The bank system's reserves have sharply decreased by $40.1 billion in a week, falling to the warning line of $2.93 trillion. This ongoing three-year drainage is pushing the foundational liquidity of traditional financial markets to the brink of exhaustion.
The overnight reverse repurchase tool balance has plummeted from a peak of $2.55 trillion to less than $200 billion—this “reservoir” that once provided a buffer for the financial system is rapidly nearing the bottom.
According to official data, the Federal Reserve's balance sheet has shrunk by about $2.1 trillion since reaching its peak in 2022. This is a silent yet drastic liquidity tightening.
01 Liquidity Alert
The alarms are not unfounded. As of the week ending December 17, 2025, the reserve balance of the U.S. banking system decreased by $40.1 billion in a single week, bringing the total down to $2.93 trillion, the lowest level since early December of that year.
This is not an isolated case but part of a trend. As early as October 2025, bank system reserves had decreased for the eighth consecutive week, with a single week reduction of approximately $59 billion.
Federal Reserve Governor Christopher Waller has stated that he believes the Federal Reserve can reduce the scale of bank reserves from $3.26 trillion at the time to around $2.7 trillion.
If combined with other liability adjustments, he supports reducing the Federal Reserve's overall balance sheet size to around $5.8 trillion.
02 The cost of tightening
The effects of tightening liquidity are being transmitted across various asset classes. The market's response to this is complex and severe.
The bond market is the first to bear the brunt. Within the Federal Reserve, due to the unclear inflation outlook, divisions over the pace of interest rate cuts have intensified, directly triggering market volatility.
The uncertainty of U.S. economic policy has collectively heightened uncertainty, triggering intensified market volatility and ongoing sell pressure on dollar assets.
The global process of de-dollarization may therefore accelerate further. This means that the status of dollar assets, traditionally seen as a safe haven, is being shaken.
03 Systemic risk and structural exhaustion
The deeper issue lies in the structural changes within the financial system. Liquidity has not disappeared evenly, but signs of structural exhaustion are emerging.
Some banks prefer to pay higher interest rates in the interbank market for short-term borrowing rather than using their reserves held at the Federal Reserve.
This behavior pattern indicates that some institutions may have seen reserves as a necessary 'last buffer' rather than liquidity available for daily turnover. When this mindset spreads, even if the overall amount of reserves still looks large, the actual 'active liquidity' available for market trading has significantly shrunk.
The traditional financial system is built on centralized trust and maturity mismatches, and its stability heavily relies on continuous, ample, and cost-controlled liquidity injections.
04 New choice: 'Financial blood' not reliant on banks
As the 'veins' of the traditional system gradually narrow, the urgent need to find a new, autonomous 'blood circulation system' has emerged. This is the role played by decentralized finance (DeFi) based on blockchain technology and its core infrastructure—the decentralized stablecoin.
An ideal decentralized stablecoin should not rely on the balance sheet of any single bank or central authority for its value; its stability should come from transparent mathematical rules and verifiable on-chain asset collateral.
It should achieve 24/7 uninterrupted global circulation, with settlements completed in minutes or even seconds, without holidays, borders, or obstacles set by intermediaries.
This is the vision that decentralized stablecoins like USDD are building. It aims to provide a monetary tool that does not rely on traditional bank reserve systems, is censorship-resistant, and globally accessible.
05 USDD: Stability built on over-collateralization
USDD is not created out of thin air; its core mechanism is 'over-collateralization'. This means that on the blockchain, for every circulating USDD, there are other digital assets of higher value (such as Bitcoin, Ethereum, or other mainstream stablecoins) locked in smart contracts as collateral.
According to a report from the well-known crypto data research firm Messari, as of early September 2025, the total value of collateral backing USDD reserves has peaked at over $620 million, consistently remaining above its circulating supply, strictly maintaining an over-collateralized status.
This mechanism is verified through transparent on-chain 'proof of reserves', allowing anyone to query in real-time, ensuring that the support for value is publicly credible.
06 Dual drivers of stability and yield
To maintain a 1:1 peg with the US dollar, the USDD ecosystem has introduced a Peg Stability Module (PSM). Users can exchange USDD for other mainstream stablecoins like USDT or USDC on a 1:1 basis without slippage through the PSM.
This mechanism maintains price stability through market arbitrage. If USDD trades below $1 in the secondary market, arbitrageurs can exchange it through the PSM for other assets worth $1 to profit, thereby pushing the price back.
Data shows that as of September 8, 2025, the total volume of exchanges and redemptions by users through the PSM has increased by approximately 119% compared to the previous quarter, indicating that the mechanism can effectively respond to large-scale demand fluctuations.
What is more attractive is that holding USDD is no longer static. Through products like sUSDD (yield-generating USDD) within its ecosystem, holders can participate in decentralized finance protocols and earn interest income.
In the early stages of its launch, to celebrate its native deployment on Ethereum, USDD even launched an incentive program, offering tiered annualized returns of up to 12% for holding native USDD on Ethereum.
07 Multi-chain strategy and the future
The development path of USDD reflects the pursuit of open interconnectivity. It was initially born on the TRON blockchain and completed its native deployment on Ethereum in September 2025.
This step is significant, marking its successful integration into the world's largest and most ecologically rich Layer 1 blockchain network. In the future, USDD plans to gradually expand to more mainstream public chains, breaking ecological barriers to achieve free and efficient connectivity between users and assets.
This multi-chain strategy allows it to reach a broader range of users and application scenarios, no longer limited by the performance or ecological boundaries of a single blockchain.
#USDD is stable and trustworthy. Amidst the dramatic fluctuations in traditional financial markets due to liquidity tides and ambiguous policy prospects, this 'stability' and 'trustworthiness' does not come from the promises of authoritative institutions, but rather from visible mathematical rules and on-chain verified excess assets.
While Federal Reserve officials are still debating what the exact level of 'ample reserves' should be—$3 trillion or $2.7 trillion—a financial experiment based on code and global consensus is accelerating.
U.S. Treasury yield curves, interbank overnight rates, central bank balance sheets—these ancient indicators that once dominated the prices of all financial assets are now facing challenges from the incessant settlement buzz on the blockchain.
In the next decade, true financial sovereignty will not belong to those who control the faucet, but to those who own the autonomous pump.
