In this podcast, let's talk about "stablecoins". This concept has been heating up in the past two years, especially this year, with the introduction of new bills and developments in Hong Kong and the United States, stablecoins have become the "most beautiful boy" in the financial field. Its development speed is amazing. In 2023, the market size has exceeded US$230 billion, and the number of active accounts has exceeded 250 million. Citibank even optimistically predicts that by 2030, the size of the stablecoin market may reach US$3.7 trillion, which is comparable to China's foreign exchange reserves.
Recently, the regulation of stablecoins has also accelerated worldwide. For example, the US GENIUS Act ("Genius Act") was passed by the Senate, the Hong Kong Monetary Authority launched the stablecoin sandbox project as early as 2024, and the Legislative Council passed the draft bill on May 21, formally establishing the stablecoin issuance license system - meaning that whether it is issuing fiat stablecoins in Hong Kong or issuing stablecoins pegged to the Hong Kong dollar overseas, it must be licensed.
However, for ordinary people, stablecoin is still a somewhat "foggy" concept, which can be easily confused with digital RMB, Bitcoin, and even Trump Coin, Dogecoin, etc. Recently, I even heard many people asking: "Stablecoin is so popular, will it become the next Bitcoin?" - This misunderstanding is exactly what we need to clarify today.
More importantly, at a time when the US dollar stablecoin and the Hong Kong dollar stablecoin have made noteworthy progress, will there be a RMB stablecoin in the world? Is it necessary? Is it feasible?
· Transcript·
01 Core concept analysis: the difference between stablecoin, digital RMB and Bitcoin
To understand stablecoin, we must first distinguish it from several other popular concepts.
· Central bank digital currency (such as digital RMB):It is not a new thing. It is essentially a new form of RMB, just like paper money and coins. It is the RMB itself, but in a different form.·Bitcoin:Its original intention was to become a new kind of "money", but due to problems such as slow payment speed and lack of issuing entities, it has deviated from the track of currency and is more like an invested asset. It can be said that as a currency, it has failed, but as an asset, it is quite successful.·Stablecoin:It is a "representative of currency", issued based on real legal currency and linked to it 1:1. A vivid metaphor is casino chips or canteen meal tickets-you exchange them with real money, use them in specific scenarios, and you can exchange them back to real money 1:1 after you use them up.In general, these all belong to the big family of "crypto assets". In this family, there are "digital fiat currencies" (digital RMB) issued by the central bank, "tokens" (stablecoins) anchored to fiat currencies, "digital gold" (Bitcoin) native to the blockchain world, and "meme coins" (Dogecoin) purely supported by faith and stories. Today we are mainly discussing those compliant stablecoins that are regulated, have reserves, and are anchored to fiat currencies.
02 How are stablecoins "stable"? The mechanism and risks behind them
Although the name is "stablecoin", it has not always been stable in history. For example, the largest US dollar stablecoin USDT once fell below $1, and the compliant USDC also fell to $0.8 due to reserve issues during the Silicon Valley Bank crisis, and the algorithmic stablecoin Terra/Luna collapsed directly to zero.
So, how can stablecoins really remain stable? In fact, the principle is very simple, similar to the logic of ancient money houses:
1. Sufficient reserves:To issue a dollar of stablecoin, there must be a dollar of real currency as a reserve behind it.2. Asset security:This reserve must be stored safely and cannot be misappropriated at will.3. Rigid redemption:When users want to exchange back to legal currency, they must be able to redeem it at any time and unconditionally.Historically, it was because the early "goldsmiths" (similar to the issuers) found that they could misappropriate reserves to lend, which led to the inability to redeem and caused a run on the bank. Therefore, the core of modern supervision is to prevent such risks. Both the regulations of the United States and Hong Kong clearly require that reserve assets must be sufficient and of high quality (such as cash, short-term treasury bonds), the status of assets must be disclosed publicly every month, and interest payments are prohibited to prevent speculative risks. These measures are actually the same as the regulatory requirements for banks' capital adequacy ratios and deposit reserves.
03 What real problems do stablecoins solve?
The reason why stablecoins can develop rapidly is that they do meet the specific needs of the market, especially those areas that are difficult to cover by the traditional financial system.
· Payment needs in emerging fields:With the development of blockchain technology, a convenient payment tool is needed in emerging economic activities such as NFT transactions and on-chain games. Stablecoins just fill this gap, just like Alipay solved the payment problem of Taobao transactions. ·Value transfer in the gray area:In some scenarios where traditional financial channels are blocked, stablecoins play an important role. For example, in some countries that are sanctioned or where the local currency fluctuates violently, local people and merchants will use US dollar stablecoins to preserve value and settle trade. Small merchants in Yiwu, China, may also use stablecoins to solve the problem of collecting payments when trading with some Asian, African and Latin American countries. From the issuer's point of view, they can make profits by charging transaction fees or using the deposited reserve funds for low-risk investments (such as purchasing government bonds), so they are motivated to explore more application scenarios.
04 Stablecoins and digital RMB: opponents or teammates?
There are both conflicts and complementarities between stablecoins and central bank digital currencies (such as digital RMB).
Technically, the two are not much different. The so-called "decentralization" is also a false proposition in stablecoins because it also has a centralized issuing agency.
The key difference lies in the development model and incentive mechanism. As a legal tender, the central bank hopes that the digital RMB can cover all payment scenarios, but commercial banks may lack sufficient commercial interest drive in promotion. The issuers of stablecoins have a clear profit motive and will be more motivated to find and develop the most suitable and efficient application scenarios.
From this perspective, stablecoins are more like "scouts" or "pioneers" of the digital RMB. The successful application scenarios it has explored in the past are likely to be borrowed and absorbed by the digital RMB in the future. It can be said that stablecoins "first wear a vest to explore the way, and when the way is explored, the digital RMB will take off the vest and keep up."
05 Do we need RMB stablecoins?
The answer is yes, it should be issued if there is demand. However, the issuance of stablecoins cannot only look at the convenience of payment at that moment, but also consider the monetary management system behind it.
If the reserve of stablecoins is used by the issuer for lending or investment, new currencies will be created out of thin air, which will affect the liquidity and interest rates of the entire society and even interfere with the monetary policy of the central bank. Therefore, if it is to be issued, it must be strictly regulated.
From another perspective, both the United States and Hong Kong have included stablecoins issued overseas and pegged to their own legal currencies under regulation. With the advancement of RMB internationalization, if we do not take the initiative to establish a set of management rules to manage the RMB stablecoins that may appear overseas, it will leave risk loopholes. In fact, there are already small-scale RMB stablecoins overseas. Therefore, it is necessary and urgent to issue and establish a corresponding regulatory system.
06 How to issue RMB stablecoins?
We can learn from Hong Kong's "sandbox mechanism" and pilot it in a small range first, and then promote it after success. The pilot can be carried out both at home and abroad, but the pilot in the offshore market (such as Hong Kong) may be more valuable because it can more fully test cross-border application scenarios and observe its impact on international capital flows, providing richer experience for supervision.
Regarding the issuer, it is possible to consider only allowing banks to issue (similar to bank drafts), or to allow qualified non-financial institutions to participate under the sandbox mechanism. The market will eventually allow excellent stablecoins to stand out through competition and selection, just like payment licenses. Although many licenses have been issued, the market is mainly dominated by several leading institutions in the end.
07 The impact of stablecoins on the financial system
· Impact on foreign exchange control:The key lies in the depth of supervision. If KYC (know your customer) is only carried out in the issuance link, and the subsequent transaction links are not supervised enough, a loophole in capital flow may be formed. ·Impact on monetary policy:It mainly depends on the tightness of regulatory rules. If the issuer is allowed to use the reserve for investment, then its size and investment scope will directly affect the money supply. Supervision must find a balance between "allowing the issuer to make a profit" and "maintaining financial stability." In the final analysis, the key to the success of a stablecoin lies in: "Can I exchange it back for money?" If it cannot be exchanged into legal tender safely and conveniently in the end, then no matter how advanced the technology and model are, it will be in vain.
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