What exactly is the stablecoin that is hotly discussed around the world?

What exactly is the stablecoin that is hotly discussed around the world?

At a time when the price of Bitcoin continues to fluctuate violently and the efficiency of global cross-border payments is criticized, a digital currency called "stablecoin" has emerged. In the rapid development of cryptocurrencies, stablecoins were once regarded as a "safe haven" to hedge against volatility risks, and their value has always been anchored in real assets such as legal currency or gold. However, with the iteration of technology and the breaking of the ice in supervision, emerging stablecoins are breaking away from the single scene of encrypted transactions and pouring into the blue ocean of daily economic life like running water - from cross-border trade to game consumption, from inclusive finance to social governance, a silent but profound change has begun.

From the passage of the Stablecoin Ordinance by the Legislative Council of Hong Kong to the approval of the Genius Act by the US Senate, from JD.com and Ant Group scrambling to apply for licenses to the stock price of Circle, the "first stablecoin stock", soaring tenfold in ten days - stablecoins are sweeping the global financial system as a disruptor. But what is it behind the noise? How will it rewrite our financial future?

1. The essence of stablecoins: the "ballast stone" of the crypto world

1. Stablecoins are special cryptocurrencies that maintain price stability by anchoring real assets (such as the US dollar, gold or a basket of currencies). Unlike the violent fluctuations of Bitcoin, its core mission is to provide certainty:

• Value stabilization mechanism: Fiat-collateralized stablecoins represented by USDT (Tether) and USDC (USD Coin) promise to deposit $1 or equivalent government bonds in the bank for every coin issued, ensuring a 1:1 rigid redemption.

• Technical stability guarantee: Relying on the immutability and real-time settlement capabilities of blockchain, the entire transaction can be traced to avoid credit risks in traditional payments.

• Enhanced regulatory compliance: Both the Hong Kong Stablecoin Ordinance and the US Genius Act require issuers to disclose reserves, accept audits, and prohibit interest payments to protect user rights.

2. Type classification reveals its diversity:

• Fiat-collateralized (such as USDT, USDC): centralized issuance, relying on US dollar reserves, accounting for 85% of the market share.

• Crypto-asset collateralized (such as DAI): decentralized operation, generated through over-collateralization of crypto assets such as ETH.

• Algorithmic stablecoins (such as the collapsed Terra/UST): no real asset endorsement, relying on supply and demand algorithm adjustment, excluded by regulators due to high risks.

The Bank for International Settlements (BIS) hit the nail on the head: Stablecoins are essentially "tokenized fiat currencies" and do not create new value, but are a digital extension of the existing monetary system.

3. In traditional cognition, the core function of stablecoins is to provide liquidity for the cryptocurrency market and act as a "transit station" for transactions of high-risk assets such as BTC and ETH. But now, its application boundaries are being redefined:

• Consumer payment field: Hong Kong e-commerce platforms have supported users to use USDC to directly settle orders, and the time for funds to arrive has been shortened from several days in traditional banks to seconds, and cross-border fees have been reduced to 1% of traditional channels; on social platforms, creators can receive rewards from multinational fans through stablecoins, bypassing the high commissions and currency exchange barriers of the platform.

• Empowerment of the real economy: In the Southeast Asian durian trade chain, merchants use USDC to replace bank transfers, and the single transaction fee has dropped sharply from US$120 to US$1.2; multinational companies use on-chain stablecoins to transfer funds between subsidiaries in seconds, reshaping the efficiency of global supply chain finance.

• Digital ecological infrastructure: Games and the metaverse set stablecoins as "universal legal tender", and players can freely purchase virtual land, props and circulate assets across platforms; in decentralized finance (DeFi) protocols, stablecoins as collateral for lending support more than 60% of the locked value, providing users with barrier-free "on-chain banking" services.

2. Why did it break out? Hitting the three major pain points of the financial system

The rise of stablecoins is by no means accidental. It accurately hits the chronic disease of the traditional financial system:

1. Cross-border payment revolution

Low-cost and efficient settlement: The handling fee of traditional cross-border remittances is 6-8% and takes 3-7 days. The cost of stablecoin peer-to-peer transfer is less than 0.01 US dollars, and the account is transferred in seconds (such as USDC on Solana chain). The cost is reduced to less than 1%. Yiwu small commodity market and Philippine labor remittances have been widely adopted, and the annual transaction volume has exceeded 10 trillion US dollars.

Layer-2 expansion technology solves the problem of public chain congestion: Ethereum Layer-2 network reduces the single transfer fee to less than 0.1 US dollars, and the transaction speed exceeds Visa, making "buying coffee with stablecoins" from a gimmick into reality!

2. Fighting inflation and asset hedging

In economies where the credit of fiat currencies has collapsed, stablecoins are becoming the "digital lifeline" of the people:

• Fighting hyperinflation: Residents of Argentina (annual inflation rate of 211%) and Turkey convert their savings into USDT to hedge against the depreciation of their local currencies, and convert their salaries into stablecoins in real time to resist the depreciation of the lira; institutions such as PayPal have launched interest-bearing stablecoins (such as PYUSD with an annualized return of 3.7%) to attract corporate fund management needs. In 2024, 32% of young people under 35 in South Korea held stablecoins for daily consumption and wealth storage.

• Filling the gap in financial services: Users in remote areas of Africa only need a mobile phone to obtain basic services such as savings, payments, and micro-insurance through stablecoin wallets, realizing "mobile is banking". In 2024, Argentina's stablecoin deposits grew by 370% against the trend, demonstrating its inclusive potential.

3. The "blood" of Web3 ecology

As the infrastructure of decentralized finance (DeFi), stablecoins support three major scenarios:

• Transaction medium: Purchase digital artworks in the NFT market (such as paying with USDT).

• Mortgage tool: Pledge DAI in the loan agreement to obtain income.

• Real asset tokenization (RWA): Mapping real estate and bonds to on-chain tokens, and stablecoins become pricing and settlement units (for example, the scale of U.S. Treasury bond tokenization has exceeded US$22 billion).

III. Current situation and regulation: rational restraint in the carnival

1. The current market is characterized by a surge in scale and tightened regulation:

• Market size: The total market value has exceeded 250 billion US dollars, an increase of 11 times in 5 years, with USDT and USDC dominating.

• Companies are competing for layout: JD.com plans to apply for stablecoin licenses globally to reduce cross-border payment costs by 90%; Ant Group is promoting license applications in Hong Kong and Singapore.

• Concept stock speculation: The A-share "stablecoin concept sector" has risen for 22 consecutive days, and the share prices of companies such as Sifang Jingchuang have risen by more than 150% within the month, although most companies' businesses are still in the exploratory stage.

2. The global regulatory framework is accelerating:

The process of regulatory compliance clears institutional obstacles: Hong Kong's "Stablecoin Bill" requires mandatory 1:1 reserves and real-time audits; the US "Genius Act" allows banks to issue stablecoins and include 95% of reserves in FDIC insurance or US bonds, paving the way for institutional entry.

IMF Deputy Managing Director Li Bo emphasized that the core of supervision lies in clarifying the attributes of stablecoins - if defined as currency (similar to M0 circulating cash), stricter rules must be applied. Circle (USDC issuer), as the "first stablecoin stock", soared 10 times after listing, confirming the market's confidence in the compliance model.

Hong Kong Monetary Authority Chief Executive Eddie Yue called for calm: "Stablecoins are not investment tools, but means of payment, and have no room for appreciation."

IV. Risk Warning: Structural Defects Under the Halo

1. The Bank for International Settlements (BIS) pointed out sharply in its annual report that stablecoins "completely failed" in the test of the three pillars of the monetary system:

• Lack of unity: It cannot be unconditionally accepted like central bank currency, and the fluctuation of exchange rates of different stablecoins undermines the unified pricing function.

• Lack of flexibility: Users are required to prepay the funds in full, and it is impossible to meet the large-scale payment needs of the economy (such as sudden financing of enterprises) through credit expansion.

• Integrity crisis: Anonymity promotes money laundering and terrorist financing. In 2023, stablecoins accounted for more than 60% of illegal crypto transactions worldwide.

2. Deeper threats include:

• Erosion of monetary sovereignty: US dollar stablecoins account for 99% of the world, which may weaken the monetary control of emerging market countries and trigger capital flight (such as the sale of Nigeria's local currency).

• Repayment risk: The collapse of Silicon Valley Bank caused USDC to temporarily de-anchor, exposing the security loopholes of reserve assets.

• Market bubble: Circle's stock price soared 10 times in 10 days. After Guotai Junan obtained a virtual asset license, its stock price rose 200% in a single day. Speculative sentiment far exceeded the actual application progress.

When an Argentine housewife uses USDT to lock in the price of a basket of bread, when Southeast Asian merchants use USDC to connect the global network of durian trade, and when Hong Kong securities firms include Tether in comprehensive trading licenses - the narrative of stablecoins has quietly transformed from "encrypted accessories" to "scenario reconstructors".

V. Future Trends: "Digital Cash" Infrastructure in the Web3 Era

Despite numerous challenges, the prospects of stablecoins are becoming clearer in technology iteration and regulatory improvement:

1. Regulatory compliance: Countries will establish a licensing system and strengthen AML/KYC audits. The US GENIUS Act requires issuers to be federally registered institutions.

2. Complementary with central bank digital currency (CBDC): Digital RMB focuses on domestic payments, and stablecoins focus on cross-border scenarios, forming a layered system.

3. RWA (real asset tokenization) acceleration: It is predicted that the scale of stablecoins will reach 3.7 trillion US dollars in 2030, becoming the core settlement tool for the tokenization of stocks and bonds.

4. Web3 ecological integration: As the universal currency of DeFi and the metaverse economy, stablecoins will support innovative scenarios such as digital identity confirmation and automatic payment of smart contracts.

Stablecoins have evolved from "crypto accessories" to economic tools that penetrate national borders - it is not only the bread and money bag of Argentine housewives, but also the compliant assets in the Hong Kong securities license, and the "digital lifeline" of the world's 1 billion unbanked people.

Citi predicts that the market size will reach 3.7-16 trillion US dollars in 2030. This transformation, jointly promoted by technology, regulation and human needs, will eventually reconstruct the distribution map of financial power: when value flows no longer have day and night and boundaries, the form of currency is the measure of civilization.

As the IMF called for: countries need to collaborate to build a global regulatory framework so that stablecoins can truly serve the real economy, rather than becoming a speculative bubble or a challenger to sovereign currencies. When Hong Kong merchants use Hong Kong dollar stablecoins to collect African payments in seconds, and when Argentine workers use USDT to protect their life savings - these real needs are the ultimate meaning of the existence of stablecoins. Technology is always just a tool, and the protection of human value is the unchanging beacon in the evolution of finance.

The future has come, and only those who are stable can go far!