Today I read an analysis by A16Z on stablecoins and gradually realized that this is a new type of currency war. For countries with weak industries and weak currency anchoring, it will form a new round of currency bloodsucking and dimensionality reduction attacks, which will inevitably trigger a trend of more countries implementing capital controls and stricter cryptocurrency policies. This A16Z article is well written, discussing the issues of three stablecoins. one ️⃣ The threat of stablecoins to 'currency singularity' • If the stable currency is increasingly tied to specific assets (such as treasury bond), it will no longer be a universal "neutral currency"; Once multiple stablecoins circulate on different platforms and in different countries, there may be a phenomenon of "currency non-uniformity", such as: USDC-on-Ethereum ≠ USDT-on-Tron ≠ RealUSD-on-BinanceChain； Each has different clearing paths, credit guarantees, and compliance levels; From a macro perspective, this is a form of "currency fragmentation" that weakens the dominant position of a country's sovereign currency. two ️⃣ Localized monetary policy is constrained by the input of US dollar stablecoins If a country widely uses US dollar stablecoins (especially in emerging markets), its central bank: 1. Unable to control the broad money supply. 2. Loss of independence in regulating interest rates and exchange rates. 3. The policy transmission chain is interrupted by the anchoring of the US dollar. The result is to trigger stronger capital controls and cryptocurrency regulation, and this trend will become increasingly significant in the coming years. three ️⃣ The "Monetization of Government Bonds" Effect of Stablecoins • Most of the current mainstream stable currency reserves are US treasury bond bonds or repurchase agreements; • This means: treasury bond → stable currency → global payment and circulation; • treasury bond is gradually "monetized", becoming a quasi central bank monetary support asset; In the long run, it may: Consolidating the global dominance of the US dollar ("digital dollarization"), but it may also lead to a global "drain on US dollar liquidity" phenomenon during crises, like a double-edged sword. 📝 There are also some problems involved, especially the impact on the traditional financial industry. This impact will compress credit demand, reduce the expansion and consumption of enterprises and individuals, and banks will not be able to obtain better and cheaper sources of deposits, which will inevitably lead to a significant increase in credit costs. Here are three risk considerations: one ️⃣ Stablecoins as an Implementation Form of Narrow Banking • If stable currency issuers (such as Tether and USDC) deposit all their reserves in risk-free assets such as treasury bond, they are essentially "narrow banks": Not lending, only holding safe current assets; • For users, stable currency is like digital cash that can be exchanged at any time or "currency supported by treasury bond". two ️⃣ Narrow definition bank vs traditional bank's liquidity mechanism Traditional banks earn interest spreads by absorbing deposits and issuing loans, while relying on reserves to meet withdrawal needs; Narrowly defined stablecoin banks completely abandon their lending function and rely on interest income or service fees to maintain operations; This weakens the function of banks in creating credit, which has a significant negative impact on the money supply and economic growth. three ️⃣ Risk Migration and Regulatory Challenges Stablecoins may appear safer on the surface, but their operational logic may transfer liquidity risk to other financial institutions, such as: Causing a run on the short-term government bond market (such as the repo market crisis in March 2020); May cause fragmentation in the money market, making it more difficult for central banks to manage monetary policy in a unified manner. A very insightful article on stablecoin thinking, worth reading. I have placed the link in the comments section. 🧐