Stablecoin business model, development impact and regulatory framework

Editor's Note

On June 21, 2025, the "Renmin University Shenzhen Social Science Salon (62nd) and Renmin University Financial Thought Salon (256th)" hosted by Renmin University of China Shenzhen Institute [Institute of Advanced Social Sciences (Shenzhen)] and co-organized by Renmin University of China International Monetary Institute (IMI) and Renmin University of China Shenzhen Institute of Finance was successfully held, with the theme of "Global Stablecoin Development Trends and Policy Evolution". Zhu Taihui, a distinguished senior researcher at the National Financial and Development Laboratory, made a keynote speech on "Stablecoin's business model, development impact and regulatory framework" from four aspects. The main points are as follows: First, only by studying stablecoins from the technical basis and business model can we understand the substantial differences between stablecoins and cryptocurrencies. Stablecoins have both the technical advantages behind crypto assets and the value stability of legal tender. At the same time, they have well solved the incentive mechanism problem of market participants (realizing the Pareto improvement of all parties involved), and have become a key tool for linking legal tender with crypto assets, cryptocurrency markets and traditional financial systems. Second, the development of stablecoins has entered a new stage of large-scale and compliant development, becoming a popular payment tool, and the integration development with the traditional financial system is rapidly advancing, which has led to the rapid development of asset tokenization business. Among them, the continuous decline in the scale of single stablecoin payments indicates that stablecoin payments are rapidly expanding from crypto asset investment settlement to cross-border trade and physical transaction scenarios. The integration of banking institutions and stablecoins has opened up the source of funds for the development of stablecoins.

Third, the impact of the development of stablecoins on the international payment and monetary system needs to be analyzed from the two perspectives of the market structure and reserve investment of stablecoins. The US dollar stablecoin creates a new dollar cycle, which helps to strengthen the dominant position of the US dollar in the international monetary system; China should promote the development of offshore RMB stablecoins through a gradual model of "first offshore (Hong Kong)-then offshore (free trade zone and free trade port)", as a new tool to accelerate the internationalization of the RMB.

Fourth, the governance challenges and potential risks of stablecoin development are becoming increasingly clear. The United States has led various countries to quickly shift their stablecoin policies to support compliance and innovative development. The "five-pillar framework" for stablecoin supervision has taken shape - the functional positioning and scope of use of stablecoins, issuer access, issuer operations, reserve fund custody and investment, and anti-money laundering and illegal financial activity supervision. The future development of stablecoins also requires forward-looking thinking on three major regulatory issues - decentralized financial business supervision, the use of emerging technologies in financial supervision, and "globalization of business and nationalization of governance."

The following is the minutes of the speech:

01 The operating model and main debates of stablecoins

1. The functional attributes of stablecoins need to be understood from the "crypto asset pyramid".The broad "crypto asset pyramid" refers to assets that use blockchain and distributed ledgers, encryption algorithms and consensus mechanisms and other technical support, including central bank digital currencies (both centralized accounts and distributed ledgers), stablecoins, asset tokenization (RWA), Bitcoin and other narrow crypto assets. The top-down off-chain value support is constantly weakening, and the value (price) volatility is increasing. Among them, stablecoins have the advantages of decentralization, high efficiency, and programmability brought by the blockchain and distributed ledger technology behind crypto assets, as well as the stable value characteristics of legal tender. At present, the market value of stablecoins accounts for about 7.5% of crypto assets, and has become a key tool for linking crypto assets with legal tender and connecting the cryptocurrency market with the traditional financial system. At the same time, compared with the central bank digital currencies of various countries, stablecoins have better solved the incentive mechanism problem of market participants. Stablecoins have brought significant investment returns to issuers, improved the payment efficiency of holders in cross-border trade and reduced payment costs. For holders in some countries with high inflation, holding foreign currency stablecoins can also achieve currency preservation. In addition, it provides a channel for crypto asset investors to realize investment, thus achieving the "Pareto improvement" of all parties involved. In addition, there are four main types of stablecoins, namely, legal currency-backed stablecoins, crypto asset stablecoins, commodity stablecoins, and algorithmic stablecoins, among which legal currency stablecoins are the dominant currency.

2. The business model of stablecoins is not completely "decentralized". The decentralization of stablecoins is mainly because they are issued on decentralized public chains. Transactions can be decentralized, but issuance and custody are mainly centralized. Taking USDT as an example, the business model of stablecoins can be divided into five main links: users deposit fiat currencies into Tether's bank account - Tether creates USDT for users at a 1:1 value ratio, and at the same time custody and investment of reserve funds - users use USDT for transactions - users deposit USDT into Tether's company account to redeem fiat currencies - Tether destroys USDT and pays fiat currencies to customers. Among them, the issuance of stablecoins is centralized, custody is centralized, and transactions are partially decentralized. At the same time, the investment income of reserve funds is the main source of income for stablecoin issuers. For example, in 2024, 99% of the income of USDC issuer Circle came from reserve fund investment income.

3. To clarify the debate on stablecoins, we need to return to their business model. There are currently five major debates in the market surrounding the functional attributes of stablecoins: First, are stablecoins just a change in the form of currency? Second, are stablecoins just digital payment tools? Third, are stablecoins money market mutual funds? Fourth, are stablecoin issuers sharing seigniorage? Fifth, will stablecoins lead to "currency denationalization"? For these debates, we need to return to the product positioning and business model of stablecoins for analysis. In fact, stablecoins are a combination of crypto assets, third-party payments, and money market mutual funds. The underlying layer utilizes the blockchain and distributed ledger technology of crypto assets, releases the payment function of third-party payments, and has similar value stability attributes to money market mutual funds. Therefore, stablecoins are tokenized versions of existing legal tender, and no new currency is created, nor is there any sharing of seigniorage; stablecoins are digital payment tools, but have decentralized trading characteristics; they have similar value stability characteristics to money market mutual funds, but the investment income belongs to the issuer rather than the holder.

02 Use scenarios and development trends of stablecoins

1. Scaling trend: The scale of stablecoins has entered a stage of large-scale growth. The current market value of stablecoins is growing rapidly and has entered a stage of large-scale growth. As of June 20, 2025, the global market value of stablecoins has reached US$261.5 billion (of which the scale of US dollar stablecoins is US$253.3 billion), and the number of active stablecoin wallets has exceeded 616 million. A recent Citigroup research report estimates that if countries continue to clarify regulatory policies and provide policy support, the market value of stablecoins will reach $1.6 trillion in the baseline scenario in 2030, and may reach $3.7 trillion in the optimistic scenario. 2. Popularization trend: Stablecoin payments are rapidly expanding to physical transaction scenarios. The development of stablecoins began with the settlement of crypto asset investment transactions. It is a channel for the exchange of crypto assets and legal currencies, and is currently rapidly expanding to real economy payments. Since 2024, the average amount of stablecoin payments per transaction has shown a continuous downward trend. As of May 2025, the average amount of stablecoin single payments in the last 12 months was $4,560, which fell to $4,260 in the last three months and further to $3,380 in the last month, which also shows that the use of stablecoins is expanding from large-scale crypto asset investment settlements to small-scale cross-border trade payments and daily transaction payments. In September 2024, VISA's survey of Brazil, India, Indonesia, Nigeria and Turkey showed that stablecoins are widely used for currency substitution, payment of goods and services, cross-border payment, and salary payment collection. At the same time, data from Fireblocks shows that the use of stablecoins is shifting from transaction settlement to payment. Currently, payment companies account for 16% of transaction volume, which will increase to 50% within a year. Recently, retail giants such as Walmart and Amazon announced that they are preparing to study and issue their own stablecoins.

3. Compliance trend: policymakers and users are paying more and more attention to compliance. On the one hand, the compliance requirements for the development of stablecoins are getting higher and higher. In addition to Europe, Singapore, the United Arab Emirates, and Hong Kong, China, which have formulated stablecoin regulatory regulations, since 2025, driven by the US stablecoin legislation, more than 20 major countries such as the United Kingdom, South Korea, Australia, and Turkey have promoted stablecoin and crypto asset legislation plans and clarified the compliance requirements for the development of stablecoins. On the other hand, the market increasingly prefers stablecoins with high compliance and high transparency. Compared with USDT, USDC has higher compliance. Affected by changes in market preferences, USDC's market share has increased from about 20% to the current 25% since 2025, while USDT's market share has dropped from about 70% to the current 64%.

4. Integration trend: Stablecoins and traditional financial systems are accelerating integration and development. First, stablecoin issuers continue to expand stablecoin payment scenarios. USDT is used for real estate and oil transaction payments in the UAE. Singapore Metro Department Store and global chain retail giant SPAR are exploring stablecoin and cryptocurrency payments. Secondly, payment institutions are actively exploring the launch of stablecoin payments.For example, payment institutions Paypal and Striple have already launched stablecoin payments. Credit card institutions Visa and MasterCard have cooperated with crypto exchanges such as Kraken, OKX, and Crypto.com to use stablecoins for daily consumer payments. MasterCard has also announced the development and launch of a "multi-token payment network."Finally, mainstream banks are trying to launch their own stablecoins.JPMorgan Chase upgraded its own stablecoin Morgan Coin to the blockchain payment platform Kinexys, which is used to serve financial institutions for cross-border payments and foreign exchange settlement services. Bank of America, Citibank, Wells Fargo and other large commercial banks are discussing the joint issuance of stablecoins. On May 15, a survey report released by Fireblocks showed that 90% of payment and financial institutions have actually applied or planned to deploy stablecoins, and only 10% are on the sidelines.

5. Tokenization trend: Stablecoins drive rapid growth in the tokenization of real assets. Currently, the tokenization of real-world assets (RWA) is still in its early stages of development. As of June 2025, the market size of RWA has just exceeded US$24 billion, with only 210,000 RWA investors and just over 190 issuers. However, the RWA market is developing very fast, with a 260% increase in size in the last 12 months. An analysis by the World Economic Forum in December 2024 pointed out that major global financial institutions continue to show increasing interest in asset tokenization because it can reduce costs, improve efficiency and reduce settlement risks. For example, BlackRock tokenizes U.S. Treasury bonds and repurchase agreements through the Securitize Markets platform to provide investors with daily dividends. As of March 2025, its on-chain transaction volume has exceeded US$1 billion.

03 The impact of stablecoins on the global monetary system

1. US dollar stablecoins have created a "new dollar cycle" that helps to strengthen the international status of the US dollar

From the perspective of market structure, US dollar stablecoins occupy an absolute dominant position.The development of the global stablecoin market has shown the structural characteristics of "two 95%": more than 95% of the stablecoin market are fiat stablecoins, and more than 95% of the fiat stablecoins are US dollar stablecoins, even reaching 99%, of which the total market value of USDT and USDC accounts for about 90%. Stablecoins anchored to the euro, Australian dollar, British pound, Canadian dollar, Hong Kong dollar, and offshore RMB have also been launched, but on a small scale. Overall, the proportion of US dollar stablecoins in the global stablecoin market far exceeds the proportion of the use of the US dollar in international economic and financial activities. For example, at the end of 2024, the US dollar accounted for 57.8% of foreign exchange reserves and 49.1% of international payments.

From the perspective of investment structure, most of the stablecoin reserve funds are invested in US Treasury bonds. As of March 2025, the scale of stablecoins such as USDT issued by Tether is close to US$150 billion, and the US Treasury bonds held in its reserve assets are close to US$120 billion (including indirect exposure to Treasury bonds in money market funds and reverse repurchase agreements), accounting for about 80%. At the same time, as of March 2025, the scale of stablecoins such as USDC issued by Circle exceeded US$60 billion, and the US Treasury bonds held in its reserve assets exceeded US$55.5 billion (including US Treasury repurchase agreements), accounting for more than 92%. In April 2025, a report released by Citibank predicted that according to the current development trend and investment structure, the U.S. Treasury bonds held by stablecoin issuers in 2030 will exceed the scale of U.S. Treasury bonds held by any single country from more than 1.2 trillion U.S. dollars.

The U.S. dollar stablecoin has created a "new dollar cycle" that helps to strengthen the international status of the U.S. dollar. The U.S. dollar stablecoin has driven a new dollar circulation, that is, "using the U.S. dollar to buy U.S. dollar stablecoins-U.S. dollar stablecoins are widely used in crypto assets, cross-border trade settlement, and financial transaction settlement-U.S. dollar stablecoin reserves are invested in U.S. Treasury bonds and financial assets and flow back to the United States." The "new dollar cycle" will reverse the weakening trend of the U.S. dollar under the "traditional dollar cycle", thereby enhancing the international status of the U.S. dollar (the U.S. dollar accounted for 57.8% of foreign exchange reserves at the end of 2024, the lowest level in nearly 30 years). In response to this, the Trump administration followed the trend. The Executive Order on Promoting the Development of Digital Assets and Financial Technology in the United States in January 2025 explicitly required "promoting and protecting the sovereignty of the dollar, including by taking actions to promote the development and growth of legal and legitimate dollar-backed stablecoins around the world". The latest Genius Act requires stablecoin reserve funds to be invested in dollar financial products and restricts the development of stablecoins issued by overseas entities in the United States, which once again reflects the idea of ​​the United States dominating the development of the global stablecoin market: the development of the stablecoin market in the United States must achieve both the dominance of dollar stablecoins and the dominance of U.S. issuers.

2. China should develop offshore RMB stablecoins through a gradual model as a new tool for RMB internationalization

Continuously promoting RMB internationalization requires new ideas. Since the beginning of 2024, there is still a large gap between RMB internationalization and the proportion of economy and trade. On the one hand, the share of RMB in the international payment market in December 2024 is 3.75%, which is far from the global share of China's import and export scale in 2024 (10.4% for imports and 14.6% for exports). At the same time, the share of RMB in foreign exchange reserves and international payments is also far behind that of the US dollar. In December 2024, the share of the US dollar in international payments is still above 49%, and the gap between the share of RMB and the share of the US dollar has widened to 45.0%. In addition, the "Central Bank Digital Currency Bridge" is a new channel to promote the internationalization of RMB. However, with the BIS withdrawing from the Digital Currency Bridge and supporting the Agora project launched by the central banks of the United States, Europe and other countries, how to find greater consensus on the development of central bank digital currency and how to attract the participation of more central banks are important issues that need to be solved urgently. RMB stablecoin is an important tool to promote the internationalization of RMB. In the process of RMB internationalization, it is rarely used in cross-border trade and financial transaction payments without the participation of Chinese enterprises, and has a unilateral color. Stablecoins have a natural global attribute. While promoting currency swaps and the CIPS system for RMB payment and settlement, the introduction of RMB stablecoins will help to better alleviate the unilateral characteristics of the current RMB internationalization. At the same time, stablecoins and central bank digital currencies can also coexist and develop. The Aurum project, a CBDC system design project jointly tested by the Hong Kong Monetary Authority and the BIS Innovation Center in October 2022, is a digital currency system that operates a hybrid of central bank digital currency and stablecoin. Two different types of tokens are established at the wholesale level - intermediary CBDC (direct liabilities of the central bank) and stablecoins supported by CBDC (liabilities of the issuing institution, whose supporting assets CBDC are held by the central bank), exploring the model of co-operation of decentralized trading stablecoins and centralized management of central bank digital currencies.

Develop offshore RMB stablecoins through a gradual and controllable model. In view of the role of RMB stablecoins in the internationalization of RMB, and considering that Tether has issued offshore RMB stablecoins on the supply side and some domestic foreign traders on the demand side are also accepting USD stablecoin settlement, my country should adopt the model of "first offshore and then domestic offshore" to gradually launch and develop offshore RMB stablecoins.

First, in terms of time selection, offshore RMB stablecoins should be launched in Hong Kong as soon as possible, and it is better to do it sooner rather than later. Hong Kong already has a sound institutional foundation and market foundation. The Hong Kong dollar is a traditional USD stablecoin. Hong Kong needs RMB stablecoins as support to build an international cryptocurrency trading center.

Second, in terms of development path, "first offshore and then domestic offshore", and gradually promote it from Hong Kong to domestic free trade zones and free trade ports. In the long run, it is far from enough to issue offshore RMB stablecoins only in Hong Kong, because the market size and usage scenarios of Hong Kong are relatively limited.

Third, in terms of anchored currencies, in the future, only RMB stablecoins will be allowed to be issued and used in free trade zones and free trade ports to avoid the impact of US dollar stablecoins on domestic monetary sovereignty.

Fourth, in terms of usage scenarios, "foreign trade payment first, then financial investment", through "stablecoin + smart contract", first limited to payment and settlement scenarios such as cross-border trade and financial investment, and then gradually expand the scope of use according to the pilot situation.

Fifth, in terms of users, in the early stage, it can be limited to "qualified investors", and the user screening mechanism of financial management can be referred to to determine the user's asset size and risk preference.

04 Policy evolution and regulatory framework of global stablecoins

1. The governance challenges and potential risks of stablecoins have become increasingly clear

At the macro-governance level, the governance challenges brought about by the development of stablecoins mainly include three aspects. First, the impact on sovereign currency substitution is relatively controllable. We can refer to the policies of the European Union, the United Arab Emirates, etc. and solve it by restricting the use of foreign currency stablecoins in the country; second, the impact on monetary policy regulation is relatively limited. The development of domestic third-party payment has not brought a big impact on my country's monetary policy regulation. The development of foreign Eurodollars and petrodollars has not affected the Fed's regulatory ability. These are all cases that can be referenced; third, the impact on anti-money laundering and illegal financial activities supervision is relatively complex. This is the issue that policy authorities in various countries are most concerned about. At present, it needs to be alleviated through a two-pronged approach of improving regulatory system rules and strengthening the application of regulatory technology.

At the micro-risk level, the potential risks faced by the development of stablecoins are mainly in three aspects. First, similar to payment institutions and banking institutions, stablecoin issuers will also face financial risks such as credit risk, market risk, and liquidity risk, which are mainly related to reserve fund investment; second, technical risks of infrastructure, such as network robustness risk and data loss risk, are mainly related to the reliability and elasticity of ledgers and verification mechanisms, network verification and transaction processing capabilities; third, customer risks, involving the effectiveness of fraud prevention governance, the clarity and robustness of user claims, etc. These risk prevention and control can refer to the regulatory framework of payment institutions and banking institutions in the digital era to solve, but attention should be paid to the superimposed effects of globalization and decentralization brought about by blockchain and distributed ledger technology.

2. The United States leads the global stablecoin policy to support compliance and innovative development

On the one hand, the main line of US encryption policy has shifted to "supporting innovative development." After Trump took office, he established the Presidential Digital Asset Market Working Group to actively promote the formulation of US cryptocurrency regulatory policies, and the main line of crypto asset policies returned to "supporting innovative development". In terms of development ideas, "four arrows are fired at the same time", supporting the development of stablecoins and crypto assets, building strategic Bitcoin reserves, prohibiting the issuance of central bank digital currencies, and supporting the innovative development of blockchain and distributed ledger technologies without permission. Since March 2025, the US FDIC, OCC and Fed have all relaxed the regulatory requirements for banking institutions to participate in crypto business, and no longer require prior regulatory approval. The new US SEC Chairman Paul Atkins clearly proposed to change the regulatory approach of digital assets (crypto assets) to a "rational" approach to ensure that the United States becomes "the best and safest place in the world" in terms of crypto operations and activities.

On the other hand, the United States has a driving effect on global policy evolution. Under the influence of the US policy shift, the regulation of stablecoins and crypto assets in various countries has paid more attention to the balance between promoting technological innovation and maintaining financial stability. Since 2020, 47 countries around the world have relaxed or simplified cryptocurrency regulation, while 4 countries have tightened restrictions or even completely banned cryptocurrencies and mining.

3. The "five-pillar framework" for global stablecoin regulation has taken shape

First, clarify the functional positioning and scope of use of stablecoins. Currently, countries mainly support legal currency-backed stablecoins (payment stablecoins), and at the same time, refer to digital payment supervision to regulate the use of legal currency stablecoins. Algorithmic stablecoins without asset collateral have too high volatility risks and have not yet been recognized by regulatory authorities in various countries (EU, Hong Kong, and the United States). At the same time, in terms of the scope of use of stablecoins, most open economies (such as Hong Kong and Singapore) and the leading countries in the global monetary system (the United States) support the simultaneous issuance of local currency stablecoins and foreign currency stablecoins in their own countries, but large economies (the European Union and the United Arab Emirates) strictly restrict the use of foreign currency stablecoins in their own countries for the sake of maintaining monetary sovereignty. In addition, in order to avoid the impact of the rapid development of stablecoins on domestic banks and payments, the European Union has clearly set limits on the daily trading volume of stablecoins and put forward new regulatory requirements after the market value of stablecoins exceeds a certain scale.

The second is to set access and licensing requirements for stablecoin issuers. It is a global unified trend to implement access licensing and supervision for stablecoin issuers. All countries have put forward clear access and licensing requirements for stablecoin issuers. At the same time, most countries support banking institutions as issuers of legal currency stablecoins (but they must be registered). The regulatory concept behind this is that the current banking regulatory framework is more complete than the regulatory framework for stablecoin issuers, and the regulatory requirements for banks are stricter than those for stablecoin issuers. At the same time, most countries require that stablecoin issuers cannot pay interest or income to stablecoin holders, and cannot directly provide lending services. This is mainly because countries define stablecoins as payment tools, referring to the regulatory framework that third-party payment institutions cannot pay interest to payment accounts and cannot conduct lending business.

Third, clear supervision is implemented on the operation of stablecoin issuers. All countries basically follow the regulatory principle of "same activities, same risks, same supervision", and refer to the operating supervision framework of payment institutions and banking institutions for stablecoin issuers as a whole, and put forward regulatory requirements for capital, liquidity and risk management, but there are differences in specific measures and standards. At the same time, all countries require stablecoin issuers to set up entities locally (including offshore stablecoin issuers) and employ a certain number of local managers as a means to implement regulatory requirements, conduct regulatory inspections, and impose regulatory penalties.

Fourth, the investment and disclosure of reserve funds are the focus. In order to ensure the value stability of stablecoins and prevent holders from running on them, all countries have focused on supervising the management of reserve funds of stablecoin issuers. First, stablecoin issuers are required to hire licensed and regulated accounting firms to audit the scale and investment direction of stablecoin reserve funds and publish them publicly on a regular basis. Secondly, the issuer is required to invest the reserve funds in financial assets denominated in the currency of the stablecoin issued by the issuer to prevent the currency mismatch risk (affecting redemption efficiency) and exchange rate risk of the reserve assets. Thirdly, clear restrictions are made on the assets that stablecoin reserve funds can invest in, mainly government bonds, funds and other highly liquid and credit-rated assets. In addition, countries have put forward specific requirements on the redemption mechanism and time limit requirements for stablecoin holders, as well as the priority order of repayment when the issuer goes bankrupt.

Fifth, strengthen the supervision of money laundering and illegal financial activities. Based on the characteristics of decentralization, globalization, anonymity, convertibility (convertible into legal currency), and irrevocability of transactions, blockchain issuance and transactions, and the chain bridge technology strengthens the interconnection of different blockchains, making it easier for money launderers to hide their identities and sources of funds. At present, most countries have formulated anti-money laundering regulatory requirements for stablecoin and crypto asset transactions based on the recommendations of FATF. On the whole, the anti-money laundering and anti-terrorist financing regulatory requirements for banks and other financial institutions have been transplanted to stablecoin issuers and crypto asset service providers (including exchanges). The simultaneous implementation or strict implementation of the "travel rule" is a general trend. The Travel Rule requires that when a financial transaction exceeds a certain amount (US$1,000/EUR), the identity information of both parties to the transaction must be transmitted ("travel") along with the transaction so that regulators can track and prevent illegal activities.

Finally, the future development and supervision of stablecoins still need to think about three major issues in advance

First, the issuance and trading of stablecoins are decentralized. Is it applicable in the long run to follow the regulatory principle of "same business, same risk, same supervision" and transplant the existing regulatory framework? Second, financial innovations supported by new technologies require the use of new technologies to change the concepts, models, and tools of supervision and promote the digital transformation of supervision. Should the issuance and trading supervision of stablecoins adopt blockchain and distributed ledger technology to implement "embedded supervision"? Third, current financial supervision and governance are nationalized, while cryptocurrencies and decentralized finance are global. How can regulatory authorities of various countries and international regulatory organizations solve the problem of "globalization of business and nationalization of governance"?