jakiro
Author: Wang Yongli, Source: China Economic Times
At the urging of US President Trump, the “Guiding and Establishing a US Stable Coin Country Innovation Act” (hereinafter referred to as the “US Stable Coin Act”) was signed by the president on July 18 and immediately took effect before the “Stable Coin Regulations” in Hong Kong, China.This has aroused high attention and heated discussion around the world, and has been interpreted by many people as a new manifestation of the fierce game of global monetary power. It will drive more countries and regions to accelerate their fiat currency legislation. New stablecoins will emerge in large quantities and expand on a large scale, and reconstruct the international monetary system and financial market rules.
The fiat stablecoin pegged to fiat currency is the first US dollar stablecoin “USDT” launched by the US Tether in early 2015. It has a history of more than 10 years and has driven the accelerated development of the new US dollar stablecoin “USDC” and other stablecoins.By June 2025, the market value of the US dollar stablecoin exceeded US$250 billion, accounting for more than 95% of the total stablecoin market value.However, the legislative regulation of stablecoins has just begun, and the relevant bills have been launched in a hurry, and there are still things worth modifying and improving, especially in the understanding of stablecoins and crypto assets. We still need to break through the existing thinking constraints and observe and grasp them accurately from a higher perspective and a larger dimension.
The most prominent feature of stablecoinsIt is a “on-chain cryptocurrency”
Fiat currency stablecoins are reserves for assets specified in a certain fiat currency to maintain a stable ratio to the fiat currency, but they need to be converted into cryptocurrencies that can be used in a borderless global blockchain system.Unlike general non-cash digital currencies (including currencies saved in deposit accounts or e-wallets), stablecoins are special “on-chain cryptocurrencies”.
Cryptocurrencies on the chain are no longer tangible banknotes and coins. They only present a string of characters. They are not only the owner’s registered address on the chain, but also the account address of their currency on the chain (registration is to open an account). Behind them are the owner’s identity information, private passwords, account balances, smart contracts and other elements. The blockchain platform needs to use distributed ledger technology to encrypt and protect the entire process of account operation to ensure that it is authentic, transparent and secure, and there is a major difference from the traditional fiat currency expression form and operating model.Therefore, talking about stablecoins without blockchain is unrealistic and deviating from the fundamentals.
The most fundamental application of stablecoinsThe scene is “on-chain encryption world”
At the beginning of 2009, the on-chain native crypto assets “Bitcoin” and its blockchain, created with the highly integrated integration of blockchain and encryption technology, were officially launched. Then the Ethereum blockchain and its native crypto asset “Ether” appeared, which gave birth to more on-chain derivative crypto assets (commonly known as “altcoins”) that raise Bitcoin or Ether through the initial ICO of the new currency and traded and circulated on the blockchain, as well as crypto asset trading platforms for the placement, trading and exchange of these crypto assets. They can globalize 7×24 hours of uninterrupted transactions on the chain, form a “on-chain encryption world” without borders and accelerate development.”On-chain encryption world” has become one of the most important innovative achievements of human beings in the use of blockchain and encryption technology in the 21st century, and will have a profound impact on the human world. We must pay close attention to this.
However, the development and operation of blockchain, its output and transaction of crypto assets require a large off-chain cost (fiat currency) investment. If you can only obtain revenue from crypto assets such as Bitcoin, it cannot be easily converted into fiat currency, which is far from meeting the needs of crypto assets development.At the same time, fiat currency cannot be attracted to invest in crypto assets, and the value of crypto assets is difficult to effectively realize.Especially for crypto assets such as Bitcoin and other chains, the ratio of fiat currencies such as the US dollar often fluctuates violently. It is very difficult to directly use Bitcoin and other goods as currency and necessities in the off-chain world.These factors have given rise to a unique fiat currency stablecoin that connects off-chain fiat currencies with chain-generated crypto assets.As a result, the “on-chain encryption world” has become the most fundamental source of demand and application scenario for fiat currency stablecoins.
Fiat currency stablecoins promote stronglyOn-chain encryption world development
Blockchain and encryption technology are highly integrated. Although it has spawned on-chain native and derivative crypto assets such as Bitcoin, and even non-fungible digital twin crypto assets “NFT”, etc., there is no full participation of legal currency. These crypto assets are mainly limited to the on-chain crypto world, which is difficult to fully reflect their value and difficult to have a great impact on the real world off-chain.The emergence of fiat currency stablecoins has become a value channel connecting the crypto world and the real world. It can adapt to the needs of globalization of 7×24-hour uninterrupted transactions and payment clearing on the crypto asset chain, which has strongly supported the development of the crypto world. Moreover, as a real-world asset, fiat currency stablecoins have opened the precedent and successful case of real-world asset chain (RWA), and have driven the emergence of more RWA products.
However, since stablecoins also emphasize decentralization and supervision, they have not been legally recognized and protected by regulatory measures, and serious problems have indeed arisen in the development process. As a result, banks and other financial institutions cannot actively participate, which has also greatly restricted the development of stablecoins and crypto worlds.Now, the legislation of fiat currency stablecoins and even the entire crypto assets has been implemented, establishing the legitimacy of fiat currency stablecoins and crypto assets, which will surely promote a large number of financial institutions such as banks and promote the accelerated development of the on-chain crypto world to become an irreversible major trend – this should be the most important contribution of the US stablecoin legislation.
The fiat currency stablecoins not only adapt to the development needs of the crypto world, but also promote the accelerated development of the crypto world. The two complement each other and promote each other.It is not placed in the context of the on-chain crypto world, but is limited to the field of monetary and financial, and it is difficult to understand and grasp stablecoins.
Crypto assets cannot becomeThe real currency in the crypto world
Although native and derivative crypto assets on the chain such as Bitcoin and Ether have always been named “coin” (called “cryptocurrency” or “digital currency”), practice has proved that they cannot become real currencies, but can only be a new type of crypto (digital) asset.It is precisely because of this that the emergence and support of fiat stablecoins are needed.
Currency has a history of thousands of years in human society. Its manifestation form (or carrier) and operation methods have been continuously improved, from the original natural physical currency (such as shell coins), to standardized metal coins (such as copper coins, gold coins, silver coins), and then to metal standard paper coins, and further developed to pure credit currency (depart from the real and to virtual, highlighting its essence) that changes from the value support of any specific item to maintain the change of the total currency value according to the change of the total value of tradable wealth, constantly improving efficiency, reducing costs, strictly preventing and controlling, and better playing its functional role.
The development and changes of money are determined by its fundamental connotation: the essential attributes of money are the value scale (dividable and summarizable), the core function is the medium of exchange (value transfer and delivery tool), and the fundamental manifestation is the value token (transferable value claim warrant) with the strongest liquidity (requiring the highest credit support within the circulation range). These three are indispensable core elements for fully describing currency.
Among them, as a value scale, the most fundamental requirement of currency is its singularity and basic stability of currency value.This requires that the total amount of money must change with the change of the total value of tradable wealth, which is adjustable and flexible, and can ensure the basic stability of the currency value on the basis of full supply.Therefore, any physical objects that originally act as currency, such as shells, bronze, gold, silver, etc., cannot keep up with the infinite growth of the value of tradable wealth, must exit from the currency stage and return to their original nature as tradable wealth.Now we must also implement the gold standard, or find new specific items (such as rare earths) with limited supply as currency or currency standard, which violates the principle of currency and is difficult to succeed.This is also the fundamental reason why crypto assets such as Bretton Woods system (to promote international currency to return to the gold standard) will inevitably collapse, and Bitcoin (total amount and phased new increments are completely locked and unadjusted) will be difficult to become real currencies, and stablecoins that are not anchored to a single fiat currency are difficult to succeed; currency must be withdrawn from any one or several specific items and become pure fiat credit currency, highlighting its essential attributes.
Here, the carrier or expression of money must be distinguished from the currency itself.Shells, coins, paper money, etc. are the carriers or expression forms of money, rather than the currency itself.The expression and operation mode of currency are constantly moving towards intangible, digital and intelligent directions. The proportion of cash and cash payments in the total amount of money and the total amount of payment is getting lower and lower. Currency is more manifested as deposits (expressed by account numbers) and deposit transfer payments/account settlements. The tangible cash (banks and coins) will eventually completely withdraw from the currency stage. It is completely wrong to equate currency with cash.At the same time, we must accurately grasp the connotation of “currency” or “currency”. All crypto assets on the chain cannot be called “currency” or “tokenization”. Bitcoin, altcoins, NFT, RWA, etc. can only be assets, not currencies.
On-chain crypto world is currencyFinance brings profound changes
Constrained by many practical problems, in the current legal currency system, except for a small amount of cash that can be directly collected and paid by both the receiving and paying parties, more and more currencies are stored in payment and clearing institutions such as banks. Both the receiving and paying parties need to use the clearing agency as an intermediary to handle the transfer of currency through transfer payment/accounting settlement.Among them, if both parties to pay and pay the payment open an account in one bank, the transfer payment only requires one intermediary for the bank to open an account; if both parties to pay and pay the payment open an account in different banks, and the two banks have opened a clearing account, two banks are required as two intermediaries; if the two banks do not establish an account relationship, they need to find a bank with a common account relationship to “built a bridge” to ensure the account relationship is connected in order to complete the transfer of currency from the payer to the payee, and thus three or more intermediaries are required.In cross-border payment clearing, more than three intermediaries are basically required, and different payment and clearing systems in different countries and regions must be used to handle payment notifications with different texts and rules.In this way, the more intermediaries are involved, the more complex the payment notification and clearing system will be, the lower the efficiency and higher the cost of payment and clearing.
In order to improve the efficiency of payment and clearing and reduce related costs, centralized account opening system is basically implemented in all countries, and various clearing agencies are opening accounts in clearing centers to minimize the number of bridge intermediaries.At the same time, the Global Interbank Financial Telecommunications Association (SWIFT) with extensive connections and intensive sharing has been established internationally to promote the high standardization and unified payment messages and global network processing, so as to greatly improve the efficiency and cost of payment and clearing.However, since payment and clearing intermediaries are difficult to significantly compress or even completely eliminate, it is difficult to make fundamental breakthroughs in efficiency and cost of cross-border payment and clearing.
The emergence of the on-chain encryption world has brought a huge turning point to the above problems.On the borderless globalization public chain, the rules are built into the system (coding is the rule), and users register and open an account, which fully realizes payment and clearance directly handles point-to-point intermediary with the payee. The efficiency and cost are greatly improved, and the advantages over traditional cross-border payment and clearance are very significant.At the same time, pushing financial products to the public chain can be sold and traded globally, greatly breaking through the scope limitations of off-chain financial markets and easily gaining larger-scale investors and funds.This will surely attract more financial products, especially securities products (stocks, bonds, money funds, etc.) with a high degree of digitalization and standardization, to pour into the chain through RWA, making the types of crypto assets on the chain more abundant, transactions more active, and impact more significant.
More profound changes may be: the legislation of stablecoins and crypto assets will promote widespread participation of banks and other financial institutions. Through their connection with various public chains, it will support customers to directly convert off-chain fiat currency deposits into on-chain tokens or directly transfer on-chain tokens back to fiat currency deposits, reducing the additional links and costs of non-bank payment institutions such as fiat currency and stablecoins to be engaged in the conversion of fiat currency and stablecoins, and replacing stablecoins will become a more convenient channel to connect the crypto world and the real world.This will reduce the challenges brought to regulation by many different stablecoins in a fiat currency, and it will easily implement regulatory requirements such as on-chain token statistics and customer real-name system (KYC), anti-money laundering (AML), and anti-terrorist transmission (CFT), curb the rapid expansion of fiat currency stablecoins to have a major impact on the existing financial system, enhance the opportunity for all countries to use the public chain equally, and to the fiat currency stablecoins issuing entities and the existing market structure (including the absolute leading position of US dollar stablecoins), the survival space of stablecoins and various “altcoins” that have not been included in the supervision, and to promote the acceleration of RWAization of traditional financial transaction products and attract traditional licensed institutions to participate in crypto asset trading and crypto exchange operations, which may also have a substitute for the central bank’s digital currency (CBDC).
In this regard, China should have a clearer understanding and more advanced measures, focusing on developing RMB stablecoins (the space is quite limited), but accelerating the legislative process, accelerating the entry of banks, accelerating the development of RWA, and achieving overtaking in the lane.
On-chain encryption world legislation regulationNeed to be continuously strengthened and improved
The emergence and development of fiat currency stablecoins have promoted the on-chain crypto world to accelerate the extension of chain-generated (native and derived) assets to RWA. The global public chain has also begun to act as an intermediary for off-chain cross-border settlement and remittance clearing, promoting the continuous deepening of the on-chain crypto world and off-chain real world and increasing the impact, which has brought a profound impact on existing currency sovereignty and financial supervision. The lack of effective supervision is very terrible. It is necessary to effectively strengthen the supervision of real-world assets (especially fiat currency) from the actual chain and the links of out-of-chain real-world out-of-chain real-world assets (especially fiat currency) to meet the requirements of KYC, AML, CFT and other requirements.
Now, the legislative supervision of fiat currency stablecoins and the entire crypto assets has just begun. We need to seek a balance between encouraging innovation and preventing risks, individual interests of countries or consortiums and common interests of mankind, improve implementation rules, and control key risks. In particular, we need to prevent the United States from fully supporting the crypto industry through legislative methods and weakening necessary supervision; we need to break through the constraints of traditional thinking in the real world, attach great importance to, carefully study, and accurately grasp the development of the crypto world; we need to actively participate in the establishment of rules and order in the crypto world, and strengthen international cooperation.
The basis and rules for the operation of the crypto world are the blockchain system and its built-in rules. The one with the widest coverage and greater influence is the globalized public blockchain (there are many global public chains now, such as Ethereum, Solana, Binance Chain, Polkadot, etc.).Therefore, the global universality and fairness of blockchain rules, the full transparency and security of blockchain operation have become the crucial foundation for the on-chain encryption world. It is necessary to encourage the development and fair competition (efficiency, cost, fairness, security), survival of the fittest, and continuous improvement to prevent blockchain from being controlled and utilized by individual countries or interest groups.
In summary, the profound impact of US stablecoin legislation may exceed expectations.
(The author is the former vice president of Bank of China)
