Recently, the concept of 'stablecoins' has been fervently speculated in the capital market.
Many mobile payment concept stocks have experienced explosive growth, such as Yika, which surged 61.07% in five trading days, and Lakala, which surged 19.86% in three trading days.
However, these companies have little to do with stablecoins; they are purely speculating on concepts, and whatever rises now will eventually fall in the same way.
Today, I will use an article to tell you what the essence of stablecoins is, what advantages and disadvantages they have, and what the mainstream stablecoins are currently.
1. What is the essence of stablecoins?
Some people overestimate the status of stablecoins, thinking they can surpass fiat currency and become a true 'world currency' that circulates globally.
In fact, this is not the case; the current stablecoins are essentially an extension of sovereign currency in the crypto field, still backed by sovereign credit, not a new currency.
This sentence might be a bit convoluted, so let me give an example to help everyone understand better.
Taking the largest stablecoin by market share globally - $Tether (USDT.CC)$ as an example, it is not a newly created currency out of thin air.
First of all, the issuing institution is regulated by the US Treasury, it is licensed, and it is not just any random institution that can issue stablecoins.
Secondly, for every Tether issued, a corresponding $1 cash or US Treasury bond must be deposited in a custodial account; its underlying asset is US dollars and US Treasury bonds, and it does not create new money out of thin air.
The biggest feature of stablecoins is stability; the issuance of coins and the storage of dollars are in a one-to-one state, and the value of stablecoins relative to the dollar remains consistently stable.
The reason Tether can remain stable is that each Tether corresponds to a $1 cash or US Treasury bond deposited; the stable value of currency allows Tether to function as a medium of exchange in international society.
If Tether fluctuates too much, with one Tether being worth $2 one moment and $0.5 the next, it cannot serve as a currency, failing to replace the three main properties of money - measure of value, medium of exchange, and store of value.
From this, we can see that stablecoins like Tether are essentially a cryptocurrency form of the dollar, not a new currency.
It is an extension of the dollar in the cryptocurrency system, reinforcing the dollar-centered global currency system; it is still a form of sovereign currency that requires dollar backing.
Currently, the only globally recognized non-sovereign currency is gold, which does not require any credit backing.
Some might ask whether the development of stablecoins will lower the value of gold.
From the perspective of underlying assets, stablecoins' underlying assets are US dollars and Treasury bonds, and the risks that exist for dollars also exist for stablecoins.
If one day US Treasury bonds collapse and the dollar becomes worthless, then at that time, stablecoins will also be worthless (referring specifically to stablecoins issued with US dollars and Treasury bonds as underlying assets).
In summary, stablecoins cannot replace gold's financial status.
2. What are the advantages and disadvantages of stablecoins?
Since stablecoins are essentially still pegged to US dollars and Treasury bonds, why does the US want to create another stablecoin? Can't the dollar be used for global payments?
Although stablecoins and US Treasury bonds are the same in terms of underlying assets, they differ greatly in technical form.
The issuance of stablecoins uses blockchain technology, which is efficient, transparent, and secure, differing from traditional banking systems.
For example, most current US dollar international trade settlements use the SWIFT protocol; those who have used cross-border remittances should know this.
When we do cross-border remittances, we are required to fill in a SWIFT code; each bank has a unique code, and our cross-border remittances are all executed through this protocol.
This protocol has several obvious drawbacks: high transaction fees, poor timeliness, and a need for banks to provide services.
A fixed cost for an international remittance may be one or two hundred yuan, and then charged proportionally based on the remittance amount.
International remittances can take one or two days if fast, or five to six days if slow.
These remittance actions all need to be executed by banks.
However, stablecoins based on blockchain technology are different.
Its technological advantages precisely compensate for the disadvantages of existing international remittances, with low fees, fast speeds, and no need for bank services.
Transactions of stablecoins are completed entirely on the blockchain, unrelated to banks, and transfers can achieve immediate settlement.
We might not have much feeling about bank services; banks are everywhere on the streets.
However, for some remote areas, such as certain African countries, the banking system is very underdeveloped, even unsafe, making trade settlement very problematic in these places.
But if stablecoins are used, both parties to the transaction can settle themselves, whether domestically or internationally, directly communicating peer-to-peer, removing intermediaries, facilitating trade circulation, which also promotes the extension of the dollar system in remote areas.
So the question arises, can stablecoins achieve completely borderless circulation?
Clearly not; although the development of stablecoins in the US is thriving, have you seen people in our mainland using stablecoins?
Why not? You can't even register, your funds can't go out, and you still think about borderless circulation?
Therefore, stablecoins will also be subject to the legal restrictions of different countries; it is not the case that Tether, backed by US dollars and Treasury bonds, can circulate globally.
There's another question: Can stablecoins based on blockchain technology avoid US financial sanctions?
In the previous US-Russia conflict, the US froze Russian sovereign assets and used the interest to support Ukraine, which is still fresh in our memories.
So since stablecoins claim to use blockchain technology, be decentralized, and safe and efficient, can they avoid the risk of freezing by the US?
That can't be done either!
The US can still require the issuing institutions of stablecoins to track and freeze the addresses of stablecoins; although this is more troublesome and difficult than directly freezing Russian assets held in US banks, it is still technically feasible.
So do you think the whole world will accept stablecoins issued by the US?
As a result, many countries/regions are preparing to issue their own stablecoins.
3. What are the mainstream stablecoins currently?
Currently, the global stablecoin market size is about $250 billion, with 98.9% of stablecoins' underlying assets pegged to US dollars and US Treasury bonds.
The most mainstream are Tether's $Tether (USDT.CC)$, which occupies 61.8%-70.3% of the global market share, and Circle's $USDCoin (USDC.CC)$, which occupies 20%-24% of the global market share.
The large-scale use of USDT and USDC, as well as the issuance of stablecoins by other countries linked to US dollars and Treasury bonds, will ultimately consolidate the dollar's status as the global currency and maintain the dollar's monetary system.
The recently passed stablecoin bill in Hong Kong states that the underlying assets of the stablecoins it issues are Hong Kong dollars and US dollars, and since the Hong Kong dollar is pegged to the US dollar, it is essentially still a dollar asset.
However, it cannot be ruled out that stablecoins issued in Hong Kong in the future may be pegged to RMB assets.
Hong Kong has always been at the forefront of China's financial opening, serving as a bridgehead; all new things and technologies are first experimented and developed in Hong Kong, and if they perform well, they are extended to the mainland; if not, it does not affect the mainland, and with the mainland's financial scale, Hong Kong can safely land.
This fully reflects the superiority of the 'one country, two systems' policy from back then.
That said, there is a type of stablecoin that is not pegged to the dollar.
That is the EURC (Euro Coin) issued by Circle, which is directly pegged to the euro, 1 EURC = 1 euro.
The issuance of this stablecoin is primarily to prevent USDT from being obstructed in circulation within the eurozone, to maintain the eurozone's stablecoin status, and to reduce the impact of dollar-backed stablecoins.
Finally, let's expand on which companies will benefit materially from the development of stablecoins:
Issuing institutions of stablecoins:
$Circle (CRCL.US)$ (USDC issuer), $JD Group-SW (09618.HK)$ (Hong Kong stablecoin issuer), $JPMorgan (JPM.US)$, $Bank of America (BAC.US)$, $Citigroup (C.US)$, $Wells Fargo (WFC.US)$, $Standard Chartered (02888.HK)$.
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