Author: Li Nannan, Source: Get Headlines
Recently, there's been a lot of coverage regarding stablecoins. There's official news, like Trump signing the "Genius Act" and the Hong Kong Stablecoin Ordinance taking effect on August 1st. Then there are the more unwelcome scams disguised as stablecoins.
The official definition of a stablecoin is a digital currency pegged to a real asset.
However, beyond this simple definition, the concept is shrouded in a web of peripheral concepts, including blockchain, web3.0, RWA, the US debt crisis, dollar hegemony, decentralization, the "Genius Act," and more, making it significantly more difficult to understand. Today, we'll explain what stablecoins are, why they emerged, and what potential they hold for the future. Hopefully, after reading this article, you'll be able to grasp the key points immediately when you encounter related news. Hegemony and anti-hegemony: The long-term tug-of-war for the US dollar First of all, to understand stablecoins, you can't just focus on the stablecoins themselves. It's like listening to a story. If you want to know who Sun Wukong is, you have to understand the entire story of Journey to the West. Next, let's talk about this story about stablecoins.
Some parts of the story are relatively simple, so we'll just treat them as a review. We'll also spend some time on the important parts, pausing to highlight the key points.
Americans have always had a goal: they want all countries in the world to use the US dollar for settlements when doing business. If I want to buy something from you, I have to first exchange my money into US dollars and give it to you. Then, after receiving the US dollars, you can exchange them back into your country's currency.
How does this benefit them? Obviously, first, the United States itself is in an almost completely secure position because the whole world recognizes its money, and there's never any worry about not being able to buy things.
Secondly, they can easily influence the economies of other countries. For example, other countries convert large amounts of money into US dollars for easier purchases, and these US dollar reserves are often stored in US banks or financial institutions. If a country antagonizes the US, the US can simply freeze its US dollar accounts. Furthermore, there are many other, almost unjustifiable, advantages. This state of affairs is what we often refer to as US dollar hegemony. So, if other countries know they will be constrained by the US, why do they still use the US dollar? Because the US dollar is sufficiently stable. Simply put, it has a very stable purchasing power. In the 1970s, the United States reached an agreement with Saudi Arabia, the world's largest oil exporter, to sell military weapons to Saudi Arabia to ensure its national security. In return, Saudi Arabia would only accept US dollars for all future oil sales. Regardless of your nationality, if you wanted to buy oil, you had to first convert your own currency into US dollars. Later, all oil-exporting countries followed Saudi Arabia's lead and established similar rules. This meant that as long as you had US dollars, you could always be sure to buy oil. Oil is a hard currency, and every country needs it. Therefore, recognizing the value of oil was equivalent to recognizing the value of the US dollar. Furthermore, combined with the US's political and military influence, other countries no longer had to worry about the US dollar suddenly becoming worthless for various reasons. This practice of tying the currency to oil is similar to what's known in economics as an anchor. We often say the dollar is anchored to oil, and this is exactly what it means. After being anchored to oil, the dollar's hegemony continued to operate stably for many years, and the dollar remained the world's currency. In this process, the United States reaped numerous benefits, using both coaxing and intimidation to frequently interfere in the economies of other countries using the dollar's hegemony. However, after many years of this game running smoothly, many problems emerged. Some were obvious and out in the open. Others, like the tip of an iceberg, were just beginning to surface. First, the link between the dollar and oil began to loosen. This is a key challenge, but it won't immediately end the dollar's hegemony. After all, over the past few years, countries around the world have already converted vast sums of money into dollars in trade. The dollar still holds the largest share of global foreign exchange reserves. In the first quarter of 2025, dollar-denominated assets still accounted for 57.7% of global foreign exchange reserves. Dollar-denominated assets include the US dollar, US Treasury bonds, and US dollar deposits. Furthermore, the United States has developed a mature financial infrastructure over the years, and many countries have become accustomed to it. To put it bluntly, while the dollar remains convenient and reliable for many countries, the foundations behind its hegemony are complex and will not be easily dismantled. But in the long term, challenges remain. Secondly, the dollar itself is beginning to experience a crisis of confidence. People used to have great trust in the dollar, and now generally trust it again, but not as much as before. There are many factors behind this, for example, the United States' own debt is enormous. It has now reached an unprecedented $37 trillion, with annual interest payments alone exceeding $1 trillion. The most extreme scenario that could arise is that the United States prints money to repay its debt, which would directly lead to a devaluation of the dollar. Of course, this is just an extreme scenario. The actual situation in the United States is much more complicated. But ultimately, for a country, neither having any debt nor having too much debt is a good thing. Having no debt indicates insufficient economic development, while having too much debt could cause concern. The United States currently faces the latter situation. At the same time, internal polarization and political divisions in the United States have exacerbated concerns about the dollar. Simply put, the United States owes a massive amount of foreign debt, coupled with internal unrest. Many may question whether the currency it issues is still as reliable as before. Finally, given these concerns, other countries cannot afford to remain stagnant. Moreover, even without these issues, given the United States' past abuse of financial sanctions, other countries are unlikely to want to remain constrained by the United States. Therefore, many countries have long been attempting to de-dollarize. Although, as mentioned earlier, the US dollar still accounted for over 57% of global foreign exchange reserves in the first quarter of this year, it's worth noting that in 1999, this figure was 71%. The downward trend is very clear. In other words, the current global situation is one in which the United States wants to maintain the dollar's hegemony, while many countries seek to break free from it. While the establishment of dollar hegemony is a complex process in the short term, involving the interests of various countries and the United States' military influence, this tug-of-war is evident in the long term. Blockchain Opens the Door to a New World of Web 3.0 At this point in the story, the conflict reaches its peak. It's at this juncture that a key variable emerges: blockchain. There's been a lot of news about blockchain in recent years, but here, we only need to remember one of its attributes. Blockchain has opened up a new avenue for transactions. The core feature of blockchain is that it's a distributed ledger technology that's decentralized. For example, in the past, if Zhang San wanted to transfer 100 yuan to Li Si, he had to go through a bank. Zhang San would submit an application to the bank, and the bank would then transfer the money to Li Si. Although in reality, this process is so seamless that you can't even feel the bank's presence, in reality, it still requires the central bank. Blockchain is just a distributed ledger technology, and transactions are one of its use cases. Our discussion today will focus on this specific scenario. In a transaction, if Zhang San and Li Si both use blockchain technology, they can bypass the bank. Zhang San initiates an operation to transfer 100 yuan to Li Si, and the money is directly deducted from Zhang San's account and transferred to Li Si's account. No one needs to go through the middle. You might argue that without a witness, the transaction is meaningless. Not really. Blockchain transactions have a key design called synchronization. Whenever Zhang San initiates a transfer from Li Si, Zhang San's account simultaneously broadcasts it to all blockchain nodes worldwide, announcing that he has transferred 100 yuan to Li Si. All blockchain nodes worldwide then record this transaction. To alter even one link, you'd have to first undo all the subsequent links, an endless process that's practically impossible. This is another characteristic of blockchain: it's tamper-proof. Based on the aforementioned synchronized recording and tamper-proof nature, many believe that blockchain offers significant advantages and will become a key future direction. What if, one day, the entire internet reaches a decentralized state? Uploading videos won't require going through video platforms, and transactions won't require going through banks. This state is called Web 3.0. Stablecoins are a new dimension of financial speculation in the digital world. Seeing this, some might ask, after all this talk about blockchain, what does it have to do with the US dollar's hegemony? Since the emergence of blockchain has opened up a new transaction channel, for the US, if it can dominate this new transaction channel, it can maintain the dollar's hegemony. If it abandons this new transaction channel, it will further lose the dollar's hegemony. Obviously, the United States will choose the former and seize this new trading channel. How? One of the most crucial ways is to allow everyone to continue using the U.S.-issued currency in the blockchain world. And if you want everyone to use your currency, your currency must have advantages and be easy to use. Where does this advantage come from? This brings us to the issue of the various currencies originally in the blockchain. Originally, the blockchain world had other types of currencies, such as Bitcoin and various other so-called cryptocurrencies. However, while these currencies are nominally called currencies, their essence is more like collectibles. As long as people recognize their value and speculate on them, they have value. As long as no one recognizes their value, they have no value. Therefore, you often see Bitcoin's price fluctuate wildly. Clearly, such drastic fluctuations make it unsuitable for use as a currency. In other words, many so-called cryptocurrencies are not "stable." Why is this unstable? Because they lack a stable anchor to their value. Just like the US dollar was previously pegged to oil, many cryptocurrencies lack these real-world anchors. Therefore, theoretically, if a currency issued on a blockchain can address this "stability" issue, then it has advantages and others may be willing to use it. The United States has used stablecoins to address this "stability" issue. Stablecoins fall into several categories, including algorithmic stablecoins, crypto-collateralized stablecoins, and fiat-collateralized stablecoins. Currently, the most mainstream, and likely to be the most mainstream in the future, is the latter type: fiat-collateralized stablecoins. Why are they so stable? Fiat-collateralized stablecoins require the issuer to deposit one US dollar in a bank for each stablecoin issued. Issuing 100 million coins requires a deposit of $100 million. Furthermore, once this money is deposited in the bank, it must be segregated from regular deposits and cannot be freely loaned out. This also means that as long as I have stablecoins, I can exchange them for US dollars at a one-to-one ratio at any time. This is because the bank always has this amount of money waiting to be exchanged. Have you noticed that using stablecoins in the digital world is essentially still similar to using US dollars? This is because stablecoins are pegged to the US dollar, just like the US dollar was once pegged to oil. For the United States, stablecoins have two clear benefits. In the long term, it could extend the dollar's hegemony into the digital world. This is equivalent to occupying a new transaction channel and gaining a leading position in the decentralized trading system. In the short term, a significant portion of the funds deposited by stablecoin issuers in US banks will likely be invested in US Treasury bonds. Setting aside the specifics for now, the overall effect of increasing investment in US Treasury bonds is undoubtedly positive for the US. This, in turn, could, to a certain extent, address the US debt problem. Stablecoins themselves are not new; they have existed in the US for many years. The Genius Act signed by Trump this year isn't essentially about inventing a stablecoin from scratch. Rather, it's about establishing the legality of stablecoins in the United States, introducing relevant regulations, and promoting their development from 1 to 100. So, from the perspective of other countries outside the United States, do you want to continue to be constrained by the dollar's hegemony in the digital world? Obviously not. Therefore, many countries are also experimenting with issuing their own stablecoins. For example, China has taken the first step, using Hong Kong as a bridgehead. The Hong Kong Stablecoin Ordinance, which came into effect on August 1st of this year, is designed to support the legal and orderly development of our own stablecoins. In other words, each party has its own problems to solve, and stablecoins represent the intersection of these solutions. For the United States, stablecoins offer both a short-term solution to its debt problems and a long-term means of extending the dollar's hegemony into the digital world. For China, stablecoins are both an effective supplement to transaction methods and a key attempt to establish our own monetary voice in the digital world. This is why many say stablecoins represent a new dimension of financial speculation in the digital world. This concludes our brief explanation of the history of stablecoins. It's important to emphasize that this presentation has been simplified in many ways and omitted for ease of understanding. The actual situation is far more complex.