On June 15, the China Wealth Management 50 Forum (CWM50) held a special seminar titled "The Rapid Development of Stablecoins: Potential and Challenges," where Xiao Feng, Vice Chairman of Wanxiang Holdings, attended and delivered a keynote speech.
Xiao Feng stated that stablecoins represent a new stage in the evolution of currency, which can be referred to as "tokenized currency." Based on distributed ledger technology, stablecoins enable peer-to-peer transactions without the need for intermediary institutions to align information. Since the emergence of distributed ledger technology, there have been significant changes in financial market infrastructure. The advent of stablecoins also marks the emergence of the digital twin trend, which involves bringing real assets onto the blockchain for tokenization. Asset tokenization enhances global liquidity, introduces new clearing and settlement models, offers programmability, and is significant for the future AGI era.
From the perspective of currency functions, stablecoins serve as a high-circulation currency for payments and settlements across time and space, addressing the "last mile" issue of inclusive finance and playing an important role in facilitating cross-border payments.
The goal of USD stablecoins is to maintain the USD's status as the world's mainstream currency, and its impact on China is multidimensional, necessitating an active response. China could consider using Hong Kong as a testing ground to launch offshore RMB stablecoin pilots, exploring its synergy with central bank digital currencies.
This article only represents the author's personal views and does not reflect the forum's position.
From a practical operational perspective, stablecoins have evolved beyond merely being a payment tool; they represent a new stage in the evolution of currency, which can be termed "tokenized currency."
I. The Significance of Stablecoins
(1) The Technological Value of Distributed Ledger
To truly understand stablecoins, one must first outline their development background. Stablecoins are built on the foundation of distributed ledger technology. Distributed ledger technology represents the third iteration of human computational methods over thousands of years. The first was single-entry bookkeeping. The clay tablets discovered in the Sumer region utilized single-entry bookkeeping, which only recorded income and expenses.
Around the year 1300, Italy introduced double-entry bookkeeping, which not only recorded income and expenses but also assets and liabilities. For over 700 years thereafter, computational methods were optimized but did not see new iterations.
It wasn't until the emergence of the Bitcoin blockchain in 2009 that a new computational method, distributed ledger technology, was introduced. The key difference between distributed ledger technology and previous bookkeeping methods is that the latter involved each party maintaining their own records, akin to private ledgers. For instance, a remittance from Beijing to New York involving multiple institutions requires aligning all information from these institutions' private ledgers, which consumes time and costs. However, a distributed ledger acts as a public ledger where all participants record transactions on the same ledger, eliminating the need for multiple institutions to align information, allowing parties to complete payments directly in a peer-to-peer manner—this is the most significant difference between the two computational methods.
Following the emergence of the Bitcoin blockchain, stablecoins began to appear in 2014. As distributed ledger technology underwent continuous engineering experiments, maturation, and optimization, two trends emerged: on one hand, since 2009, people have "created from nothing" Bitcoin, Ethereum, and others, referred to as "digital natives." On the other hand, since 2014, stablecoins represented by USDT have emerged, marking the rise of another trend known as "digital twins." A digital twin refers to an asset that already exists in the real world, such as the US dollar, being brought onto the blockchain and tokenized, effectively mapping existing assets onto the chain in a digital format.
Simultaneously, with the approval of Bitcoin ETFs in the US and Hong Kong last year, a new phenomenon emerged: digital native assets transitioning from on-chain to off-chain. Bitcoin ETFs are listed on the New York Stock Exchange (NYSE) and the Hong Kong Stock Exchange (HKEX), allowing investors to trade them according to stock trading mechanisms. Bitcoin itself exists on-chain, while Bitcoin ETFs exist off-chain. Thus, this process involves the conversion between on-chain and off-chain, as well as the interaction between digital twins and digital natives.
In the past decade of practice with distributed ledger technology, viewing it as a social engineering experiment reveals changes that gradually demonstrate the value of these technologies.
(2) As a New Financial Market Infrastructure
Since 2009, financial market infrastructure has undergone significant changes based on distributed ledger technology, stemming from the transformation of distributed bookkeeping methods. Financial market infrastructure primarily includes a series of mechanisms such as payment, trading, clearing, and settlement. So, what is new about the new mechanisms compared to the old ones? What characteristics do the old and new mechanisms each possess?
Currently, the financial infrastructure we rely on employs a model of central registration, central custody, central counterparty trading, and central settlement, requiring collaboration from at least three institutions to complete the clearing and settlement of a transaction. However, on a distributed ledger, since all participants record transactions on the same ledger, the trading model shifts to peer-to-peer transactions, allowing any two individuals to complete transactions directly without intermediaries.
The existing financial market infrastructure uses a net settlement model, while the settlement model on a distributed ledger is per transaction. This means that once a transaction is confirmed, the settlement is complete, and both parties are settled. From the stock market perspective, the NYSE will introduce a 5×23 hour trading model by the end of this year, reserving one hour after trading hours for clearing; meanwhile, NASDAQ plans to launch a 5×24 hour trading model in the future, but it cannot achieve this goal within this year due to the need for a pause during the trading process for clearing under the old financial infrastructure. In contrast, Hong Kong's virtual currency exchanges have already achieved 7×24 hour trading without holidays, precisely because their ledger types differ, leading to variations in financial market infrastructure. This is also one of the backgrounds for stablecoins, as they are built on a new financial market infrastructure.
II. Asset Tokenization (RWA)
(1) What is Asset Tokenization?
In my view, asset tokenization actually originated with USDT, referring to the process of bringing real-world assets onto the blockchain and tokenizing them. Its development has gone through three stages:
The first stage is the emergence of USDT, which occurred in 2015. The ten years of practice and social experimentation since 2015 have shown that the tokenization of fiat currency holds immense value, not only in the payment and settlement domain but also in other areas, which will be elaborated on later. Against this backdrop, countries have begun legislating to regulate and further promote it under licensing and regulatory frameworks. According to various statistics for 2024, the trading volume based on USD stablecoins is at least $16 trillion, with higher estimates reaching $28 trillion. Whether it is $16 trillion or $28 trillion, it indicates that the application of stablecoins based on distributed ledger and blockchain technology has become a "killer application" widely used. The largest user group consists of unbanked individuals in Africa who use USDT and USDC for cross-border payments.
The second stage began last year, with firms like BlackRock and Fidelity launching tokenized fund products in the US, such as US Treasury bond funds and USD money market funds, which have been tokenized and brought onto the blockchain, initiating the process of financial asset tokenization.
The third stage involves the tokenization of physical assets, such as real estate and hotel assets. This stage is still exploratory and may gradually advance starting this year, with several billion dollars' worth of physical asset tokenization practices already underway.
These three stages are arranged in order of increasing complexity. The tokenization of fiat currency is relatively easy because it does not require reliance on other means for credit endorsement. Fiat currencies like the USD and RMB are backed by national laws, thus enjoying a higher level of market trust, making the tokenization process simpler. Financial asset tokenization is relatively more complex, but still easier than physical asset tokenization, as the issuers and custodians are typically regulated licensed financial institutions, with custody primarily handled by banks. People trust these strictly regulated licensed financial institutions, making their tokenization more readily accepted.
The most significant difference before and after tokenization is that once an asset is minted as a token on the chain, it detaches from the banking system, leaving both the banking account system and the SWIFT system, transforming into a decentralized form. Therefore, whether a token exists on the chain and whether it exists permanently relies on strictly regulated financial institutions (custodians) to ensure it. Tokens are generated based on instructions issued by custodians; for example, once a custodian confirms receipt of a client's $100,000, it mints a token worth $100,000 (such as a USD stablecoin). This instruction is only recognized if issued by the custodian, making this process relatively straightforward.
However, there is currently no mature solution for the tokenization of physical assets. The main issues lie in how to bring information onto the chain, establish rights, and ensure a strong binding between on-chain information and off-chain physical assets, as the two can easily become unlinked. For instance, for real estate, property information needs to be brought onto the chain, which requires cooperation from multiple parties, such as property management authorities, but this issue has not been well resolved.
In the blockchain industry, although there exists a potential solution known as DePin (Decentralized Physical Network), theoretically, each block can collect data onto the chain to ensure the real existence of assets and verify them on-chain. For example, charging stations can install blockchain communication modules to directly upload data such as usage duration, charging volume, and income to the chain. However, this pathway currently lacks technological maturity and incurs high costs, leading to relatively few instances of physical asset tokenization. Development is expected to begin around 2025.
(2) The Significance of Asset Tokenization
Some argue why tokenization is necessary and what special significance it holds for traditional currencies like the RMB or USD. The necessity of tokenization lies in:
1. Enhancing Global Liquidity of Assets
When an asset is minted as a token on a public chain, it becomes easily accessible to global investors, thereby granting the asset global liquidity. This is akin to incorporating it into a global liquidity pool. For example, purchasing stocks on the Hong Kong Stock Exchange is a complex process for Brazilian investors, requiring them to open an account in Hong Kong, convert currency to HKD, and then trade. However, on the blockchain, these cumbersome procedures are eliminated, as it removes traditional mechanisms like central registration and central custody, enabling peer-to-peer transactions. Investors can independently seek information and decide whether to purchase, significantly enhancing the accessibility and trading convenience of assets.
2. New Clearing and Settlement Models
Tokenization introduces a peer-to-peer clearing and settlement model with fewer steps, higher efficiency, and lower costs. Preliminary statistics indicate that traditional banks have a capital turnover rate of about 7 to 8 times a year, while decentralized finance (DeFi) collateral lending can achieve a turnover rate of up to 67 times a year, nearly ten times that of traditional banks. The fastest case of completing a loan on the blockchain takes just 10 seconds, including lending, recovery, and interest settlement, a model known as "flash loans." "Flash loans" are realized through over-collateralization rather than leveraged lending, with the interest for USDT lending on-chain being 8%. This high interest stems from the significant increase in capital turnover frequency rather than through leveraged amplification of returns. Therefore, tokenization not only improves capital turnover efficiency but also reduces risk without the need for leverage.
3. Programmability
Traditional currencies (such as the RMB and USD) are non-programmable, while tokenized currencies can be programmed through smart contracts. This feature has been widely applied in the clearing and settlement processes and in handling defaults within smart contracts, significantly improving efficiency. For example, in on-chain lending, once a default condition is triggered, the smart contract automatically executes the liquidation without the need for accountants, banks, or courts to intervene. This process can be completed in just a few seconds, whereas handling defaults in traditional financial markets requires numerous intermediaries and takes a considerable amount of time.
4. Towards the Future AGI Era
With the advent of the Artificial General Intelligence (AGI) era, machines will independently create economic value, and payments and settlements will also need to occur between machines. In this scenario, transactions between machines cannot rely on traditional payment methods but must be completed through smart contracts and programmable currencies. If fiat currencies wish to maintain their importance and value in the AGI era, they must possess programmability. Therefore, tokenization is not only a necessity for current financial innovation but also an inevitable choice for future technological development.
III. The Monetary Attributes of Stablecoins
The attributes of currency have undergone three iterations: First, early currencies had natural attributes; whether shells, gold, silver, or copper, they originated from nature, and people assigned them monetary attributes. Second, with the emergence of sovereign states, fiat currencies such as the RMB, USD, and GBP were born, endowing currency with legal attributes. Third, the emergence of digital currencies like Bitcoin introduced technological attributes based on cryptography, distributed ledgers, digital wallets, and smart contracts, achieving global consensus. Based on this consensus, Bitcoin's total market value has reached over $2 trillion.
Stablecoins possess dual attributes: on one hand, fiat currency is a form of money endowed with value by legal compulsion and is used by people. On the other hand, when fiat currency is converted into stablecoins, it acquires technological attributes, operating on a distributed ledger and relying on technologies such as cryptography, distributed ledgers, digital wallets, or smart contracts during issuance, minting, and operation. From this perspective, stablecoins can be seen as the tokenization of fiat currency, representing a superior form of currency created by humanity.
Analyzing from the perspective of monetary attributes, stablecoins have functions such as payment and settlement. In addition, stablecoins not only possess technological attributes like programmability but also serve as currencies that transcend time and space. Once currency is converted into stablecoins and operates on the chain, it overcomes spatial limitations and jurisdictional restrictions. For example, in Africa, where over 60% of the population lacks bank accounts and cannot access currencies like the USD through banks, mobile wallets enable convenient purchases of USD stablecoins on-chain. Furthermore, stablecoins are high-circulation currencies, constrained by smart contracts on the chain, with efficiency surpassing that of traditional currency circulation. Lastly, they are democratized currencies. Specifically:
(1) Exploring Stablecoins from the Perspective of Reserve Assets
Stablecoins manage asset reserves similarly to money market funds. When stablecoin issuers receive customer USD, they deposit it into a custodian bank, which issues instructions to the issuer, such as confirming the receipt of $100,000 from a customer, after which the issuer mints $100,000 worth of stablecoins on the chain. The underlying assets of stablecoins are fiat currencies, which do not circulate directly but rather circulate through tokens, with management methods consistent with those of money market funds. Some express concerns about whether this involves currency creation, but in reality, there is no currency creation. The fiat currency merely remains in place, and the issued currency does not involve leverage or currency storage, thus causing relatively minor disturbances to financial stability. Stablecoins circulate rapidly across time and space in token form, replacing leverage. The absence of currency storage is due to the increased efficiency of capital turnover; for instance, "flash loans" can be completed in 10 seconds.
From the perspective of reserve assets, stablecoins effectively address the "last mile" problem of inclusive finance. Inclusive finance requires that access to financial services be convenient; without a financial account, inclusive finance cannot be discussed. Stablecoins are widely adopted in Africa, albeit with low amounts. For example, in Kenya, where 60% of the population lacks bank accounts, a payment method based on mobile numbers has developed, becoming a classic case of inclusive finance. Now, Kenyans can use mobile wallets not only to send SMS payments to telecom operators but also to more conveniently obtain USD stablecoins on-chain through digital wallets, which is more convenient than the banking account system.
(2) Analyzing Stablecoins from the Perspective of Facilitating Cross-Border Payments
Once holders obtain USD stablecoins, they gain the ability to make cross-border payments, which is a significant advancement for inclusive finance, greatly increasing access to financial services. As a result, unbanked individuals in Africa can use mobile wallets to access global payments, and Chinese cross-border e-commerce has become the biggest beneficiary. Research in Yiwu found that local exporters have begun accepting USD stablecoins. When Chinese cross-border e-commerce merchants receive USD stablecoins from customers for international trade, they need to convert them back to RMB, but they cannot directly exchange USD stablecoins; they must first convert them to USD on the Hong Kong Stock Exchange before returning to their bank accounts for settlement. From a practical business perspective, this resolves the "last mile" issue of inclusive finance.
Currently, a new C to B model is emerging in China's cross-border trade and international trade, where global C-end users place orders directly on Chinese internet e-commerce platforms. Chinese merchants no longer transport goods via containers but instead send packages. After a C-end user places an order, the merchant prepares the purchased items, such as shoes and clothing, into packages for direct delivery to the user's residence. Compared to traditional B to B to C container trade, C to B package trade urgently requires faster payment methods. If payment takes 7 days to arrive, merchants must wait for payment before shipping; if traditional payment methods are used, the package trade cycle could extend to two or even three weeks. If USD stablecoins are used, the C-end customer’s payment to the Chinese internet platform arrives quickly and at a very low cost. In this context, cross-border e-commerce has become the biggest beneficiary of stablecoins, with Chinese cross-border e-commerce benefiting significantly. Although China has not yet recognized this payment method, Chinese individuals are indeed reaping substantial benefits, providing strong support for the facilitation of cross-border trade.
IV. USD Stablecoins
Focusing further on USD stablecoins, their fundamental goal is not to assist in the sale of US Treasury bonds or increase the number of buyers for US Treasury bonds, but to maintain the USD's status as the dominant global currency, representing a legacy and development from gold-backed dollars, oil-backed dollars to tokenized dollars or digital dollars. Observations indicate that last year, approximately $10 trillion to $20 trillion in transaction and payment volumes have exited the banking system. Once stablecoins are minted, they become unrelated to banks; customers holding stablecoins no longer rely on the banking account system or SWIFT. Currently, nearly $20 trillion in transaction volume has been achieved; purely from a payment perspective, it is less than $100 billion, but when combining transactions and payments, the scale is around $20 trillion.
Given that USD stablecoins bypass SWIFT, this poses a significant shock to US financial power; however, this trend is driven by technology and is unstoppable. Ultimately, the US may have to accept a compromise, allowing transactions to bypass SWIFT while striving to maintain the USD's position. In this scenario, 99.99% of the $20 trillion in stablecoin transactions last year were USD transactions, primarily because other countries have not issued their own stablecoins, resulting in the market being dominated by the US.
Currently, the US government hopes to pass stablecoin legislation before Congress adjourns in August. At this stage, there are already two types of USD stablecoins, categorized into onshore and offshore. As of May 2025, the total minted amount reached $250 billion. The first is USDC, issued by the American fintech company Circle and the mainstream cryptocurrency exchange Coinbase, classified as an onshore USD stablecoin favored by American users. The second is USDT, issued by Tether, a company registered in El Salvador, which has no branches in the US. However, as a USD stablecoin, its reserve asset management is similar to that of money market funds, requiring the purchase of a large amount of US short-term Treasury bonds, USD deposits, and cash, with related operations completed by US institutions, thus it can be considered an offshore USD stablecoin.
Hong Kong's "Stablecoin Ordinance" also distinguishes between onshore and offshore HKD stablecoins. HKD stablecoins approved by the Hong Kong Monetary Authority can be used by individual retail investors locally, but HKD stablecoins issued outside Hong Kong, if recognized to some extent by Hong Kong regulatory authorities, can be used in Hong Kong but only for qualified investors, with retail investors excluded, similar to US regulations. As for why USDT chose El Salvador as its registration location, it is because El Salvador's legal currency is already the USD; the country has no own legal currency, and during legislation, the USD was established as the legal currency, so there are no legal obstacles to conducting USD stablecoin-related business in El Salvador.
V. The Significance of Stablecoins for China
(1) Impact and Response
The impact of stablecoins on China is multidimensional at the monetary level. On one hand, the form of currency continues to evolve over time; when technological attributes and legal attributes converge to empower currency, the competitiveness of the currency is significantly enhanced. In the landscape of currency competition among nations, superior currencies will inevitably exert a strong competitive advantage over those with slightly weaker competitiveness.
On the other hand, the process of currency globalization is accelerating. In 2024, the global stablecoin transaction volume reached $20 trillion, with the vast majority of transactions denominated in USD. This public ledger-based currency circulation model provides a more efficient and lower-cost pathway for currency internationalization.
Moreover, the global currency landscape is gradually moving towards multipolarity. In this process, countries need to actively consider how to enhance the competitiveness of their own currencies and explore the possibilities of creating higher-quality currencies through technological empowerment and other means.
The facilitation of currency is also an important aspect that cannot be overlooked. The widespread application of stablecoins in Africa is primarily due to their convenience in obtaining and making payments, as they do not require meeting bank account opening conditions and can achieve global peer-to-peer payments simply through mobile wallets, greatly enhancing the accessibility and efficiency of payments.
Given the numerous impacts brought by stablecoins, China is at a stage where it must respond actively. Relevant work can be advanced in phases and layers. First, Hong Kong can be considered as a "testing ground" to conduct relevant pilot projects for offshore RMB stablecoins. For example, supporting Hong Kong in conjunction with mainland free trade zones, such as the Hainan Free Trade Zone, the Guangdong-Hong Kong-Macao Greater Bay Area, and the Shanghai Free Trade Zone. Particularly, the FTN accounts in the Shanghai Free Trade Zone have unique advantages, as its financial policies are relatively more convenient and comprehensive, which can be combined with stablecoin pilot projects, starting with offshore RMB stablecoins. By accumulating experience through pilot projects, a foundation can be laid for broader promotion within the country in the future.
(2) The Synergy Mechanism with Central Bank Digital Currency (CBDC)
If a RMB stablecoin is officially launched in the future, it is necessary to consider its synergy mechanism with the central bank's CBDC. One possible solution is to construct a dual-layer architecture, where the central bank directly opens accounts for stablecoin issuers. The stablecoin issuer deposits customer fiat currency into this account, and the central bank issues CBDC accordingly, which the issuer then uses to mint stablecoins on the blockchain for global customer use. Of course, this idea still requires further exploration and refinement, but its core lies in exploring the organic integration path between the research results of the central bank's CBDC and the stablecoin architecture.
The positioning of central bank CBDCs and commercial institution stablecoins each has its focus, and the two complement each other. Central bank CBDCs emphasize centralized issuance to ensure monetary sovereignty and financial stability, while commercial institution stablecoins, after leaving the banking system, rely on blockchain technology to achieve decentralized circulation, breaking through national and jurisdictional restrictions for free flow. In this model, the first half is led by the central bank's issuance, while the second half is driven by commercial institutions promoting market circulation, fully leveraging their respective advantages to jointly promote the innovative development of the monetary system.
(3) Understanding "Decentralization"
The concept of decentralization can be understood from multiple perspectives:
First, from an economic perspective, decentralization is essentially a trade-off between fairness and efficiency. If the focus is on fairness, decentralization is necessary to avoid excessive concentration of power in a single entity. Conversely, if the pursuit is for efficiency, centralized decision-making is preferred. Therefore, the degree of decentralization is closely related to the emphasis on fairness and efficiency. Ideally, a balance needs to be struck between the two.
Second, from the perspective of technical protocols, decentralization is an inherent requirement of the underlying technology and cannot be achieved at the application layer. The application layer, due to the need to consider user convenience, functional completeness, and other factors, finds it difficult to achieve decentralization. However, the underlying protocols must be decentralized. Taking blockchain protocols as an example, they possess characteristics such as being open-source, permissionless, and free, similar to the IP protocol, UDP protocol, and HTTP protocol in the internet. These protocols do not require permission from any entity, are universally applicable, and exhibit typical decentralized features. It is this characteristic of decentralization that enables the internet and blockchain technology to achieve widespread interconnection and interoperability on a global scale.
Third, in the field of data privacy protection, decentralization means that individuals have sovereignty over their own data. From the perspective of data privacy protection, it is necessary for the underlying protocols to be decentralized to safeguard individual data rights. However, in the context of global interconnectivity, if the internet were to have multiple different underlying protocols, it would lead to issues in interoperability. The application layer, due to the need to generate significant social benefits, must accept regulation to eliminate negative externalities and enhance positive externalities. Therefore, the application layer inevitably exhibits centralized characteristics.
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