Wang Yongli: The profound impact of US stablecoin legislation exceeded expectations

Written by: Wang Yongli, China Economic Times

Editor's Note Before the Stablecoin Ordinance came into effect in Hong Kong, China, the National Innovation Guidance and Establishment of U.S. Stablecoins Act was efficiently passed by the U.S. Congress and signed into effect by presidential executive order. As soon as the bill was introduced, it immediately attracted great attention from the global market -- what is the strategic intention of the United States, whether it will accelerate the restructuring of the global capital flow pattern, whether it can promote the evolution of international monetary rules, and then affect the reform of the global financial governance system, and how the infrastructure standards such as blockchain behind it will stage a great power game. For these confusing questions, the China Economic Times invited experts in the field to demystify stablecoins and sort out the logical chain of the impact of the U.S. Stablecoin Act on all parties.

Core Views

The legislation on stablecoins and crypto assets will promote the widespread participation of banks and other financial institutions, and 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 through their docking with various public chains, reducing the additional links and costs of non-bank and other payment institutions engaged in the conversion of fiat currency and stablecoins, and replacing stablecoins as a more convenient channel connecting the crypto world and the real world.

At the urging of U.S. President Trump, the National Innovation Guidance and Establishment of U.S. Stablecoins Act (hereinafter referred to as the "U.S. Stablecoin Act") was signed by the President on July 18 and took effect immediately before the Stablecoin Ordinance came into effect on August 1 in Hong Kong, China. This has aroused great concern and heated discussions around the world, and has been interpreted by many as a new manifestation of the fierce game of global monetary power, which will drive more countries and regions to accelerate their own fiat currency stablecoin legislation, and new stablecoins will emerge in large numbers and expand on a large scale, reconstructing the international monetary system and financial market rules.

Fiat currency stablecoins pegged to the equivalent of fiat currencies were first launched by Tether in the United States in early 2015, and have been in operation for more than 10 years, driving the accelerated development of new US dollar stablecoins "USDC" and other stablecoins. By June 2025, the market capitalization of US dollar stablecoins will exceed $250 billion, accounting for more than 95% of the total stablecoin market capitalization. However, the legislative regulation of stablecoins has just begun, and the relevant bills are still worth revising and improving, especially in the cognition of stablecoins and crypto assets.

The most prominent feature of stablecoins is that they are "on-chain cryptocurrencies"

fiat currency stablecoins, which are reserved with assets within a specified range of fiat currency to maintain a stable ratio to the fiat currency, but need to be converted into a cryptocurrency that can be used in a blockchain system without borders. Unlike ordinary non-cash digital currencies (including currencies held in deposit accounts or e-wallets), stablecoins are special "on-chain cryptocurrencies".

The on-chain cryptocurrency is no longer a tangible banknote and coin, but only a string of characters, which is not only the owner's registered address on the chain, but also the account address of its currency on the chain (registration is to open an account), behind which hides the owner's identity information, private password, account balance, smart contract and other elements. There is a major differentiation from the traditional fiat currency performance and operation mode. Therefore, it is unrealistic to talk about stablecoins without the blockchain.

The most fundamental application scenario of stablecoins is the "on-chain crypto world"

At the beginning of 2009, the on-chain native crypto asset "Bitcoin" and its blockchain, which were created with a high degree of integration of blockchain and encryption technology, were officially launched, followed by the emergence of the Ethereum blockchain and its native crypto asset "Ether", which in turn gave birth to more initial ICOs through new coins Various on-chain derivative crypto assets (commonly known as "altcoins") that raise Bitcoin or Ethereum and trade and circulate on the blockchain, as well as crypto asset trading platforms that provide services for the placement, trading, and exchange of these crypto assets, can be globalized on the chain 24×7 hours a day, forming a borderless and decentralized "on-chain crypto world" and accelerating development. The "on-chain crypto world" has become one of the most important innovations in the use of blockchain and encryption technology in the 21st century, which will have a profound impact on the human world.

However, the development and operation of blockchain, its output, and the trading of crypto assets require a large off-chain cost (fiat currency) investment, and if you can only obtain the income of crypto assets such as Bitcoin but cannot easily convert them into fiat currency, it is far from meeting the needs of crypto asset development. At the same time, it is difficult to attract fiat currency to invest in crypto assets, and the value of crypto assets is difficult to realize effectively. In particular, the ratio of blockchain crypto assets such as Bitcoin to fiat currencies such as the US dollar often fluctuates violently, and it is very difficult to directly exchange Bitcoin as currency and necessities in the off-chain world. These factors have given rise to unique fiat stablecoins that connect off-chain fiat currencies with chained crypto assets. As a result, the "on-chain crypto world" has become the most fundamental source of demand and application scenarios for fiat stablecoins.

Although

has given rise to on-chain native and derivative crypto assets such as Bitcoin, and even non-fungible digital twin crypto assets "NFTs", etc., without the full participation of fiat currencies, these crypto assets are mainly limited to the on-chain crypto world, making it difficult to fully reflect their value and have little impact on the off-chain real world. The emergence of fiat currency stablecoins has become a value channel connecting the crypto world and the real world, which can adapt to the needs of 7×24-hour uninterrupted transactions and payment clearing on the crypto asset chain, which strongly supports the development of the crypto world.

However, due to the same emphasis on decentralization and supervision, stablecoins have not been legally recognized and supervised, and serious problems have indeed arisen in their development process. Now, the legislation of fiat stablecoins and even the entire crypto asset has established the legitimacy of fiat stablecoins and crypto assets, which will surely promote the participation of banks and other financial institutions, and push a large number of standardized financial assets to on-chain transactions in the form of RWA, promoting the accelerated development of the on-chain crypto world into an irreversible general trend - this should be the most important contribution to US stablecoin legislation.

Fiat stablecoins not only meet the development needs of the crypto world, but also promote the accelerated development of the crypto world, and the two complement each other and promote each other. Not in the context of the on-chain crypto world, but only limited to the monetary and financial fields of stablecoins, it is difficult to understand and grasp stablecoins.

Crypto assets cannot become the real currency in the crypto world Although

they have always been called "coins" (called "cryptocurrencies" or "digital currencies"), practice has proven 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 currency stablecoins are necessary.

Money has a history of thousands of years in human society, and its manifestation (or carrier) and mode of operation have been continuously improved, from the initial natural physical currency (such as shell coins), to standardized metal coinage (such as copper coins, gold coins, silver coins), and then to metal-based banknotes, and further developed into pure credit money that is separated from the value of any specific item to keep the total amount of money changing with the change of the total value of tradable wealth (from real to virtual, highlighting the essence), constantly improving efficiency, reducing costs, Strict prevention and control to better play its functional role.

development and change of money is determined by its fundamental connotation: the essential attribute of money is the value scale (divisible and aggregable), the core function is the medium of exchange (value transfer and delivery instrument), and the fundamental performance is the most liquid value token (requiring the highest credit support within the circulation range) value token (transferable value claim warrant), which is an indispensable core element for a complete description of money.

Among them, as a measure of value, the most fundamental requirements of currency are its singleness 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, be adjustable and flexible, and ensure the basic stability of the currency value on the basis of sufficient supply. As a result, any physical object that originally acted as currency, such as shells, bronze, gold, silver, etc., must withdraw from the monetary stage and return to its origin as tradable wealth because its supply simply cannot keep up with the infinite growth of the value of tradable wealth. Now it is difficult to succeed in violating the principle of money to implement the gold standard, or to find a new specific item or several specific items (such as rare earths) with a limited supply as currency or currency standard. This is also the fundamental reason why the Bretton Woods system (promoting the return of international currencies to the gold standard) will inevitably collapse, and crypto assets such as Bitcoin (the total amount and phased new amounts are completely locked and not adjustable) will be difficult to become real currencies, and stablecoins that are not pegged to a single fiat currency will be difficult to succeed. Currency must be withdrawn from any one or several specific items and become pure legal credit money, highlighting its essential attributes.

Here, the carrier or form of expression of money must be distinguished from the currency itself. Shells, coinage, banknotes, etc. are all carriers or manifestations of money, not currency itself. The expression and operation mode of money are constantly moving towards the direction of intangible, digital and intelligent, cash and cash payments in the total amount of money and total payments are becoming less and less, money is more manifested as deposits (expressed by account number) and deposit transfer payment/account clearing, tangible cash (banknotes and coins) will eventually completely withdraw from the currency stage, and it is completely wrong to equate currency with cash. At the same time, it is necessary to accurately grasp the connotation of "currency" or "currency", and not to call all on-chain crypto assets "coins" or "tokenizations", such as Bitcoin, altcoins, NFTs, RWAs, etc., can only be assets, not currencies.

the current legal tender system, in addition to a small amount of cash that can be directly received and paid by both parties and payers, more and more currencies are stored in banks and other payment and clearing institutions. Among them, both parties have opened accounts in one bank, and only one intermediary is needed for transfer payment. If the beneficiary and payer open accounts in different banks, and the two banks open clearing accounts between the two banks, the two banks are required to act as two intermediaries; If the two banks do not have an account relationship, they need to find a bank with a common account relationship to "bridge" to ensure that the account relationship is connected to complete the transfer of currency from the payer to the recipient, so three or more intermediaries are needed. In cross-border payment and clearing, basically more than three intermediaries are required, and different payment and clearing systems in different countries and regions are used to handle payment notices with different words and rules. In this way, the more intermediaries involved, the more complex the payment notice and clearing system, 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, the centralized account opening system is basically implemented in each country, and each clearing institution opens an account in the clearing center to minimize the number of bridging intermediaries. At the same time, the Society for Worldwide Interbank Financial Telecommunication (SWIFT), which is widely connected and intensively shared, has been established internationally to promote the highly standardized and unified payment message and global networked processing, which greatly improves the efficiency and cost of payment clearing. However, because payment and clearing intermediaries are difficult to greatly reduce 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 crypto world has brought a huge turnaround to the above problems. On the borderless global public chain, rules are built into the system (code is rule), and users open an account when they register, completely realizing the payment and clearing directly handled by the payer and the recipient to the point-to-point intermediary, which greatly improves efficiency and cost, and is very significant compared with traditional cross-border payment and clearing. At the same time, pushing financial products to the public chain can be sold and traded on a global scale, greatly breaking through the scope of the off-chain financial market, and easily obtaining larger-scale investors and capital participation. This will surely attract more financial products, especially digital and standardized securities products (stocks, bonds, currency funds, etc.), to pour into the chain through RWA, making the variety of crypto assets on the chain richer, more active in trading, and more impactful.

A more profound change may be: stablecoin and crypto asset legislation will promote the widespread participation of banks and other financial institutions, and 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 through their docking with various public chains, reducing the additional links and costs of non-bank and other payment institutions engaged in the conversion of 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 brought by many different stablecoins in one fiat currency, facilitate the implementation of on-chain token statistics and regulatory requirements such as real-name customer system (KYC), anti-money laundering (AML), and counter-terrorist delivery (CFT), inhibit the rapid expansion of fiat stablecoins from having a significant impact on the existing financial system, enhance the opportunities for countries to use the public chain equally, and provide equal access to fiat stablecoin issuers and the existing market structure (including the absolute leading position of US dollar stablecoins), stablecoins and various "altcoins" that are not included in regulation It will have a profound impact on SWIFT's international influence, accelerate the RWA of traditional financial trading products, and attract a large number of traditional licensed institutions to participate in crypto asset trading and crypto exchange operations, which may also have an alternative effect on central bank digital currencies (CBDCs).

In this regard, China should have a clearer understanding and more advanced measures, focusing not on the development of RMB stablecoins (which has quite limited space), but on speeding up the legislative process, accelerating the entry of banks, accelerating the development of RWA, and achieving lane change and overtaking.

legislative supervision of the on-chain crypto world needs to continuously strengthen and improve

the emergence and development of fiat currency stablecoins, promote the on-chain crypto world to accelerate the extension from on-chain (native and derivative) assets to RWA, and the global public chain has also begun to act as an intermediary for off-chain cross-border settlement and remittance clearing, promoting the deepening and increasing influence of the on-chain crypto world and the off-chain real world, which has a profound impact on the existing monetary sovereignty and financial supervision, and the lack of effective supervision is very terrifying. It is necessary to effectively strengthen the supervision of real-world assets (especially fiat currencies) off-chain and off-chain realization to meet requirements such as KYC, AML, CFT, etc.

It is also necessary to seek a balance between encouraging innovation and preventing risks, individual interests of the state or consortium and the common interests of mankind, improve the implementation rules, control key risks, and especially prevent the United States from fully supporting the crypto industry through legislation and weakening necessary supervision. It is necessary to break through the shackles of traditional thinking in the real world, attach great importance to, carefully study and accurately grasp the development of the encrypted world; Responsible major powers need to actively participate in the establishment and maintenance of order in the crypto world, as well as strengthen international cooperation.

basis and rules of the operation of the crypto world are the blockchain system and its built-in rules, and the most extensive and influential public blockchain is the borderless global public blockchain (there are now many global public chains, such as Ethereum, Solana, Binance Chain, Polkadot, etc.). Therefore, the global universality and fairness of blockchain rules, the transparency and security of the whole process of blockchain operation, have become the crucial foundation of the on-chain encryption world, and the development of decentralized and non-national public chains and fair competition (efficiency, cost, fairness, security), survival of the fittest, and continuous improvement should be encouraged to prevent the blockchain from being controlled and used by individual countries or interest groups.

In conclusion, the profound impact of US stablecoin legislation may exceed expectations.