Today I read an analysis of stablecoins by #A16Z, and I gradually feel that this is a new type of currency war. For countries with weak industries and weak currency pegs, a new round of currency vampirism and dimensionality reduction attacks will form, which will inevitably trigger a trend of more countries implementing capital controls and stricter cryptocurrency policies.

This #A16Z article is well-written and discusses three issues related to stablecoins.

1️⃣ The threat of stablecoins to "monetary singularity"

• If stablecoins increasingly tie to specific assets (such as government bonds), they will no longer be a universal "neutral currency";

• Once multiple stablecoins circulate on different platforms and in different countries, a phenomenon of "monetary non-unity" may arise, for example:

USDC-on-Ethereum ≠ USDT-on-Tron ≠ RealUSD-on-BinanceChain;

• Each has different clearing paths, credit guarantees, and compliance levels;

• From a macro perspective, this is a form of "monetary fragmentation," weakening the dominant position of national sovereign currencies.

2️⃣ Localized monetary policy constrained by the input of USD stablecoins

• If a country widely uses USD stablecoins (especially in emerging markets), its central bank:

1. Cannot control the broad money supply.

2. Loses the independence to regulate interest rates and exchange rates.

3. The policy transmission chain is interrupted by the USD peg.

The result is a stronger capital control and cryptocurrency regulation, a trend that will become increasingly significant in the coming years.

3️⃣ The "monetization of government bonds" effect of stablecoins

• The reserves of current mainstream stablecoins are mostly U.S. government bonds or repurchase agreements;

• This means: government bonds → stablecoins → global payment circulation;

• Government bonds are gradually being "monetized," becoming assets that support quasi-central bank currencies;

• In the long run, it may:

• Solidify the global dominance of the USD ("digital dollarization"), but it may also cause a global "USD liquidity drain" phenomenon during crises, akin to a double-edged sword.

📝 This also contains some issues, especially the impact on traditional finance. This impact will compress credit demand, reduce expansion and consumption by businesses and individuals, and banks will be unable to obtain better and cheaper deposit sources, inevitably leading to a significant increase in credit costs. Here are three points of risk consideration:

1️⃣ Stablecoins as a form of narrow banking

• If stablecoin issuers (like Tether, USDC) keep all reserves in risk-free assets like government bonds, they essentially become "narrow banks":

• They do not lend but only hold safe liquid assets;

• For users, stablecoins are like digital cash or "government bond-backed currency" that can be exchanged at any time.

2️⃣ Narrow banks vs traditional banks' liquidity mechanisms

• Traditional banks earn interest margins by absorbing deposits and issuing loans, while relying on reserves to meet withdrawal demands;

• Stablecoin-type narrow banks completely abandon the lending function, relying on interest income or service fees to maintain operations;

• This weakens the banks' ability to "create credit"—having a significant negative impact on money supply and economic growth.

3️⃣ Risk migration and regulatory challenges

• Stablecoins may appear "safer," but their operational logic may transfer liquidity risks to other financial institutions, such as:

• Causing a run-like impact on the short-term government bond market (like the repurchase market crisis in March 2020);

• Potentially leading to fragmentation in the money market, making it harder for central banks to unify monetary policy management.

A deeply insightful article on stablecoins, worth a read. I will put the link in the comments. 🧐

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