GAIB Trendwatch | U.S. Treasury Downgrade: A Momentum for New Asset Class
On May 16, Moody’s downgraded the U.S govt’s credit rating from Aaa to Aa1. This downgrade has triggered renewed volatility in traditional debt markets and accelerated capital flows into alternative asset classes. Bitcoin surged to a new all-time high of $111,891.30 on May 22 — but it wasn’t the only winner. In the same week, GAIB successfully closed the second capital cap for AID Alpha, raising $15 million in under two hours. In this article, we’ll break down the macroeconomic forces behind the downgrade and examine how it’s reshaping market yields and creating a momentum for new asset classes.
Historical Adjustments in the U.S. Govt Credit Ratings
- August 5, 2011, S&P Global Ratings made headlines by downgrading the U.S. sovereign credit rating from AAA to AA+ for the first time, citing persistent political gridlock over raising the debt ceiling.
- August 1, 2023, Fitch Ratings downgraded the U.S.’s long-term foreign-currency issuer default rating from AAA to AA+ due to escalating fiscal deficits and a ballooning debt burden.
- May 16, 2025, Moody’s cut the U.S. govt’s credit rating from Aaa to Aa1, driven by mounting concerns over the unsustainable rise in national debt.
Snapshot of U.S. National Debt in 2024
By the end of 2024, the U.S. national debt had surged to $36.22 trillion. This figure translates to 124.3% of the country’s nominal GDP and an alarming 153.57% of real GDP (excluding inflation effects), As shown in the figure 1 below, the ratio of federal debt to GDP is projected to surpass the WWII level by 2029.
The cost of financing the debt has become staggering: interest payments alone exceeded $4.4 trillion, nearly eclipsing total government revenue, which stood at just $4.92 trillion. Among the revenue sources, individual income taxes remained the largest contributor at $2.426 trillion, reflecting an 11.9% year-over-year (YoY) growth. Payroll taxes contributed $1.71 trillion (up 5.9% YoY), while corporate income taxes added $530 billion — a notable 26.3% increase. Nonetheless, this was insufficient to close the fiscal gap, resulting in a $1.83 trillion budget deficit for the year, shown in figure 2.
The holders of the U.S. Debt
The national debt can be categorized into two components: debt held by the public and intragovernmental holdings. Public debt, which constitutes the majority at 79.68% (approximately $28.85 trillion), is issued to domestic and foreign investors. Domestic institutions and individuals collectively hold about 70.37% of this public debt, equating to $20.3 trillion. Among foreign creditors, Japan remains the largest with $1.06 trillion in holdings, followed by China with $750 billion and the United Kingdom with $723 billion.
Bond Market Reactions to Credit Downgrade & Tax-Cut Bill
Investor anxiety was swiftly reflected in the U.S.bond market as concerns over the growing national debt intensified. On May 21, the yield on 10-Y Treasury bonds reached a temporary hike of 4.597%, while 30-Y Treasury bond yields climbed past 5.09%, reaching their highest level since October 2023. The hike in long-term yields underscores mounting selling pressure, driven by investors’ fading confidence in the U.S. govt’s long-term creditworthiness.
Adding to the upward pressure on yields was the controversial tax-cut bill narrowly passed by the House of Representatives on May 22, with a vote of 215 to 214. Building on the 2017 tax cuts, the bill proposes sweeping exemptions — including eliminating taxes on tips, overtime pay, and Social Security benefits for retirees. Aligned with Donald Trump’s campaign pledges, it aims to lower tax burdens for individuals and corporations while rolling back clean energy incentives enacted under the Biden administration. The legislation now moves to the Senate for final approval.
Why Investors Are Selling Long-Term Treasuries
The sharp sell-off of long-term Treasuries stems from two primary concerns: worsening macroeconomic projections and fading confidence in U.S. fiscal discipline. Economically, the proposed tax cuts will likely increase disposable income, thereby fueling consumer spending. While this may support short-term growth, it risks reigniting inflation. Although the current core CPI stands at 2.8% — its lowest in 4 years — it remains above the Fed’s 2% inflation target. If the tax cuts are enacted, the Fed may be forced to delay rate cuts or even resume tightening to contain inflation
On the fiscal side, the reduction in tax revenue threatens to widen the budget deficit. The Congressional Budget Office projects that govt’s revenues will decline by $4.5 trillion from 2025 through 2034 if the tax bill becomes law. Without corresponding spending cuts, the deficit is projected to increase by roughly $3.8 trillion, pushing total federal debt toward the $40 trillion mark within the next decade.
Evidence of eroding confidence was further confirmed during the May 21 auction of newly issued 20-Y Treasury bonds. The $16 billion issuance saw a bid-to-cover ratio of just 2.26, compared to 2.63 in April and 2.78 in March, underscoring a visible cooling of investor appetite. The bonds cleared at a high yield of 5.047%, markedly above last month’s 4.810% and March’s 4.632%. These rising yields are indicative of the higher risk premiums investors now demand for holding U.S. govt’s debt.
Capital Reallocation: The Crypto Impact
As credit ratings slide, capital is beginning to flow into alternative assets. BTC emerged as a primary beneficiary, breaking through an all-time high of $111,673.28 on May 22. Spot BTC ETFs registered a cumulative net inflow of $3.01 billion between May 16 and May 23, as investors sought safer havens and high-growth potential outside of traditional finance.
GAIB’s AID (AI Synthetic Dollar) Gains Momentum
GAIB’s first product — AID, has seen a surge in demand during this same period of macro dislocation. Two rounds of AID pre-deposits were launched on May 12 and May 20, with the initial $5 million capital cap filling within just one hour and the second $15 million cap completed in under two hours. This remarkable investor interest underscores growing market appetite for new asset class backed real-AI yield.
During the AID Alpha campaign, users deposit stablecoins such as USDT or USDC to receive AID(alpha) at a 1:1 ratio. These will later convert into the official AID token once it is live. Early participants can earn Spices — points rewards that confer future benefits at TGE. Capital raised during the pre-deposit phases is initially allocated to short-term U.S. Treasury bills, and being progressively deployed into structured GPU financing deals through GAIB’s cloud partners, bringing tangible AI yields on-chain.
GAIB’s approach addresses the persistent financing gap in the AI infrastructure sector. High-performance GPU clusters — such as NVIDIA’s H100, H200, and GB200 — require substantial upfront capital investment, posing a major hurdle for small and mid-sized cloud providers. Traditional debt financing often favors hyperscalers with strong balance sheets, while equity financing imposes heavy dilution. Structured financing, although sophisticated, typically requires long-term contracts with major clients like Microsoft or OpenAI — agreements that smaller players cannot always secure.
GAIB steps in by offering flexible onchain capital deployment for offchain infrastructure needs. Through its three financing models — debt (fixed interest repayments), equity (revenue-sharing from GPU-based services), and hybrid structures — GAIB unlocks capital access for a wider array of cloud providers. This model not only democratizes access to AI compute but also enables crypto-native investors to gain exposure to real-world AI yield.
What’s Next?
GAIB launched Capital Cap 3 of AID Alpha on May 28th, expanding support to additional chains including Arbitrum and Base. Following the rapid full subscription of Caps 1 and 2, Cap 3 offers an open $35 million allocation, providing more opportunities for investors to participate.
Depositors in this Cap will receive a 5x multiplier on their Spice points, plus a great initiative for the community, the Fremen Essence.
Join movement now: https://aid.gaib.ai/
What is GAIB
GAIB is the first economic layer for AI and compute, transforming GPU-backed assets into yield-generating opportunities. Through AID, GAIB’s AI synthetic dollar, investors can seamlessly access the AI economy while earning real yield from AI-powered compute. Staking AID (sAID) allows token holders to earn rewards while maintaining liquidity, offering access to AI-driven financial markets.
GAIB also powers AI infrastructure by providing capital solutions for cloud providers and data centers, optimizing their access to compute resources. With integrations across DeFi protocols, including lending, borrowing, and structured products, GAIB bridges AI and blockchain finance, unlocking new opportunities at the intersection of technology and investment.
