• Decentralized Bonds: Enhance market agility, attract diverse investors, and reduce borrowing costs, directly addressing the debt burden.
• Centralized USDC: Ensures regulatory oversight, supports monetary policy, and maintains USD sovereignty, preserving the U.S.’s ability to finance its debt globally.
• Debt Reduction Potential: Increased Treasury demand and lower servicing costs could save $200-300 billion annually, per CBO yield projections, slowing debt growth.

Strategic Implications

• Fiscal Resilience: Tokenized bonds diversify the investor base, reducing reliance on foreign creditors (e.g., China, Japan), who hold $7.6 trillion of U.S. debt.
• Economic Leadership: A USDC cements the USD’s role in a digital economy, countering threats from decentralized cryptocurrencies and foreign CBDCs.
• Post-Bretton Woods 3.0: This hybrid system modernizes the global financial order, positioning the U.S. as the leader in blockchain-based finance.

Challenges and Solutions

1. Legal Framework:
   • Challenge: Tokenized bonds require updates to the Securities Act of 1933 and Federal Reserve Act for CBDC authorization.
   • Solution: Propose bipartisan legislation to define tokenized securities and authorize a USDC pilot, building on Project Hamilton findings.
2. Interoperability:
   • Challenge: Integrating decentralized (e.g., Ethereum) and centralized systems (e.g., FedNow) is complex.
   • Solution: Develop standardized APIs and cross-chain protocols, leveraging private sector expertise (e.g., ConsenSys, Chainlink).
3. Privacy vs. Oversight:
   • Challenge: A centralized USDC risks over-surveillance, while decentralized bonds must balance transparency with investor privacy.
   • Solution: Implement privacy-preserving technologies (e.g., zero-knowledge proofs) for bonds and opt-in KYC for USDC, ensuring public trust.

Roadmap to Implementation

• 2025-2026: Launch Treasury-Fed pilot programs for tokenized T-Bills and a USDC prototype, partnering with firms like JPMorgan and Euroclear.
• 2026-2028: Pass enabling legislation and scale infrastructure, targeting 10% of Treasury issuance as tokenized by 2028.
• 2028-2030: Fully integrate USDC into payment systems and expand tokenized bond markets globally, aiming for $1 trillion in tokenized debt issuance.

Final Verdict: A Fiscal Moonshot

This hybrid system is not just feasible—it’s imperative. Tokenized Treasury bonds can lower borrowing costs and broaden investor access, while a centralized USDC ensures monetary control and global USD dominance. Together, they could save hundreds of billions annually, slowing the national debt’s growth (projected to hit $50 trillion by 2033, per CBO). By embracing these digital tools, the U.S. can reduce fiscal risks, drive efficiency, and lead the blockchain age, securing its financial future in a Post-Bretton Woods 3.0 era.

Recommendation: Initiate a joint Treasury-Fed task force to pilot these technologies in 2026, engaging Congress and private sector innovators to build a resilient, debt-mitigating financial ecosystem.