Authors: Zhou Junzhi, Tian Yunnong, CSC Research Macroeconomic Team
CITIC Securities believes that the total scale of stablecoins is currently small compared to U.S. government bonds. The market should not expect short-term stablecoin regulatory policies to leverage significant dollar asset increases (i.e., the market expects stablecoins to rescue the dollar and U.S. government bonds).
What the market needs to pay attention to is whether stablecoins can usher in a new era of development, allowing payment demands that escape the dollar currency system and evade digital currency systems like Bitcoin to re-enter the centralized currency system through a layer of stablecoin.
Core viewpoints
Post-pandemic geopolitical games have escalated, and the U.S.'s unrestrained fiscal easing has raised questions about U.S. credit assets. Recently, more and more payments have been fleeing the dollar-dominated centralized currency system, avoiding digital payment systems (like Bitcoin).
Stablecoins are 'double-sided' currencies that combine features of centralized and digital currencies. Policies aimed at promoting the development of stablecoins should focus on strengthening the stability mechanisms of stablecoins: enhancing market 'trust consensus.' This is also the focal point of recent stablecoin regulatory policies.
Looking at the current comparison of the total scale of stablecoins and U.S. dollars and government bonds, it is unlikely that the development of stablecoins will bring in large-scale funding increases for the dollar and government bonds in the short term.
From a medium- to long-term perspective, the sound development of stablecoins can first allow fiat currencies (such as the dollar) to ride the coattails of Bitcoin's market capitalization expansion; second, it can wrap fiat currencies in a layer of stablecoin digital skin, bridging the divide between centralized credit currencies and digital currencies.
Summary
Recently, the U.S. and Hong Kong have successively introduced policies and regulations related to stablecoins, and Circle's listing on the U.S. stock market has ignited market interest in stablecoins.
The recent weakness of U.S. government bonds and the questioning of U.S. credit assets have coincided. There is a prevailing narrative in the market that stablecoin development aims to rescue the dollar and U.S. government bonds. Is this narrative true?
1. What are stablecoins?
Stablecoins have four operational elements.
1. Stablecoins operate on the blockchain.
2. When issuing stablecoins, issuers need to have 100% reserve of real assets.
3. The issuer is a private sector entity, not a central bank or other official agency.
4. The value of stablecoins is stable, mostly maintaining a 1:1 peg with the fiat currency they are anchored to.
Stablecoins mainly fall into three categories: fiat-collateralized, crypto-collateralized, and algorithmic.
Fiat-collateralized stablecoins anchor fiat assets; crypto-collateralized stablecoins anchor cryptocurrency assets; algorithmic types dynamically manage the money supply and value through smart contracts.
2. How do stablecoins maintain stability?
Stablecoins are inherently digital currencies. Historically, stablecoins have faced failures due to public distrust in their value stability, and cases of failure are not uncommon. Thus, achieving value stability for stablecoins is not easy.
Currently, mainstream stablecoins are fiat-backed. For this type of stablecoin, maintaining value stability requires two main points: sufficient reserve assets and transparent information disclosure.
The 'stability' of stablecoins is not an absolute safeguard established by a perfectly designed stability mechanism, but rather a balanced result of a mechanism that can relatively resist risks and market trust.
In summary, the key to maintaining the 'stability' of stablecoins lies in 'trust consensus'; in other words, holders believe they can always redeem equivalent fiat currency or collateral assets from the issuer. To achieve this, stablecoin issuers must hold highly liquid quality assets and maintain transparency.
3. What are the differences between stablecoins and Bitcoin?
Both stablecoins and Bitcoin are blockchain digital currencies, hence they share three common points: virtual assets, privacy, and decentralization.
The biggest difference between stablecoins and Bitcoin is whether the issuance is anchored to specific assets, resulting in different stability in their values.
First, stablecoins have price stability features (at least the issuers try to ensure value stability), while Bitcoin's price is naturally volatile.
Stablecoins anchor their value to external assets. The reserve assets are key to maintaining their value stability. Bitcoin's value depends on market supply and demand, and due to its limited supply, Bitcoin's audience has increased recently, maintaining a rising price trend amidst volatility.
Secondly, Bitcoin is relatively scarce, while stablecoins generally have a lower degree of scarcity.
The issuance and total volume of stablecoins depend on the amount of reserve assets and user demand, resulting in relatively weak scarcity.
The total supply of Bitcoin is fixed (21 million coins), and block rewards have undergone four halvings, showing clear scarcity.
Thirdly, stablecoin regulation is moving towards currency compliance, while Bitcoin regulation is more focused on virtual asset management.
Stablecoins have gradually become compliant under strong regulation in various countries, with laws specifying reserve assets and licenses for issuers.
Bitcoin itself is a decentralized asset, and the regulatory attitudes towards Bitcoin vary by country, as countries do not have consistent positions on virtual assets.
4. What driving forces are revealed by the development path of stablecoins?
The development of stablecoins can be roughly divided into four stages: before 2018, 2019-2021, 2022-2023, and from 2024 to present.
Emerging phase (before 2018): This was just the beginning stage, and the price of stablecoins had limited upward movement.
The earliest batch of stablecoins was born in 2014, with USDT issued by Tether being one of them.
Rapid development phase (2019-2021): Riding the wave of the DeFi ecosystem, stablecoins experienced rapid expansion.
After 2019, the DeFi ecosystem emerged, and the 'DeFi Summer' in 2020 made lending protocols like Aave and mining popular, increasing the demand for stablecoins as pricing tools and payment tools in the cryptocurrency world.
Regulatory adjustment phase (2022-2023): Under the pressure of failures and regulation, stablecoins are undergoing adjustments.
In May 2022, TerraUSD (UST) lost its peg and collapsed, raising concerns about the instability of stablecoins and attracting regulatory attention. Subsequently, the U.S. and Europe proposed the (Stablecoin TRUST Act) and the (Regulation on Markets in Crypto-Assets) (MiCA).
Resurgence phase (from 2024 to present): The era of alternative currencies is rising, and stablecoins are experiencing significant expansion.
After 2023, the cryptocurrency ecosystem will develop rapidly. In early 2024, the Bitcoin spot ETF will be issued after SEC approval, and the cryptocurrency market will rise again, leading to a rapid increase in demand for stablecoins as intermediary currencies.
The driving forces behind the development of stablecoins mainly include three aspects: the development of the cryptocurrency market, payment convenience, and privacy.
Stablecoins are currently the major pricing and payment tools in the cryptocurrency market; the payment convenience of stablecoins is stronger than that of other types of cryptocurrencies and fiat currencies, with lower costs. Moreover, their privacy makes stablecoins more in demand than fiat currencies in certain scenarios.
The shortcomings in the development of stablecoins mainly focus on the redemption risks brought about by a crisis of trust.
5. The direct and underlying purposes of stablecoin policy
Recently, the U.S. and Hong Kong have successively introduced policies and regulations related to stablecoins, aiming to guide the stable development of stablecoins, marking the entrance of stablecoins into a second development epoch.
The main direction of policy making revolves around the stable mechanism of stablecoins, focusing on 'trust consensus.'
In terms of details, the policy mainly provides external credit enhancement for stablecoins, clarifying what constitutes normative stablecoins and ensuring clear regulation of stablecoins.
First, eliminate conceptual biases regarding stablecoins to prevent underlying risks in their development.
Secondly, the regulations for anchoring assets of stablecoins should be refined to stabilize the core of stablecoins.
Third, construct a regulatory framework for stablecoins to give stablecoin development more official attributes.
6. How might the future development path of stablecoins unfold?
Stablecoins essentially act as a glue between fiat currencies (mainly the dollar) and digital currencies (mainly Bitcoin), or as a bridge.
Thus, the development of stablecoins can bridge the divide between digital currencies and credit currencies.
The divide between dollar-based credit assets and digital currencies has created a split; how stablecoins can repair this divide might be the original intention behind recent policies to regulate stablecoin frameworks and guide stablecoin development.
Due to the flaws in the traditional agency banking model, such as low payment efficiency, high transaction costs, limited coverage, and low transparency, coupled with geopolitical games after the pandemic that have led some countries and regions to detach from the modern cross-border payment system, the U.S. has implemented massive fiscal and monetary easing, abusing the dollar's credit. The trust in the dollar for cross-border transactions has weakened.
In April 2025, the U.S. introduced reciprocal tariffs, disrupting global trade rules, leading to uncertainty in global economic and trade order, and spurring a wave of development for alternative currencies.
The rapid development of Bitcoin reflects the current global waning trust in the dollar-centered monetary system, with more payments attempting to escape the dollar-dominated centralized currency system. Meanwhile, digital currencies that combine privacy and payment convenience are a primary choice for decentralized currency.
At this juncture, regulating stablecoin development can help promote the two main directions of fiat asset development:
First, stablecoins serve as pricing and payment tools in the cryptocurrency market, while stablecoins are anchored to fiat currencies (such as the dollar). Bitcoin's expansion requires increasing stablecoins, thus increasing dollars and U.S. government bonds. This effectively allows fiat currencies (such as the dollar) to develop by riding the coattails of Bitcoin's market capitalization expansion.
Secondly, stablecoins possess typical payment convenience and privacy of digital currencies, but they are also anchored to fiat currencies (such as the dollar). As stablecoins are promoted in the trading field, fiat assets (such as the dollar and U.S. government bonds) can expand through stablecoins, effectively wrapping fiat currency (such as the dollar) in a layer of stablecoin digital skin.
The most pressing question in the market is how much fiat assets, such as dollars and U.S. government bonds, stablecoins can ultimately bring in.
Our calculations show that the current total scale of stablecoins is small compared to U.S. government bonds. The combined reserve assets of USDT and USDC in the first quarter of 2025 amounted to about $120 billion in short-term U.S. government bonds, whereas the current stock of short-term U.S. government bonds is approximately $6 trillion, with $120 billion accounting for only 2%.
In other words, the market should not expect stablecoin regulatory policies to leverage significant increases in dollar assets in the short term (i.e., the market expects stablecoins to rescue the dollar and U.S. government bonds). What the market needs to care about is whether stablecoins can usher in a new era of development, allowing payment demands that escape the dollar currency system and evade digital currency systems like Bitcoin to re-enter the centralized currency system through a layer of stablecoin. This may also be the real intention behind the current stablecoin development frameworks established by governments like the U.S.
Introduction
On May 19, the U.S. Senate passed the (Guidance and Establishment of the U.S. National Innovation Act for Stablecoins), and the Hong Kong Special Administrative Region government published the (Stablecoin Regulation) on May 30, igniting market attention towards stablecoins.
On June 5, Circle Internet (the issuer of USDC) listed on the U.S. stock market, with a closing increase of 168.48%, marking the beginning of a significant wave of stablecoin development.
The market's attention to stablecoins is accompanied by another voice: the regulation of stablecoins indicates that their future development will be on the right track. The vast majority of stablecoins are fiat-backed (mainly the dollar), and the underlying assets include not only dollars but also U.S. government bonds (mainly short-term bonds). Does this mean that the ultimate goal of stablecoin policy regulation is to promote the expansion of stablecoins, thereby bolstering the dollar and U.S. short-term bonds?
The recent weakness of U.S. government bonds and the questioning of U.S. credit assets have coincided. There is a prevailing narrative in the market that stablecoin development aims to rescue the dollar and U.S. government bonds. Is this narrative true?
We will start from the micro-operational logic of stablecoins, deconstruct the mechanisms of stablecoin operations, and trace the development history of stablecoins, which will allow us to deeply understand the true intentions behind recent stablecoin policies and ultimately comprehend the future development trends and paths for Bitcoin.
The main text is as follows:
How do stablecoins maintain stability?
(1) The basic mechanism of stablecoins
What are stablecoins? We can summarize them with a few keywords: digital currency (blockchain), anchored reserve assets, privately issued, stable value.
The issuers of stablecoins are private sector entities, not official agencies (central banks or monetary authorities).
The issuance of stablecoins requires having reserve assets. When issuing stablecoins, issuers need to have a 100% reserve of real assets. Real assets generally include government bonds, fiat currency, or precious metals, and cryptocurrencies; any one or a combination of these can serve as reserve assets.
Stablecoins operate on the blockchain, thus stablecoins can serve as a medium for exchanging other cryptocurrencies on cryptocurrency exchanges. For example, converting dollars to USDT and then using USDT to buy Bitcoin.
In simple terms, the issuer, Xiao Tai (private sector), has a certain amount of real-world assets, such as dollars, U.S. government bonds, or gold, as well as cryptocurrencies like Bitcoin and Ethereum. Once Xiao Tai obtains the qualification to issue stablecoins, they can issue the corresponding stablecoins at a 1:1 ratio based on their held reserve assets, and these stablecoins are traded on the blockchain.
We can metaphorically say that stablecoins help the cryptocurrency world express prices, serving as an intermediary bridge between the real world and the crypto world.
The price fluctuations of Bitcoin and Ethereum themselves are too extreme, making it difficult for them to serve as currencies for transactions and pricing in the long term.
The emergence of stablecoins aims to solve this problem by linking them 1:1 with real assets, maintaining value stability while operating on the blockchain, facilitating transactions on the blockchain.
(2) The three types of stablecoins
Stablecoins can be classified into three types based on the mechanisms they use to achieve stability and the assets they are anchored to.
1. Fiat-collateralized
A 1:1 reserve of collateral assets must be maintained, and the collateral assets should be fiat currency or government bonds, such as using dollars and U.S. government bonds as collateral; representative stablecoins in this category include USDT and USDC.
Fiat-collateralized stablecoins are currently the most mainstream type, accounting for over 90% of all stablecoins, with the vast majority anchored to the dollar.
The issuance of USDT can be roughly divided into two steps: (1) Users deposit dollars into Tether's bank account; (2) Tether mints an equivalent USDT in the user's account, allowing the user to use USDT thereafter.
When users redeem dollars, they first exchange USDT with Tether, which then destroys the USDT and delivers an equivalent amount of dollars to the user.
2. Crypto-collateralized
Stablecoins generated by collateralizing mainstream cryptocurrencies, such as using BTC and ETH as collateral, with a representative stablecoin being DAI.
The issuance of Dai is based on an 'over-collateralization' mechanism, where users send their ETH to the MakerDao system, and the system issues Dai to the user's account at a certain discount based on the value of ETH at that time.
When the value of collateral falls below the collateralization ratio (e.g., 150%), users need to top up the collateral or repay Dai in a timely manner, otherwise the system will automatically liquidate.
3. Algorithmic
Algorithmic stablecoins dynamically manage money supply and value through smart contracts, buying back stablecoins when supply exceeds demand and issuing more stablecoins when demand exceeds supply. Reserve assets can be a mix of fiat and cryptocurrencies, with representative stablecoins including FRAX and AMPL.
(3) How do stablecoins stabilize their value?
The two main points for stablecoins to achieve stability are quality reserve assets and public transparency.
The 'stability' of stablecoins is not an absolute guarantee established by a perfectly designed stability mechanism, but rather a balance between a mechanism that can relatively resist risks and market trust, aiming to achieve relative stability of value.
In summary, the key to maintaining the 'stability' of stablecoins lies in 'trust consensus.' In other words, holders believe they can always redeem equivalent fiat currency or collateral assets from the issuer. To achieve this, stablecoin issuers must hold highly liquid quality assets and maintain transparency.
First, the majority of stablecoins' reserve assets are primarily short-term U.S. government bonds, along with bank deposits, commercial papers, and more.
Stablecoin issuers utilize a portion of their substantial reserve assets for investment (primarily to earn interest) and collect exchange fees for profit, making the operation of stablecoins a scale-driven business.
Taking Circle as an example, the current circulation of USDC exceeds $60 billion, with corresponding reserve assets including $50 billion in the Circle Reserve Fund (a money market fund operated by BlackRock that primarily invests in short-term U.S. government bonds, overnight reverse repos, and bank deposits), as well as over $8 billion in bank deposits.
Interest income is the core source of revenue for Circle, with Circle's revenue in 2024 reaching $1.676 billion, of which interest from reserve assets accounted for 98.6%.
Secondly, issuers will regularly disclose the status of reserve assets and the circulation of stablecoins.
Most stablecoin issuers' official websites have a 'Transparency' section, disclosing the scale and composition of their reserve assets, as well as the current circulation of stablecoins, to assure users that they can always redeem fiat currency from the issuer.
Circle's 'Transparency' section allows us to intuitively feel this, with the slogan 'USDC is always redeemable 1:1 for US dollars, and EURC is always redeemable 1:1 for euros. Always.'
We can more clearly understand this point by looking at the case of USDT losing its peg and then regaining it.
On March 13, 2023, USDC and the dollar lost their peg, dropping to a low of 1:0.88. The main reason was that Circle had $3.3 billion (8.25% of total reserves) deposited in Silicon Valley Bank, causing USDC holders to fear they would not be able to redeem their assets and leading to sell-offs.
Afterward, Circle's founder quickly stated on Twitter that the $3.3 billion in reserves had begun transferring to other banks. If they cannot fully recover that $3.3 billion, they do not rule out using company resources or introducing external capital to fill the gap. In short, they assured users that there was no need to worry about USDC being trapped in Silicon Valley Bank.
After that, USDC returned to a 1:1 peg.
What are the differences between stablecoins and Bitcoin?
Since the creation and diffusion of digital currencies, discussions about transactional currencies have categorized them into decentralized digital currencies and sovereign fiat currencies.
From the perspective of digital and decentralized characteristics, stablecoins are undoubtedly digital currencies; however, the vast majority of stablecoins are anchored to fiat currencies (especially the dollar), thus possessing certain fiat characteristics.
Because of this, stablecoins possess both decentralized digital currency characteristics and stable fiat currency value characteristics, making them a 'double-sided' currency situated between decentralized digital currencies and fiat currencies.
(1) Stablecoins and Bitcoin: Both are decentralized digital currencies with privacy.
Stablecoins and Bitcoin share three similarities: virtual assets, privacy, and decentralization.
These three common points are essentially due to the fact that both stablecoins and Bitcoin are blockchain digital currencies, thus they are both virtual assets.
Bitcoin is the native currency on the Bitcoin public chain.
Stablecoins are derivative tokens deployed by developers on public chains (mostly on the Ethereum public chain).
Digital currencies and their transactions on the blockchain are all recorded on a distributed ledger.
A distributed ledger records transactions among members of a distributed network, including digital asset exchanges or virtual currency inflows and outflows. In other words, every historical digital asset exchange is accurately recorded and cannot be modified, and every member of the network can view this shared ledger.
This means that when there are enough nodes, a single sovereign entity cannot control the ledger, hence it is 'decentralized.'
Distributed ledgers only record addresses (not the real social information of transactors), ensuring privacy.
For example, in the case of stablecoins, when Xiao A holds a $1 stablecoin, it means that in the distributed ledger on the public chain, each ledger records that Xiao A holds a $1 stablecoin.
When small A uses this $1 stablecoin to buy $1 of ETH from small B, each ledger will record this transaction: a transaction where small A's address and small B's address conducted a $1 stablecoin purchase of $1 ETH. All participants on the public chain do not know the identities of small A and small B (including A and B themselves), only that a transaction occurred at the addresses they operated.
(2) The biggest difference between stablecoins and Bitcoin: whether the value is stable.
The biggest difference between stablecoins and Bitcoin lies in whether they are anchored to specific assets during issuance.
The supply of Bitcoin depends on the total amount specified by the protocol and block rewards, and does not anchor other assets. The relationship between Bitcoin and fiat currencies (such as the dollar) is not constant, leading to stronger asset attributes for Bitcoin and greater price volatility.
To maintain value stability, stablecoins need to anchor the value of fiat currency in the real world. Most stablecoin issuance under stable mechanisms requires issuers to collateralize the corresponding amount of reserve assets.
(3) Stablecoins and Bitcoin: one focuses on transactions, the other on investment.
The differences in operational logic between stablecoins and Bitcoin determine that their core functions are differentiated; one serves as a payment tool, while the other serves as an investment tool.
1. The value depends on the ability of the anchoring asset to be redeemed.
Stablecoins anchor their value to external assets, such as fiat-backed stablecoins requiring a 1:1 dollar reserve, while crypto-collateralized stablecoins require over-collateralization with ETH.
It is important to note that the reserve assets of stablecoins are key to maintaining their value stability.
When stablecoin issuers have sufficient reserve assets to support the issuance and redemption of stablecoins, and their reserve asset data is publicly transparent, users know that the issuer's assets can support the issuance of stablecoins, allowing stablecoins to maintain stability.
However, when reserve assets are insufficient to meet redemptions or even face a run, the value of stablecoins will fluctuate significantly.
The value of Bitcoin relies on market supply and demand, not backed by other assets.
Therefore, in general, the prices of stablecoins are relatively stable, while Bitcoin's price exhibits significant volatility. In normal circumstances, stablecoins are more suitable as payment tools due to their stable value measurement attributes.
However, stablecoins face risks of value drops due to specific conditions such as runs, which Bitcoin does not.
2. The degree of scarcity depends on the anchoring assets.
The issuance and total amount of stablecoins depend on the amount of reserve assets and user demand, resulting in a relatively weak scarcity.
The total supply of Bitcoin is fixed (21 million coins), and block rewards have undergone four halvings, showing clear scarcity.
3. Compliance (depends on the anchoring assets and whether regulation needs to be followed)
Stablecoins have gradually become compliant under strict regulations in various countries, with laws specifying reserve assets and licenses for issuers.
Bitcoin itself is a decentralized asset, with blurred lines of regulation and is easily impacted by policy changes.
The differences between stablecoins and Bitcoin also determine that their core functions are differentiated; one serves as a payment tool, while the other serves as an investment tool.
Stablecoins are suitable as payment tools and the infrastructure for DeFi, connecting on-chain finance with real-world assets, becoming the core of payment settlements in the digital world.
Bitcoin is more suitable as an asset for storing value, serving as an investment under narratives of scarcity and financial order reconstruction.
What driving forces are revealed by the development path of stablecoins?
(1) The four stages of stablecoin development
The development of stablecoins can be roughly divided into four stages: before 2018, 2019-2021, 2022-2023, and from 2024 to the present.
Emerging phase (before 2018): This was just the beginning stage, and the scale of stablecoins expanded limitedly.
The earliest stablecoins were born in 2014, with USDT issued by Tether being one of them. USDT is the first scalable fiat-collateralized stablecoin and is currently the most mainstream stablecoin.
In 2017, MakerDao issued DAI, which served as a relatively successful template for crypto-collateralized stablecoins. In the second half of that year, leading cryptocurrency exchanges successively launched USDT trading pairs.
In 2018, Circle launched USDC. Since then, stablecoins like TUSD and GUSD have been successively issued.
Rapid development phase (2019-2021): Riding the wave of the DeFi ecosystem, stablecoins have experienced rapid expansion.
After 2019, the DeFi ecosystem emerged, and the 'DeFi Summer' in 2020 made lending protocols like Aave and mining popular.
Stablecoins serve as pricing tools and payment instruments in the cryptocurrency world; therefore, the rapid development of the DeFi ecosystem will increase the demand for stablecoins.
Regulatory adjustment phase (2022-2023): Under the pressure of failures and regulation, stablecoins are undergoing adjustments.
In May 2022, TerraUSD (UST) lost its peg and collapsed, raising concerns about the instability of stablecoins and attracting regulatory attention.
In 2022, the U.S. proposed the (Stablecoin TRUST Act), requiring that the reserve assets of stablecoin issuers and the issued face value of stablecoins maintain a 1:1 ratio, and that issuers must have licenses to issue stablecoins.
In April 2023, the European Parliament officially passed the (Regulation on Markets in Crypto-Assets) (MiCA), clarifying the types of crypto assets covered by regulations and the transparency and disclosure requirements for issuing, offering to the public, and trading crypto assets on platforms.
Resurgence phase (from 2024 to present): The era of alternative currencies is rising, and stablecoins are experiencing significant expansion.
After 2023, the cryptocurrency ecosystem will develop rapidly, with various new concepts emerging, laying the foundation for the rapid development of stablecoins.
In early 2024, after SEC approval, the Bitcoin spot ETF will be issued, leading to a resurgence in the cryptocurrency market and a rapid increase in demand for stablecoins as intermediary currencies.
In May 2025, the UK, the US, and Hong Kong successively passed stablecoin-related legislation, establishing regulations on reserve support, auditing rules, and issuance licenses for stablecoins.
(2) The driving forces and flaws of stablecoin development
The driving forces behind the development of stablecoins mainly include three aspects: the development of the cryptocurrency market, payment convenience, and privacy.
Stablecoins are currently the main currency for pricing and payment in the cryptocurrency market. The development of the cryptocurrency market will drive an increase in demand for stablecoins. For example, when Bitcoin is actively traded, the demand for stablecoins as intermediary currencies will also increase.
Stablecoins in the cryptocurrency digital ecosystem have stronger payment convenience compared to other types of cryptocurrencies and fiat currencies, with lower costs.
Blockchain-based stablecoins can settle instantly and around the clock without the need for manual processing, often completing a transaction in just a few minutes.
The peer-to-peer trading model of stablecoins eliminates the need for central institutions, lowering transaction fees.
The privacy of stablecoins makes their usage demand stronger than that of fiat currencies in certain scenarios.
For example, in recent years, DeFi activities have seen significant growth particularly in Sub-Saharan Africa, Latin America, and Eastern Europe.
The risks of stablecoins mainly focus on redemption risks and risks of issuing out of thin air, both of which could cause their values to drop to zero quickly.
When stablecoins face large-scale redemptions, they inevitably need to sell reserve real-world assets, such as government bonds, fiat currencies, commercial papers, etc. If redemption becomes difficult, the value of the stablecoin will decouple, and in severe cases, it will drop significantly.
Due to the lack of transparency regarding the relationship between the reserve assets of stablecoin issuers and the issuance of stablecoins, there is a moral hazard of issuing stablecoins out of thin air.
Since 2017, Tether, the issuer of USDT, has repeatedly faced market skepticism about its reserve assets due to banking disputes with its affiliated company Bitfinex, raising suspicions that Tether 'issues stablecoins out of thin air' and has faced legal investigations.
In March 2021, Tether decided to regularly disclose reserve asset conditions after paying a $40 million fine.
The direct and underlying purposes of stablecoin policy
(1) Deconstructing the content of the latest stablecoin policies.
The U.S. Senate passed procedural legislation for the (GENIUS Act).
On May 19 local time, the U.S. Senate passed procedural legislation for the (Guidance and Establishment of the U.S. National Innovation Act for Stablecoins) (referred to as the (GENIUS Act)).
(GENIUS Act) includes three key provisions:
Federal licensing. Issuers with a circulation exceeding $10 billion are required to obtain federal licenses and comply with regulations.
Full reserve support. Stablecoins must be supported 1:1 by high-quality liquid assets (such as U.S. government bonds and cash).
Mandatory auditing. Issuers must publicly audit monthly and disclose reserve assets.
The (Stablecoin Regulation) in Hong Kong has officially become law.
The Hong Kong Special Administrative Region government published the (Stablecoin Regulation) in the gazette on May 30, which means the (Stablecoin Regulation) has officially become law.
The key provisions include three points.
Access system. Issuers (excluding individuals or non-legal entities) must apply for a license, with a minimum registered capital of 25 million HKD; stablecoins cannot be issued without a license.
Reserve management. Reserve assets must exceed the circulation value of stablecoins, emphasizing 'what to anchor, what to reserve.'
Audit and disclosure. The white paper must disclose the issuer's background, technical mechanism, reserve management, redemption terms, etc., and undergo regular audits.
(2) The underlying logic and essential intentions of the policy
The introduction of regulatory norms signifies that stablecoins will enter a second development epoch, as the intention of the policies is to make stablecoins more stable.
In fact, the main direction of policy making revolves around the 'trust consensus' of the stability mechanism of stablecoins. Moreover, the policy also provides external credit enhancement for stablecoins, clarifying what constitutes a normative stablecoin and ensuring clear regulation of stablecoins.
Policies enhance the stability of stablecoins through three levels:
First, eliminate conceptual biases regarding stablecoins to prevent underlying risks in their development.
(The draft Stablecoin Regulation) stipulates that the purpose of stablecoins is for payments, debt settlement, and investment. Stablecoins need to anchor to a single asset or a basket of assets and must not be issued by central departments.
(GENIUS ACT) regulates payment-type stablecoins, which are intended for payments or settlements, and issuers must not provide interest or returns on stablecoins.
Secondly, refine the regulations for stablecoin anchoring assets to stabilize the core of stablecoins.
(The Stablecoin Regulation) and (GENIUS ACT) both require that the issuance of stablecoins must have at least 100% reserve of real assets, and the issuing institution is required to conduct regular audits and disclosures of its reserve assets; the issuance white paper must also disclose the redemption mechanism.
The goal is to standardize the issuance of stablecoins, improve the transparency of information disclosure, and reduce redemption risks and risks of issuing out of thin air. Especially in the context of the rapid development of the cryptocurrency market today, the global trading volume of stablecoins has surpassed that of Visa, prompting timely regulatory action to reduce stablecoin risks.
Third, construct a regulatory framework for stablecoins to give stablecoin development more official attributes.
(The draft Stablecoin Regulation) stipulates that the Hong Kong Financial Management Commissioner is the regulatory authority for stablecoins in Hong Kong, responsible for supervising their issuance to promote currency stability and financial stability.
(GENIUS ACT) implements a dual-track regulatory system. Issuers with a scale under $10 billion can choose state-level regulation, while those over $10 billion must accept federal regulation. The state-level regulatory system and federal regulatory framework are fundamentally similar; the regulatory body for state payment-type stablecoins is the state agency, and federal regulatory agencies include the Office of the Comptroller of the Currency (OCC, managing non-bank entities) and the Federal Reserve (managing deposit-taking institutions).
Can stablecoins save the dollar and U.S. government bonds?
Stablecoins essentially act as a glue between fiat currencies (mainly the dollar) and digital currencies (mainly Bitcoin), or as a bridge.
Therefore, the development of stablecoins fundamentally aims to repair the split between the dollar and Bitcoin. For example, following the recent introduction of reciprocal tariffs in the U.S., signs of reconstruction in the financial order have emerged, with more and more people investing in Bitcoin.
To further analyze the above logic and answer the question of 'the future development path of stablecoins,' we will break it down into four smaller questions and attempt to answer this larger question step by step.
Question one: What phenomena have occurred regarding the dollar in international payments in recent years?
The international payment system, which relies on the dollar as the ultimate currency credit, is beginning to weaken. One important piece of evidence is the continued growth in the volume and amount of cross-border payment business, while the number of active agency banks has decreased by about one-fifth.
The main reasons are (1) the traditional agency banking model has flaws such as low payment efficiency, high transaction costs, limited coverage, and low transparency; (2) geopolitical games have led some countries and regions to detach from the modern cross-border payment system; (3) post-pandemic, the U.S. has implemented massive fiscal and monetary easing, abusing the credit of the dollar.
The three most important supports for the international payment system are the dollar, the banking system, and SWIFT. Their vulnerabilities have become apparent, prompting the market to seek alternative cross-border payment solutions.
Therefore, the market value of cryptocurrencies (such as Bitcoin) and gold, as borderless currencies, has continued to expand since the pandemic.
Question two: What are the driving forces behind Bitcoin's development since 2023?
Since 2023, global 'de-dollarization' has intensified. A landmark event was Russia starting to use rubles to settle gas payments with 'unfriendly' countries on April 1, 2022.
The global binary division and the undercurrents of financial order reconstruction have led to a sustained increase in global attention to cryptocurrencies. Since 2023, new concepts in cryptocurrencies have rapidly developed, such as the Ordinals protocol and Blur tokens, with Bitcoin's price reaching the $100,000 mark by the end of 2024.
In April 2025, the U.S. implemented 'reciprocal tariffs,' reshaping global trade rules and supply chain orders, leading to intensified volatility in global financial markets based on trade, and alternative currencies are experiencing a wave of development.
Question three: What is the significance of the more stable development of stablecoins for Bitcoin and international payments in dollars?
Cryptocurrencies are decentralized, and there exists a binary opposition between them and fiat currencies like the dollar. However, cryptocurrencies like Bitcoin and Ethereum experience too much price volatility, making them more suitable as investment tools for storing value rather than as commonly used currencies. Stablecoins were created to establish a value scale in the cryptocurrency world, and to stabilize prices, they need to anchor to fiat currency values.
One side of stablecoins is fiat currency, while the other side is digital currencies represented by Bitcoin, serving as a bridge connecting the digital virtual world and the real world.
Against the backdrop of global financial order reconstruction, currencies used for international payments are beginning to show a trend towards decentralization. The payment convenience of cryptocurrencies is much higher than that of the bank cross-border payment system, transfer costs are lower, and there is no risk of sanctions. Thus, cryptocurrencies have become an alternative for cross-border payments, and the international payment system centered around fiat currency is at risk of losing its status.
Stablecoins bond the international payments of cryptocurrencies with the dollar. Although stablecoins are also products of blockchain technology, possessing decentralized characteristics, they still need to reserve national credit assets to maintain value stability.
Vigorously developing stablecoins and making them the digital currency vehicle for cross-border payments presents an opportunity for fiat currencies like the dollar to firmly maintain their dominant position in the international payment system. This also explains why the U.S. actively seeks to establish a strategic reserve of cryptocurrencies and implements encouraging regulatory policies to standardize stablecoin issuance.
Question four: What is the extent of stablecoins' supportive role for U.S. government bonds in their stable development?
Currently, the total scale of stablecoins is small compared to U.S. government bonds.
Currently, mainstream stablecoins are all anchored to the dollar, and to cope with redemption pressure and earn interest income, their reserve assets are primarily short-term U.S. government bonds.
USDT and USDC account for over 85% of the total stablecoin market capitalization, with both holding a combined $120 billion in short-term U.S. government bonds.
The audit report for USDT at the end of the first quarter of 2025 shows that about $100 billion of its reserve assets are short-term U.S. government bonds, accounting for about two-thirds of total assets.
By the end of the first quarter of 2025, about $20 billion of short-term U.S. government bonds were included in the reserve assets of USDC, accounting for 40% of the total assets.
The current stock of short-term U.S. government bonds is about $6 trillion, with $120 billion accounting for only 2%.
