Recently, both the U.S. and Hong Kong have simultaneously passed stablecoin regulatory legislation, pushing the concept of stablecoins to new prominence.
What are stablecoins? Stablecoins are virtual assets that maintain a relative exchange value with fiat currency. For example, USDT (Tether) is a dollar token launched by Tether, with 1 USDT = 1 dollar, allowing users to exchange USDT for USD at a 1:1 ratio at any time. Stablecoins have previously been in a regulatory blind spot, but several major events this year have pushed stablecoins into new prominence. On one hand, there is the upgrade of the regulatory framework. Firstly, the U.S. GENIUS Act is an important upgrade to the regulatory framework for virtual currencies, clearly defining stablecoins as interest-free, non-security settlement assets.
At the same time, stablecoin issuing institutions must hold reserves in cash, short-term U.S. Treasury bonds with maturities of less than 90 days, and other assets. Meanwhile, Hong Kong has simultaneously launched the (Stablecoin Regulation). At the same time, 'the first stablecoin stock' Circle is experiencing a hot IPO. Circle Internet Financial Ltd. (referred to as 'Circle') was founded in 2013 and is headquartered in New York, USA. Circle is the issuer of the USD stablecoin USDC, which has a scale exceeding $60 billion.
On June 5, 2025, Circle successfully went public on the New York Stock Exchange, raising approximately $1.1 billion. On the first day of trading, the stock price rose by 168%, with a valuation surpassing $18 billion.
How to understand the essence of stablecoins?
The essence of stablecoins is that they are tokens of the U.S. dollar, satisfying transaction needs through the form of cryptocurrency.
All transactions rely on currency, with the U.S. dollar serving as the global reserve currency and the main medium of exchange in international trade. However, the efficiency of the traditional financial clearing system is not high.
Traditional cross-border payments require intermediaries like banks, with time counted in days. By converting dollars into digital currency, transaction efficiency can be significantly improved, compressing payment efficiency to minutes. From this perspective, stablecoins will be one of the future financial infrastructures, allowing the U.S. dollar to once again enhance its status as an international payment medium.
Moreover, supporting U.S. Treasury bonds is one of the purposes behind the U.S. introducing stablecoin regulatory legislation.
The scale of stablecoins is enormous, and issuing stablecoins will bring significant demand for U.S. Treasury bonds. As of the end of May 2025, the global scale of stablecoins is approximately $250 billion, with the largest being USDT, which has a scale of $150 billion.
GENIUS requires stablecoin issuing institutions to hold reserves in cash, short-term U.S. Treasury bonds with maturities of less than 90 days, and other assets. Therefore, the increase in stablecoin issuance will mean an increase in demand for U.S. Treasury bonds. The potential scale is expected to be in the range of hundreds of billions to trillions of dollars.
What is the core factor determining the value of stablecoins?
Stablecoins maintain value stability by pegging to certain assets. The U.S. dollar and U.S. Treasury bonds are the anchors of stablecoins. The core risk faced by stablecoins is a run triggered by a crisis of trust.
If the market doubts the issuer's reserve assets are insufficient or of poor quality, users will rush to redeem stablecoins for fiat currency, leading to a decoupling or even collapse of its price.
Is issuing stablecoins the same as issuing currency?
Stablecoins are issued at a 1:1 peg to the U.S. dollar, somewhat similar to the Hong Kong dollar, which states that it is payable on demand; its essence lies in its role as a voucher for exchanging U.S. dollars. This process is not considered currency issuance.
However, the U.S. dollar has uniqueness; if we view the U.S. as a company, its core business model is to issue dollars and provide a means of payment globally.
This business model determines that the U.S. will always have a trade deficit; only a trade deficit allows the dollar to be exported globally. Other countries have no use for the dollars they receive, as they can only buy U.S. Treasury bonds. U.S. Treasury bonds are the anchor of the dollar.
This system is built on the credit of U.S. Treasury bonds; excessive debt and large trade deficits can affect credit. Why anchor to a 2% inflation rate? Because excessively high inflation can affect debt credit. Therefore, stablecoins pegging to U.S. Treasury bonds is precisely a relief and transfer of pressure on Treasury bonds.
Of course, if the stablecoin issuer defaults one day, perfectly canceling debts, what does it have to do with me, Lu Xun, going bankrupt and my relationship with Zhou Shuren?
What will the future of stablecoins look like?
In the gold standard era, one to two hundred years ago, people found it troublesome to use gold as a trading medium. Therefore, people invented paper money, using it as a token for gold in daily transactions, with a fixed proportion for exchange with gold, making paper money a kind of IOU.
Later, the Bretton Woods system was established, linking the dollar to gold and other countries' currencies to the dollar, making it seem like the world was still in the gold standard era.
Later on, global currencies decoupled, and everyone sought their own anchors. Nowadays, technological advancements have created a demand for more efficient trading mediums, leading to stablecoins emerging as tokens of fiat currency on the historical stage. Will stablecoins decouple from fiat in the future? It is still too early to discuss this issue, but a scale of $250 billion is just the beginning.
