Dialogue with Dr. Xiao Feng: US dollar stablecoin legislation is a victory for technological innovation

【Introduction】With the US Senate passing the voting motion for the US dollar stablecoin bill and the Hong Kong Legislative Council passing the Hong Kong dollar stablecoin bill, stablecoins have quickly become the hottest industry topic and have attracted wider attention. It is generally expected that with the implementation of the US dollar stablecoin bill, the blockchain digital economy will usher in a very exciting outbreak, and a new entrepreneurial window will emerge around the US dollar stablecoin and real world assets (RWA). Dr. Xiao Feng is a leader in Chinese blockchain research and practice, and has a very deep understanding of blockchain, stablecoins and RWA. In order to fully understand the opportunities of this era, I had the honor of having an in-depth exchange with Dr. Xiao Feng through video conferences and texts, and I sorted it out and published it in an article to discuss with my peers. Due to the large length of the original article, it is published in two parts. The first half mainly interprets the significance of the US dollar stablecoin, while the second half focuses on the prospects for the opportunities that the stablecoin economy and RWA bring to Chinese entrepreneurs. The views in this article are only one person's opinion, and readers are welcome to communicate.

1. The motivation for stablecoin legislation is transparent

Meng Yan:Dr. Xiao, your recent speeches have caused a great response in the entire Chinese blockchain community, especially the "Back to the Origin" speech for blockchain entrepreneurs, which has a very wide impact. In this speech, you not only reiterated the value logic of blockchain, but also clearly pointed out that this industry is facing a new outbreak cycle, and entrepreneurs need to return to their original intentions and start again to get on the right track. This is my understanding of your speech.

The timing of your speech is indeed very accurate. The U.S. Senate passed a motion to vote on the GENIUS Stablecoin Act on May 19, and the Hong Kong Legislative Council passed the Stablecoin Bill on May 21. A legislative competition on stablecoins has quietly begun. At present, a new consensus is forming that the blockchain field is about to usher in a golden window of entrepreneurship and innovation, and its energy intensity may exceed that of AI for a period of time. Now many outsiders who have never participated in blockchain and Web3 may have been dismissive of it last month, but now they have adjusted their ideas and started to pay attention to opportunities in this field.

This situation is hard-won. I have been involved in this industry for ten years, and I am still quite emotional about this. In the past few years, major countries around the world have basically adopted a very cautious or even negative attitude towards the entire set of new technologies such as blockchain, encrypted assets, Tokens, DeFi, and Web3. Supervision is tight, and the mainstream media almost unanimously engage in stigmatization. In the two hundred years since the Industrial Revolution, there is no other example that treats an emerging technology like this. But the green mountains cannot cover it, after all, it flows eastward, and finally waited for this day.

However, the Trump administration of the United States suddenly took such a big turn, and the public still needs an explanation. I saw that some self-media understood this matter from the perspective of conspiracy theories, such as it was a tool for the Trump family to make money for themselves, or it was a currency war launched in conjunction with the trade war.

So what do you think is the motivation for the United States to promote stablecoin legislation?

Xiao Feng:The US presidential team and Congress are relatively frank and transparent about the motivations for stablecoin legislation. They openly say thatthe first is to modernize the US payment and financial systems, and the second is to consolidate and enhance the status of the US dollar and create trillions of dollars in demand for US Treasury bonds within a few years.I think this is the answer, there are not so many conspiracy theories here.

Not long ago, I talked with a crypto policy adviser to the US President. He told me very directly that the national reserve of Bitcoin is secondary to the United States.The US dollar stable currency is the first and the core interest of the United States.As far as I know, the goal of President Trump's team is to ensure that the GENIUS Act is passed before the US Congress goes on vacation in August. Now it seems that it may be even faster.

Under such circumstances, the Hong Kong legislative authorities have demonstrated flexibility and high efficiency, and passed the Stablecoin Ordinance in the third reading, which is commendable.

Meng Yan:Some people have compared this bill to the Bretton Woods Conference in 1944 and the Nixon Shock in 1971, saying that it is buildingthe "Bretton Woods system in the digital economy era".The general logic of this statement is that the United States is very worried about the weakening of the status of the US dollar in the process of deglobalization. Therefore, the use of digital currency as a "nuclear weapon" will have a dimensionality reduction impact on the existing international monetary and financial system, hedge the impact on the US dollar, and consolidate the US dollar hegemony. What do you think of this view? Xiao Feng: I mentioned earlier that the United States publicly acknowledged that one of the important purposes of promoting stablecoin legislation is to consolidate and enhance the status of the US dollar, and judging from the vote in the Senate, this is a bipartisan consensus. They also know that they are making history. It took a process for the United States to form this understanding, and it also paid some price. The previous US government, especially expert bureaucrats such as former SEC Chairman Gensler, knew about blockchain, but why did they still struggle with it for so many years? It is nothing more than being reluctant to give up the existing payment network, including SWIFT, and the financial governance, supervision, and anti-money laundering mechanisms built on this network.

However, the progress of blockchain technology in recent years, especially the practice of financial sanctions against Russia after the Russo-Ukrainian war, shows that the technological advantages of blockchain are solid and irrefutable. Therefore, the entire financial infrastructure is moving towards blockchain, just like the transition from steam engines to the electrification era. There is no doubt that no force can stop it. There is no point in burying your head in the sand. The situation is stronger than people.

Compared with the previous administration, the Trump administration has shown a more realistic attitude in all aspects. To put it in a bad way, it is unprincipled, and to put it in a good way, it is proactive and capable. So the US's current attitude is that if it is inevitable for payment and settlement to bypass SWIFT, then at least don't let it bypass the US dollar; if the tokenization of the US dollar is inevitable, then at least ensure that each US dollar token is created based on US assets. Since it can't be blocked, then it can be properly guided to ensure that the US dollar remains the main payment and settlement tool in the digital economy, in the Web3 world, and in the AI ​​era. This is the core national interest of the United States. From the perspective of the United States, this is an open conspiracy and an open card. Can the US dollar stablecoin create a new "Bretton Woods system"? It needs to be observed. Over the past few years, the global status of the US dollar has declined. If the United States hopes to consolidate the status of the US dollar through stablecoins, there is no doubt about it. However, whether such a measure alone can achieve the goal, especially whether it can be said that it has created a new system, I am afraid it still needs to see the process of subsequent practice and legislative interaction. However, I have a judgment that although the Trump team and the US Congress have a deep understanding of the US dollar stablecoin, they may not be able to fully imagine the long-term impact of this matter. In this sense, promoting the GENIUS Act is taking some risks. Will it be repeated in the future like his trade war policy? It needs to be observed.

2. Two US dollar stablecoin systems and their complex consequences

Meng Yan:Speaking of long-term impact, the conspiracy narrative of "currency war" is very popular on the Chinese Internet, believing that the United States launched stablecoin legislation to "weaponize" stablecoins. Do you agree with this statement?

Xiao Feng:"Currency war" has been a popular narrative for more than a decade. From the perspective of other countries, it is indeed necessary to make a full estimate of the impact of the US dollar stablecoin. Legislation to promote tokenized legal tender is an unprecedented event in the history of world currency. It is bound to trigger a series of complex economic and financial reactions. No one can fully foresee its consequences, not even the US President and Congress. However, with regard to the content revealed by the GENIUS Act, there are at least two issues that need special attention.

The first isthe boundaries of sovereign currencies have become more fragile. The current use of currency is based on national administrative divisions. Sovereign states have internal currency monopolies and control foreign exchange at the border. This governance mechanism has been in place for hundreds of years. Once the US dollar stablecoin is widely used, this mechanism will be broken. Blockchain transforms the Internet into a payment network and financial infrastructure, making currency no longer dependent on the traditional banking system and clearing network, but can penetrate into the micro level of another economy like capillaries through smart contracts, encrypted accounts and peer-to-peer transmission mechanisms, covering daily consumption, labor payment, cross-border e-commerce, freelance settlement, and even AI-to-AI and machine-to-machine payment behaviors. At this stage, stablecoins are no longer just a payment tool, but a financial infrastructure that can be embedded in the economic system of other countries. It can "incorporate" part of other countries' economic activities into its own economic map, essentially forming a new monetary network expansion mechanism. This poses a structural challenge to existing sovereign currencies, financial regulatory frameworks, and even macroeconomic policy control measures. Because what you originally relied on to build the banking system, foreign exchange controls, and payment and settlement rules are becoming increasingly vulnerable in the face of blockchain and stablecoin technology. Meng Yan: The situation you mentioned has already happened. In some countries in Africa, Southeast Asia, and Latin America, the national legal currencies have depreciated year after year, and young people have used USDT and other stablecoins in large quantities, which has caused headaches for the monetary authorities of these countries. When I was on a business trip to Ghana last year, local central bank officials told me that the US dollar stablecoin was spreading like wildfire among young people in Ghana and Nigeria, weakening the status of their own legal tender. They asked me how to resist the invasion of the US dollar stablecoin through technical means, and I couldn't answer. Because your own currency depreciates by 20-30% every year, it would be strange if ordinary people don't use the US dollar.

Xiao Feng:This is just the beginning. With the development of the US dollar stablecoin, the second problem will arise, that is, the complex ecology that may emerge from the offshore US dollar stablecoin system. According to the GENIUS Act, institutions outside the United States can also issue US dollar stablecoins, but they must be based on US dollar legal tender assets, registered in the United States, subject to the supervision of relevant US institutions, comply with relevant US laws, and respond to orders from US law enforcement authorities at any time. These requirements are very high, but it is important to understand that these requirements are conditions for "legal circulation in the US market." If you do not enter the US market and do not contact Americans and US entities, then even these conditions can be relaxed. This is actually equivalent to opening up a gray space, conditionally allowing foreign institutions to mint US dollars. In this way, there will be two systems in the future: onshore US dollar stablecoins and offshore US dollar stablecoins, similar to today's US dollar and Eurodollar systems. Among them, the onshore US dollar is more strict and consistent, while the offshore US dollar ecosystem will be more complex. Dozens or even hundreds of digital currencies called "US dollar stablecoins" will circulate, circulate, map, exchange, and interact in dozens of public chains and hundreds of private chains in the two systems, which will produce complex effects that no one has seen before and no one can foresee.

Meng Yan:Can we think of this as the United States actually transferring part of its coinage rights to foreign non-bank institutions, and decentralizing the coinage rights of the US dollar stablecoin? This reminds me of the early Western Han Dynasty in China, when the coinage rights were decentralized and private currency was allowed to be minted, but there was no detailed record in the literature on how these currencies interacted and what kind of economic problems they caused. Since the advent of industrial civilization, no country has tried to decentralize the coinage rights to foreign entities, and today we are about to witness a new stage in the history of world currency development. I will make a comparison that may not be appropriate. The future stablecoin of the US dollar will be like the copper coins during the reign of Emperor Wen and Emperor Jing. There will be many "brands", some high-quality, some low-quality, some minted by Deng Tong, some minted by Liu Bi, and they will circulate and compete in the global market. The US government has ceded part of the right to mint US dollars on the surface, but in fact, through supervision and law enforcement, it has turned US debt into a "copper mine" for minting copper coins. By retreating to advance, it has made the issuers of stablecoins around the world become "chain stores" of US dollars, greatly increasing the global economy's demand for US debt, enhancing the penetration of the US dollar, and magnifying the long arm of US financial supervision.

Xiao Feng: Yes, but the actual situation will be more complicated. While trade frictions lead to "anti-globalization", the global digital economy is experiencing a "dollarization" trend. While AI is advancing by leaps and bounds, the "value Internet" is suddenly accelerating. The complex reactions of these economic and technological trends exceed everyone's ability to predict.

Especially the offshore dollar stablecoin system, which will have multiple levels and attract many financial institutions, Internet companies and even sovereign states to participate, and a particularly rich ecosystem will emerge. From high-grade offshore dollar stablecoins issued by foreign countries but fully complying with US regulatory rules and circulated in the United States, to local dollar stablecoins that follow the supervision of other sovereign countries but do not enter the United States and do not touch Americans, to "wild" non-compliant dollar stablecoins, and the inevitable problems of various counterfeit coins, over-issuance, dirty money, etc., on the one hand, it will lead to a sharp amplification of the "brand effect" of the US dollar, the global spread of the psychological anchoring effect of the US dollar as a "unit of account", and the expansion of the scope of US financial regulatory enforcement. On the other hand, the super-complex currency system is bound to bring unprecedented challenges to the supervision and financial stability of countries around the world and the United States. In the early stage, the US regulatory capacity is likely to be unable to keep up and reach the problem, and it may even lead to policy reversals. In short, the real world will be very exciting and very messy. I can say with certainty that we will enter a period of ecological explosion of the digital economy, and soon see many new digital economic phenomena and business species.

At this stage, the discussion on this issue is still insufficient. Especially on the Chinese Internet, the discussion is seriously insufficient.

However, I still believe that the main purpose of the United States to introduce a stable currency is to follow the trend of technological development, take the initiative, and consolidate the position of the US dollar, rather than to attack the current international monetary system. The so-called "weaponization" is the "companion" effect of the disruptive technological advantages of blockchain. If we discuss this issue emotionally, it is easy to be misled. In the current Chinese Internet public opinion, conspiracy theories and struggle narratives are very fashionable and exciting. We must pay special attention to prevent being misled by emotions and standing on the opposite side of the historical trend. It's very simple. If this is a currency war, then should we guard against it? Should we continue to block the entire set of technologies such as blockchain, tokenization and crypto finance? If you think in this way, you will make a big mistake.

We need to understand that the "aggressiveness" of blockchain stablecoins is to naturally absorb and bind more real economic activities under a framework of higher efficiency, lower cost and fewer links. Its expansion is based on technological advantages, relying on efficiency, institutional design, technological advantages and network effects, and it is impossible to resist it for a long time. We admit that it has the characteristics of disruptive innovation, and it is aggressive and destructive to the existing technological system. It is not an exaggeration to say that it is a dimensionality reduction attack. But what attitude should we use to treat it? Isn't it a dimensionality reduction attack on hot weapons against cold weapons in history? Isn't it a dimensionality reduction attack on steam engines against human and animal power? Isn't it a dimensionality reduction attack on the postal and telephone networks by the Internet? So which side are you on?

My attitude is consistent and has not changed in the past ten years. In the face of technology such as blockchain, we should follow the trend and develop our own stable currency ecosystem in an open, compliant and trustworthy manner, and have a place in the new generation of financial networks.Some people talk about monetary sovereignty and financial sovereignty. I would like to say that in the face of disruptive technological innovation, actively responding is the truly responsible attitude towards sovereignty.

3. The breakthrough of stablecoins is ultimately a victory of technological innovation

Meng Yan:The United States took the lead in promoting stablecoin legislation, which is still special. This special thing is that the first to come out to eat crabs is unexpectedly the world's largest and most advanced economy to promote the world's most important reserve currency to take the lead in reform. For many countries, they may prefer to do some pilot projects in some less important economies with less important currencies, and slowly promote this matter, which will be more secure. But now the attitude of the United States is equivalent to pushing a storm of reforms directly in front of everyone, which has indeed formed a situation of forced reversal, and posed a Sphinx-like problem to everyone: answer me, or I will eat you.

So facing this challenge, many people have a defensive mentality out of stress reaction. Especially in the media, how blockchain is used for money laundering, illegal financing and illegal transactions, and various speculative stories are reported every day. Now suddenly the United States uses this technology to promote stablecoins and RWA. Many people will naturally think that this is the United States going to engage in currency wars and use blockchain as a weapon. This mentality is understandable.

Xiao Feng: The mentality is understandable, but we still have to use the first principles and go back to the origin to think. Now when we discuss the topic of blockchain and stablecoin, there are too many macro discussions. As soon as we open our mouths, we talk about the monetary system, the hegemony of the US dollar, and financial wars, but there is very little micro discussion. Many of us have forgotten that the first driving force behind the development of stablecoins has always been technological innovation, which is to create value for ordinary users and consumers. The reason why stablecoins have such a great impact is that the blockchain has given it a series of technical advantages. I have talked about these contents for ten years, but it is not enough. At this moment, it is necessary to repeat them again and again to make everyone understand that the blockchain technology really has huge advantages. It is bound to succeed and no one can stop it. Meng Yan: It is indeed very important to make this point clear. I saw you mentioned in a speech that you have been fascinated by blockchain for ten years and your original intention has not changed. Then can you summarize again, what technical advantages of blockchain fascinate you?

Xiao Feng:Its most fundamental technical advantages are reflected in four aspects:accounts, ledgers, accounting methods and accounting units.

In terms of accounts, traditional finance relies on bank escrow accounts to record all our economic activities, but in the blockchain, there are no bank accounts, and digital asset wallets take their place, called encrypted accounts. The creation of encrypted accounts is completed by users themselves through cryptographic tools, self-creation, and self-custody of assets.

In terms of ledgers, the public chain is a global public ledger with global liquidity, which is not restricted by administrative divisions, and has no boundaries in geographical space and time.

In terms of bookkeeping methods, distributed bookkeeping and double-entry bookkeeping are different, and the clearing and settlement models are also different. Traditional finance is net settlement, while blockchain is transaction-by-transaction settlement, with both money and goods being paid, which is the so-called payment is settlement, and payment, clearing and settlement are completed in one transaction.

From the perspective of the accounting unit, the accounting unit on the blockchain is the native encrypted digital currency. If you want to use legal currency as the accounting unit, it is useless to issue orders. You must first tokenize the legal currency and create a digital twin of the legal currency on the chain.

These technical advantages are relatively abstract, but reflected in the application, they will provide tangible benefits to users. There is actually a simple way to judge whether a new technology has an overwhelming advantage, that is, you can see how many times the efficiency has been improved and how many times the cost has been reduced. A ten-fold advantage is a replacement, and if it is a hundred or a thousand times advantage, then no force can stop it. For example, if cars are roughly ten times faster than horse-drawn carriages, then the entire system of horse-drawn carriages will inevitably be eliminated. The Internet is a hundred times cheaper than telegraph, telephone, and television networks, so when the Internet first appeared, many people spared no effort to block applications such as Internet calls and online videos, but what was the result? These networks have now been replaced by the Internet. In the face of such a huge technological advantage, any reason for conservatism or resistance is invalid.

I have always said that users' demand for finance has never changed. They want to borrow money easily and receive money quickly. Let's compare the efficiency of remittances. Now it may take days or even weeks to remit money from Shanghai to the United States; but through blockchain stablecoins, it can be received in seconds. How many times is this efficiency improvement? There are even more extreme cases. I recently transferred money from Hong Kong to Shanghai, but it took a month to confirm the failure. If stablecoins are used, it may be completed in ten seconds. How many times is the efficiency improved? It may be tens of thousands or hundreds of thousands of times. With such a huge technological advantage, what force can stop it?

Let me give you another example. It is difficult to achieve 7x24 hours of uninterrupted operation in traditional trading systems. Now some leading stock trading systems are seeking to extend trading hours. Some are already planning 5x23, five days a week, 23 hours a day, but it still has to stop for one hour every day, because in the traditional clearing and settlement system, there needs to be a time point to pause, net and make net settlement. But you see that we make payments and transactions on the blockchain, which are all running around the clock. Why can it be done? It is because it is a transaction-by-transaction transaction on the global ledger, so it can achieve uninterrupted clearing and settlement. I heard that NASDAQ is working on a 7x24 hour trading system, and I guess it will use blockchain technology internally. Once it is done, investors around the world can use the US dollar stablecoin to trade US assets uninterruptedly, which is of self-evident significance to investors and US companies. So you see, these macro-strategic discussions are ultimately based on technological innovation.

There are many other advantages, such as no intermediary, point-to-point, borderless, global second-level account arrival, near zero fees, automation and irrevocable transactions on smart contracts, etc. Users can tell the difference as soon as they compare. Do they need to convince anyone? This is like comparing an electric motor with a steam engine, an electric light with a gas lamp, and an integrated circuit with a vacuum tube. As an ordinary user, you don't need any professional knowledge or other conditions, and you can tell which one is better and which one will be eliminated at a glance. This is an obvious fact.

If we understand the above basic technical facts, we will come to a simpler conclusion - The fundamental starting point for the United States to promote stablecoins is to follow the trend of technological development and promote the modernization of payment and financial infrastructure.

Of course, such a strategy must have multiple considerations, including the perspective of maintaining the hegemony of the US dollar, the perspective of competition in the monetary and financial system, and even the perspective of the Trump family making money. However, all considerations are based on the basic fact that blockchain, as a new generation of financial infrastructure, has an overwhelming technical advantage.

Many people regard blockchain as a scourge. One important reason is that they do not have a deep understanding of the inherent advancement and inevitability of blockchain technology itself. I often say that the situation is stronger than people. If you can stop it, you can certainly discuss whether to stop it. If you can't stop it at all, then what's the point of discussing how to stop it? Doing something knowing that it is impossible will only miss the opportunity and fall behind in the new round of financial infrastructure and monetary and financial system competition.

So I am very excited about the first passage of the Hong Kong Stablecoin Act. This is the correct response.

(To be continued)