Author: Wang Yongli, Source: China Economic Times
At the urging of US President Trump, the "Guidance and Establishment of a National Stablecoin Innovation Act" (hereinafter referred to as the "US Stablecoin Act") was signed by President Trump on July 18th and took immediate effect, just before the Hong Kong Stablecoin Ordinance took effect on August 1st. This has attracted widespread attention and heated discussion worldwide, and many interpret it as a new manifestation of the fierce global monetary power struggle. It will drive more countries and regions to accelerate their own legal tender stablecoin legislation, leading to the emergence and large-scale expansion of new stablecoins, and restructuring the international monetary system and financial market rules.
Fiat stablecoins, which are pegged to the same value as fiat currencies, were first launched by the US company Tether in early 2015 with the US dollar stablecoin "USDT". It has been in operation for over 10 years and has driven the rapid development of new US dollar stablecoins such as "USDC" and other stablecoins. By June 2025, the market value of US dollar stablecoins exceeded US$250 billion, accounting for more than 95% of the total market value of stablecoins. However, the legislative regulation of stablecoins has only just begun, and the relevant bills were hastily introduced. There are still areas that need to be revised and improved. In particular, in the understanding of stablecoins and crypto assets, we need to break through the constraints of existing thinking and observe and accurately grasp them from a higher perspective and larger dimensions. The most prominent feature of stablecoins is their "on-chain cryptocurrency." Fiat stablecoins use a specified range of assets as reserves against a particular fiat currency to maintain a stable exchange rate with that currency. However, they must be converted into cryptocurrency that can be used within a borderless, global blockchain system. Unlike conventional non-cash digital currencies (including those held in deposit accounts or e-wallets), stablecoins are specialized "on-chain cryptocurrencies." On-chain cryptocurrencies are no longer tangible banknotes or coins. Instead, they are simply strings of characters, representing both the owner's on-chain registration address and their on-chain account address (registration equates to account opening). Hidden behind these strings are the owner's identity information, private password, account balance, smart contracts, and other elements. Blockchain platforms utilize distributed ledger technology to encrypt and protect the entire account operation process, ensuring authenticity, transparency, and security. This represents a significant departure from the traditional fiat currency's form and operating model. Therefore, discussing stablecoins without considering blockchain is unrealistic and fundamentally unrealistic.
The most fundamental application of stablecoinsis the "on-chain crypto world".
At the beginning of 2009, the on-chain native crypto asset "Bitcoin" and its blockchain, created by the high degree of integration of blockchain and encryption technology, were officially launched. Subsequently, the Ethereum blockchain and its native crypto asset "Ether" appeared, which in turn gave rise to more on-chain derivative crypto assets (commonly known as "altcoins") that raised Bitcoin or Ether through the initial coin offering (ICO) and traded and circulated on the blockchain, as well as crypto asset trading platforms that provide services for the issuance, trading and exchange of these crypto assets. These can enable global 7×24 hours of uninterrupted trading on the chain, forming a borderless and decentralized "on-chain crypto world" and accelerating its development. The "on-chain crypto world" has become one of the most important innovations in the use of blockchain and cryptography in the 21st century, with profound implications for the human world and worthy of our close attention. However, developing and operating blockchains, as well as generating and trading crypto assets, requires significant off-chain investment in fiat currency. If income from crypto assets like Bitcoin is limited but cannot be easily converted into fiat currency, this falls far short of meeting the needs of crypto asset development. Furthermore, without attracting fiat currency investment in crypto assets, the value of crypto assets will be difficult to effectively realize. In particular, the exchange rate of blockchain-born crypto assets like Bitcoin against fiat currencies like the US dollar frequently fluctuates dramatically, making it extremely difficult to directly exchange Bitcoin for essential goods in the off-chain world. These factors have given rise to the unique fiat stablecoin, which bridges off-chain fiat currencies with blockchain-born crypto assets. Consequently, the "on-chain crypto world" has become the fundamental source of demand and application scenario for fiat stablecoins. Fiat stablecoins have significantly boosted the development of the on-chain crypto world. The deep integration of blockchain and cryptography has given rise to native and derivative crypto assets like Bitcoin, as well as non-fungible digital twins (NFTs). However, without the full participation of fiat currencies, these crypto assets are primarily confined to the on-chain crypto world, struggling to fully realize their value and exert a significant impact on the off-chain real world. The emergence of fiat stablecoins has become a valuable conduit connecting the crypto and real worlds, adapting to the global, 24/7, uninterrupted trading and payment settlement needs of crypto assets on-chain. This has strongly supported the development of the crypto world. Furthermore, as fiat currency is a real-world asset, fiat stablecoins have set a precedent and established a successful case for the on-chain real-world asset (RWA), driving the emergence of more RWA products. However, because stablecoins also emphasize decentralization and lack of regulation, they have not received legal recognition or regulatory protection. Serious problems have indeed arisen during their development, hindering the active participation of banks and other financial institutions, significantly hindering the development of stablecoins and the crypto world. Now, with the implementation of legislation for fiat stablecoins and, more broadly, crypto assets as a whole, establishing their legitimacy, this will undoubtedly encourage the participation of banks and other financial institutions, leading to the widespread on-chain trading of various standardized financial assets using RWAs. This will accelerate the development of the on-chain crypto world, becoming an irreversible trend—this is arguably the most important contribution of US stablecoin legislation. Fiat stablecoins both meet the needs of the crypto world and drive its rapid development. The two complement and reinforce each other. Without considering the broader context of the on-chain crypto world, and confining our understanding of stablecoins to the monetary and financial realm, it's difficult to fully understand and grasp them. Crypto assets cannot become true currencies in the crypto world. Bitcoin, Ethereum, and other on-chain native and derivative crypto assets, despite being often referred to as "coins" ("cryptocurrencies" or "digital currencies"), have proven in practice to be anything but true currencies, serving only as a new type of crypto (digital) asset. This is precisely why the emergence and support of fiat stablecoins is necessary.
Currency has a history of thousands of years in human society. Its form of expression (or carrier) and mode of operation have been continuously improved, from the initial natural physical currency (such as shell coins), to regulated metal coins (such as copper coins, gold coins, and silver coins), and then to metal-based paper currency, and further to pure credit currency (de-materialization, highlighting the essence) that is independent of the value of any specific item to keep the total amount of currency changing with the total value of tradable wealth. It continuously improves efficiency, reduces costs, and strictly controls and prevents and controls, so as to better play its functional role. The development and evolution of money are determined by its fundamental nature: its essential attributes are a measure of value (divisible and aggregable), its core function is a medium of exchange (a tool for value transfer and delivery), and its fundamental manifestation is a highly liquid token of value (a transferable right to claim value) (requiring the highest credit backing within its circulation). These three essential elements are essential to a complete description of money. As a measure of value, the most fundamental requirements for money are its singularity and basic stability. This requires that the total amount of money must fluctuate with the total value of tradable wealth, be adjustable and flexible, and be able to maintain basic stability in its value based on sufficient supply. Consequently, any physical objects that previously served as money, such as shells, bronze, gold, and silver, whose supply could not keep up with the unlimited growth of tradable wealth, must exit the monetary arena and return to their original purpose as tradable wealth. Continuing to promote the gold standard, or seeking a new, limited-supply commodity or commodities (such as rare earths) as currency or a monetary standard, violates the principles of money and is unlikely to succeed. This is also the fundamental reason why the Bretton Woods system (which pushed for a return to the gold standard for international currency) inevitably collapsed, why crypto assets like Bitcoin (with its completely locked and unadjustable total supply and periodic increases) have struggled to become true currencies, and why stablecoins not pegged to a single fiat currency have struggled to succeed. Currency must break away from any one or more specific commodities and become a purely fiat credit currency, highlighting its essential nature. Here, it is important to distinguish between the carrier or form of currency and the currency itself. Shells, coins, and banknotes are all carriers or forms of currency, not the currency itself. The form and operation of currency are continuously moving towards intangible, digital, and intelligent development. The proportion of cash and cash payments in the total currency and total payments is decreasing. Currency is increasingly manifested as deposits (represented by account numbers) and the transfer and payment/bookkeeping of deposits. Tangible cash (banknotes and coins) will eventually completely disappear from the monetary arena. Equating currency with cash is completely wrong. At the same time, we must accurately grasp the connotation of "currency" or "coin." We cannot call all on-chain crypto assets "coins" or "tokenized." Bitcoin, altcoins, NFTs, RWAs, etc. are all assets, not currencies. The on-chain crypto world is bringing profound changes to currency and finance. Constrained by numerous practical issues, in the current fiat currency system, while a small amount of cash can be directly received and paid between payees and payees, an increasing amount of currency is stored in payment and clearing institutions such as banks. Payees and payees must use clearing institutions as intermediaries to transfer currency through transfer payments or bookkeeping. If both payees and payees have accounts at the same bank, transfer payments only require one intermediary, the bank. If the payees and payees have accounts at different banks and a clearing account is established between them, two banks are required to act as intermediaries. If the two banks do not have an established account relationship, a bank with a common account must be found to "bridge" the account relationship to ensure the connection, thus requiring three or more intermediaries. Cross-border payment and clearing typically requires three or more intermediaries, utilizing different payment and clearing systems across different countries and regions, processing payment notifications with varying scripts and rules. Consequently, the more intermediaries involved, the more complex the payment notification and clearing systems, and the lower the efficiency and higher the costs of payment and clearing. To improve payment and clearing efficiency and reduce associated costs, countries generally implement a centralized account opening system, with clearing institutions maintaining accounts at clearing centers to minimize the number of intermediaries. Furthermore, the Society for Worldwide Interbank Financial Telecommunication (SWIFT), a widely connected and shared international network, has promoted highly standardized payment messaging and global network processing, significantly improving the efficiency and costs of payment and clearing. However, since it is difficult to significantly reduce or even completely eliminate the number of payment and clearing intermediaries, fundamental breakthroughs in the efficiency and costs of cross-border payment and clearing remain elusive. The emergence of the on-chain crypto world has brought a significant shift in the aforementioned challenges. On a borderless, global public blockchain, rules are built into the system (code is the rules), and user registration and account opening are instantaneous. This allows for direct, point-to-point payment and settlement between payers and payees, eliminating intermediaries. This significantly improves efficiency and costs, significantly outperforming traditional cross-border payment and settlement practices. Furthermore, by pushing financial products onto public blockchains, they can be sold and traded globally, significantly breaking the limitations of off-chain financial markets and facilitating the participation of a wider range of investors and funds. This will inevitably attract more financial products, particularly highly digitized and standardized securities (stocks, bonds, money market funds, etc.), to the blockchain via RWAs, enriching the variety of on-chain crypto assets, increasing trading activity, and significantly impacting their impact.
More profound changes may be: stablecoin and crypto asset legislation will promote the extensive participation of banks and other financial institutions, and through their docking with various public chains, support customers to directly convert off-chain fiat currency deposits into on-chain tokens or convert on-chain tokens directly back to fiat currency deposits, reducing the extra links and costs of non-bank payment institutions in converting fiat currency and stablecoins, and replacing stablecoins as a more convenient channel connecting the crypto world and the real world. This will reduce the regulatory challenges posed by the emergence of numerous different stablecoins for a single fiat currency, facilitate the implementation of on-chain token statistics, know-your-customer (KYC) systems, anti-money laundering (AML), and counter-terrorism financing (CFT) regulations, curb the significant impact of the rapid expansion of fiat stablecoins on the existing financial system, enhance opportunities for countries to equally utilize public blockchains, and profoundly impact the issuers of fiat stablecoins and the existing market landscape (including the overwhelming dominance of US dollar stablecoins), the viability of unregulated stablecoins and various "altcoins," and the international influence of SWIFT. It will also accelerate the conversion of traditional financial transaction products to RWAs and attract significant participation from traditional licensed institutions in crypto asset trading and crypto exchange operations, potentially creating an alternative to central bank digital currencies (CBDCs). Regarding this, China should have a clearer understanding and take more proactive measures. The focus should not be on developing RMB stablecoins (where space is quite limited), but rather on accelerating the legislative process, accelerating the entry of banks, and accelerating the development of RWAs to achieve overtaking in other sectors.
Legislative supervision of the on-chain crypto worldneeds to be continuously strengthened and improved
The emergence and development of fiat stablecoins have accelerated the extension of the on-chain crypto world from chain-born (native and derived) assets to RWA. Global public chains have also begun to act as intermediaries for off-chain cross-border settlement and remittance clearing, promoting the deepening and increasing integration of the on-chain crypto world and the off-chain real world, which has brought profound impacts on existing monetary sovereignty and financial supervision. The lack of effective supervision is very scary. It is necessary to effectively strengthen the supervision of the links of real-world assets (especially fiat currency) from being put on the chain and returning to the real world to meet KYC, AML, CFT and other requirements. Currently, the legislative and regulatory framework for fiat stablecoins and crypto assets as a whole is just beginning. A balance must be struck between encouraging innovation and preventing risks, and between the individual interests of nations or consortiums and the common interests of humanity. Implementation details must be refined and key risks must be managed. In particular, we must guard against the United States weakening necessary regulation by fully supporting the crypto industry through legislation. We must break free from the constraints of traditional real-world thinking and attach great importance to, carefully study, and accurately grasp the development of the crypto world. Responsible major powers must actively participate in establishing rules and maintaining order in the crypto world, and strengthen international cooperation. The foundation and rules governing the operation of the crypto world are the blockchain system and its built-in rules. The most widespread and influential are the borderless, global public blockchains (there are already many global public chains, such as Ethereum, Solana, Binance Chain, and Polkadot). Therefore, the global applicability and fairness of blockchain rules, as well as the full transparency and security of blockchain operations, have become crucial foundations for the on-chain crypto world. We should encourage the development of decentralized, non-state-owned public chains, fair competition (efficiency, cost, fairness, and security), survival of the fittest, and continuous improvement to prevent blockchain from being controlled and exploited 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 the Bank of China)
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