Cryptographic assets cannot become the true currency of the cryptographic world.

Written by: Wang Yongli, China Economic Times

Editor’s Note: Just before the Hong Kong "Stablecoin Regulation" comes into effect, the "Guidance and Establishment of the U.S. National Stablecoin Innovation Act" was efficiently passed by the U.S. Congress and signed into effect by presidential executive order. The introduction of this act immediately attracted significant global market attention—what are the strategic intentions of the U.S., will it accelerate the restructuring of global capital flow patterns, can it promote the evolution of international monetary rules, and how will the underlying infrastructure standards, such as blockchain, play out in the great power competition? To address these perplexing questions, the China Economic Times invited experts in the field to unveil the mysteries of stablecoins and clarify the logical chain of the impacts of the "U.S. Stablecoin Act" on various parties.

Core Viewpoints

The legislation on stablecoins and cryptographic assets will promote widespread participation from financial institutions such as banks. By connecting with various public chains, it will support customers in directly converting off-chain fiat currency deposits into on-chain tokens or converting on-chain tokens back into fiat currency deposits, reducing the additional steps and costs associated with non-bank payment institutions engaging in fiat and stablecoin conversions, thereby making stablecoins a more convenient channel connecting the cryptographic world with the real world.

Under the urging of U.S. President Trump, the "Guidance and Establishment of the U.S. National Stablecoin Innovation Act" (referred to as the "U.S. Stablecoin Act") was signed by the president on July 18, just before the Hong Kong "Stablecoin Regulation" took effect on August 1. This has sparked significant global attention and discussion, with many interpreting it as a new manifestation of the intense competition for global monetary power, likely prompting more countries and regions to accelerate their own fiat stablecoin legislation, leading to a surge in new stablecoins and large-scale expansion, thereby restructuring the international monetary system and financial market rules.

Fiat stablecoins, which are pegged to the value of fiat currency, were first introduced by the U.S. company Tether in early 2015 with the U.S. dollar stablecoin "USDT," which has now been in operation for over 10 years and has spurred the rapid development of new dollar stablecoins like "USDC" and other stablecoins. By June 2025, the market value of dollar stablecoins is expected to exceed $250 billion, accounting for over 95% of the total market value of stablecoins. However, the legislative regulation of stablecoins has only just begun, and the related bills have been hastily introduced, still requiring modifications and improvements, especially in the understanding of stablecoins and cryptographic assets, which need to break free from existing cognitive constraints and be observed and grasped from a higher perspective and broader dimension.

The Most Prominent Feature of Stablecoins is "On-Chain Cryptocurrencies"

Fiat stablecoins are backed by assets within a specified range of a certain fiat currency, maintaining a stable ratio with that fiat currency, but they need to be converted into cryptocurrencies that can be used within the borderless global blockchain system. Unlike general non-cash digital currencies (including currencies stored in deposit accounts or electronic wallets), stablecoins are a special type of "on-chain cryptocurrency."

On-chain cryptocurrencies are no longer tangible paper money and coins; they are represented only by a string of characters, which serve as both the owner's registered address on the chain and the account address for their currency on the chain (registration equals account opening). Behind this lies the owner's identity information, private keys, account balances, smart contracts, and various other elements. Blockchain platforms need to use distributed ledger technology to encrypt and protect the entire process of account operation, ensuring its authenticity, transparency, and security, which significantly differentiates it from the forms and operational models of traditional fiat currencies. Therefore, discussing stablecoins without considering blockchain is unrealistic and deviates from the fundamentals.

The Fundamental Application Scenario of Stablecoins is the "On-Chain Cryptographic World"

At the beginning of 2009, the on-chain native cryptographic asset "Bitcoin" and its blockchain, created through the high integration of blockchain and cryptographic technology, were officially launched. This was followed by the Ethereum blockchain and its native cryptographic asset "Ether," which further gave rise to various on-chain derivative cryptographic assets (commonly known as "altcoins") that were launched through initial coin offerings (ICOs) to raise Bitcoin or Ether for trading and circulation on the blockchain. Additionally, platforms for trading these cryptographic assets emerged, enabling 24/7 uninterrupted global trading on-chain, forming a borderless decentralized "on-chain cryptographic world" and accelerating its development. The "on-chain cryptographic world" has become one of the most significant innovations of humanity's use of blockchain and cryptographic technology in the 21st century, which will have a profound impact on the human world and must be given high attention.

However, developing and operating blockchains and trading cryptographic assets require significant off-chain costs (fiat currency) investment. If one can only earn income from cryptographic assets like Bitcoin but cannot easily convert them into fiat currency, it will far from meet the development needs of cryptographic assets. At the same time, without attracting fiat currency investment into cryptographic assets, the value of cryptographic assets is also difficult to realize effectively. Particularly, the value ratio of on-chain cryptographic assets like Bitcoin often experiences severe fluctuations against fiat currencies like the U.S. dollar, making it very difficult to use Bitcoin as a currency for exchanging essential goods in the off-chain world. These factors have given rise to the unique fiat stablecoins that connect off-chain fiat currencies with on-chain cryptographic assets. Thus, the "on-chain cryptographic world" has become the fundamental source of demand and application scenario for fiat stablecoins.

Fiat Stablecoins Strongly Promote the Development of the On-Chain Cryptographic World

The high integration of blockchain and cryptographic technology has given rise to native and derivative cryptographic assets like Bitcoin, as well as non-fungible digital twin cryptographic assets like NFTs. However, without sufficient participation from fiat currencies, these cryptographic assets are mainly confined to the on-chain cryptographic world, making it difficult to fully realize their value and have a significant impact on the off-chain real world. The emergence of fiat stablecoins has become a value channel connecting the cryptographic world with the real world, capable of meeting the demands for 24/7 uninterrupted trading and payment settlement of cryptographic assets on-chain, strongly supporting the development of the cryptographic world. Moreover, as fiat currency represents real-world assets, fiat stablecoins have pioneered and set successful examples for the on-chainization of real-world assets (RWA), leading to the emergence of more RWA products.

However, due to the emphasis on decentralization and lack of regulation, stablecoins have not received legal recognition and regulatory protection. Serious issues have indeed arisen during their development, resulting in banks and other financial institutions being unable to participate actively, which has greatly constrained the development of stablecoins and the cryptographic world. Now, with the legislative grounding of fiat stablecoins and the entire cryptographic asset framework, the legality of fiat stablecoins and cryptographic assets has been established, which will undoubtedly promote significant participation from banks and other financial institutions, pushing various standardized financial assets onto the chain for trading in RWA form, accelerating the development of the on-chain cryptographic world into an irreversible trend—this should be the most important contribution of U.S. stablecoin legislation.

Fiat stablecoins not only meet the development needs of the cryptographic world but also promote its accelerated development, with both aspects complementing and mutually reinforcing each other. Without placing stablecoins in the broader context of the on-chain cryptographic world, it is difficult to fully understand and grasp their significance by merely limiting the view to the monetary and financial domain.

Cryptographic Assets Cannot Become the True Currency of the Cryptographic World

On-chain native and derivative cryptographic assets like Bitcoin and Ether, despite being labeled as "coins" (referred to as "cryptocurrencies" or "digital currencies"), have proven in practice that they cannot become true currencies but can only be a new type of cryptographic (digital) asset. It is precisely for this reason that the emergence and support of fiat stablecoins are necessary.

Currency has a history of thousands of years in human society, and its forms (or carriers) and operational methods have continuously improved, evolving from the initial natural commodity currencies (like shell money) to regulated metal coins (like copper coins, gold coins, silver coins), then to metal-backed paper currencies, and further evolving into purely credit currencies that detach from any specific item value support, allowing the total currency supply to change in accordance with the total value of tradable wealth (moving from tangible to intangible, highlighting its essential nature), continuously improving efficiency, reducing costs, and enhancing control to better fulfill its functional role.

The evolution of currency is determined by its fundamental connotation: the essential attribute of currency is a measure of value (divisible and aggregable), its core function is as a medium of exchange (a tool for value transfer and settlement), and its fundamental manifestation is as the most liquid value token (a transferable claim to value), which requires the highest credit support within its circulation range. These three aspects are essential core elements that comprehensively describe currency.

Among these, as a measure of value, the most fundamental requirement for currency is its singularity and basic stability of value. This requires that the total currency supply must change in accordance with the total value of tradable wealth, possessing adjustability and flexibility, ensuring the basic stability of currency value based on sufficient supply. Therefore, any physical item that originally served as currency, such as shells, bronze, gold, silver, etc., must exit the currency stage and return to its original role as tradable wealth, as its supply cannot keep pace with the infinite growth of tradable wealth value. The current push for a gold standard or the search for a new limited supply of one or several specific items (like rare earths) as currency or currency standard is fundamentally against currency principles and unlikely to succeed. This is also the fundamental reason for the inevitable collapse of the Bretton Woods system (which sought to return international currency to the gold standard), the inability of Bitcoin (whose total supply and phase-increment are completely locked and unadjustable) to become true currency, and the difficulty of non-pegged stablecoins to succeed; currency must exit from any specific item or items and become purely legal credit currency, highlighting its essential attributes.

Here, it is essential to distinguish between the carrier or manifestation of currency and the currency itself. Shells, minted coins, paper money, etc., are carriers or manifestations of currency, not currency itself. The manifestation and operational methods of currency are continuously moving towards intangibility, digitization, and intelligence, with the proportion of cash and cash payments in the total currency supply and payment volume decreasing. Currency is increasingly represented as deposits (represented by account numbers) and the transfer payments/settlements of those deposits, with tangible cash (paper money and coins) ultimately exiting the currency stage entirely. Equating currency with cash is completely erroneous. At the same time, it is crucial to accurately grasp the connotation of "currency" or "coin" and not label all on-chain cryptographic assets as "coins" or "tokenized." Bitcoin, altcoins, NFTs, RWAs, etc., can only be considered assets, not currency.

The On-Chain Cryptographic World Brings Profound Changes to Currency Finance

Currently, constrained by various practical issues, in the legal currency system, aside from a small amount of cash that can be directly exchanged between the payer and payee, an increasing amount of currency is stored in banks and other payment clearing institutions. The payer and payee must use clearing institutions as intermediaries to transfer currency through transfer payments/settlement. If both parties have accounts at the same bank, only one intermediary (the account-holding bank) is needed for transfer payments; if the payer and payee have accounts at different banks, and the two banks have established a clearing account, then two banks serve as intermediaries; if the two banks have not established an account relationship, a third bank with a common account relationship must be found to "bridge" the connection to complete the transfer of currency from the payer to the payee, requiring three or more intermediaries. In cross-border payment settlements, typically more than three intermediaries are needed, and different payment clearing systems from different countries and regions must be utilized, handling payment notifications in different languages and rules. Thus, the more intermediaries involved, the more complex the payment notifications and clearing systems become, leading to lower efficiency and higher costs in payment settlements.

To improve the efficiency of payment clearing and reduce related costs, most countries have implemented a centralized account opening system, where all clearing institutions open accounts at a clearing center, minimizing the number of intermediary connections. At the same time, a widely connected and shared global interbank financial telecommunications association (SWIFT) has been established internationally, promoting the high standardization and unification of payment messages and global network processing, significantly improving the efficiency and cost of payment clearing. However, due to the difficulty in significantly reducing or completely eliminating payment clearing intermediaries, there are challenges in achieving fundamental breakthroughs in efficiency and cost for cross-border payment clearing.

The emergence of the on-chain cryptographic world brings a tremendous opportunity to address these issues. On a borderless global public chain, rules are embedded in the system (coding is the rule), and user registration equals account opening, allowing the payer to directly handle payment clearing with the payee in a peer-to-peer manner without intermediaries. This greatly improves efficiency and reduces costs, showcasing significant advantages over traditional cross-border payment clearing. Additionally, by pushing financial products onto the public chain, they can be sold and traded globally, greatly breaking through the limitations of the off-chain financial market and easily attracting a larger scale of investors and capital participation. This will undoubtedly attract more financial products, especially highly digitalized and standardized securities products (stocks, bonds, money market funds, etc.), to flow onto the chain through RWA, enriching the variety of on-chain cryptographic assets, increasing trading activity, and amplifying their impact.

A more profound change may be that the legislation on stablecoins and cryptographic assets will promote widespread participation from financial institutions such as banks. By connecting with various public chains, it will support customers in directly converting off-chain fiat currency deposits into on-chain tokens or converting on-chain tokens back into fiat currency deposits, reducing the additional steps and costs associated with non-bank payment institutions engaging in fiat and stablecoin conversions, thereby making stablecoins a more convenient channel connecting the cryptographic world with the real world. This will reduce the challenges posed by multiple different stablecoins of a single fiat currency to regulation, facilitate the implementation of on-chain token statistics and customer real-name systems (KYC), anti-money laundering (AML), and counter-terrorism financing (CFT) regulatory requirements, curb the rapid expansion of fiat stablecoins that could significantly impact the existing financial system, and enhance equal opportunities for countries to utilize public chains. It will profoundly impact the issuers of fiat stablecoins and the existing market structure (including the absolute leading position of the U.S. dollar stablecoin), the survival space of unregulated stablecoins and various "altcoins," and the international influence of SWIFT, promoting traditional financial trading products to accelerate their RWA transformation and attract significant participation from traditional licensed institutions in cryptographic asset trading and the operation of crypto exchanges, potentially even serving as a substitute for central bank digital currencies (CBDCs).

In this regard, China should have a clearer understanding and more proactive measures. The focus should not be on developing a renminbi stablecoin (which has very limited space) but rather on accelerating the legislative process, speeding up bank participation, and advancing RWA development to achieve a leapfrog advantage.

Legislative Regulation of the On-Chain Cryptographic World Needs Continuous Strengthening and Improvement

The emergence and development of fiat stablecoins have accelerated the extension of the on-chain cryptographic world from on-chain (native and derivative) assets to RWA. Global public chains are also beginning to act as intermediaries for off-chain cross-border settlement and remittance clearing, promoting the deepening integration and increasing influence of the on-chain cryptographic world with the off-chain real world, profoundly impacting existing monetary sovereignty and financial regulation. The lack of effective regulation is very concerning, and it is essential to strengthen the regulation of the process of detaching real-world assets (especially fiat currency) onto the chain and returning them to reality, meeting KYC, AML, and CFT requirements.

Currently, the legislative regulation of fiat stablecoins and the entire cryptographic asset framework has just begun. There is a need to seek a balance between encouraging innovation and preventing risks, between the individual interests of states or consortiums and the common interests of humanity, to improve implementation details, control key risks, and particularly guard against the U.S. legislating to fully support the cryptographic industry while weakening necessary regulation. It is necessary to break free from the constraints of traditional thinking in the real world, pay close attention to the development of the cryptographic world, conduct serious research, and accurately grasp the situation. Responsible major powers should actively participate in establishing rules and maintaining order in the cryptographic world and strengthen international cooperation.

The foundation and rules governing the operation of the cryptographic world are the blockchain system and its embedded rules. The most widespread and influential are the borderless global public blockchains (there are now many global public chains, such as Ethereum, Solana, Binance Smart Chain, Polkadot, etc.). Therefore, the global universality and fairness of blockchain rules, as well as the transparency and security of blockchain operations, become crucial foundations for the on-chain cryptographic world. The development of decentralized, non-state public chains and fair competition (efficiency, cost, fairness, security), survival of the fittest, and continuous improvement should be encouraged to prevent blockchains from being controlled and exploited by individual countries or interest groups.

In summary, the profound impacts brought by U.S. stablecoin legislation may exceed expectations.

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