Currently, stablecoins and RWA (Real World Assets) are hot topics, drawing significant attention from academia, industry, and regulatory bodies. One important reason for this is that over the past two years, jurisdictions including the EU, Singapore, the UAE, Hong Kong (China), and the US have successively introduced regulatory bills for stablecoins. These bills define stablecoins, set issuer eligibility thresholds, outline mechanisms for maintaining stable value and reserve assets, specify compliance requirements for circulation, and establish special regulatory rules for significant stablecoins. This marks a new phase of strict regulation for stablecoin issuance and trading, which had previously grown unchecked. Notably, the enactment of Hong Kong’s Stablecoin Ordinance on May 20 this year, followed by the US Senate and House of Representatives passing the Clarity for Payment Stablecoins Act (also known as the Genius Act) on May 21 and July 17, respectively, has drawn particular attention and sparked further speculation about the future of stablecoins.
It is worth noting that stablecoins and RWA are nascent phenomena, and consensus has yet to be reached in many areas among academia, industry, and even regulators. Internationally, the Trump administration took a positive stance toward the development of crypto assets and stablecoins, while institutions like the Bank for International Settlements (BIS) and the European Central Bank have adopted a cautious or even relatively negative position. Domestically, aside from some non-professionals viewing stablecoins as new investment and financing channels, opinions in professional circles vary. Generally, industry players are optimistic, but regulators, including the People’s Bank of China and the Hong Kong Monetary Authority, remain cautious.
As innovative financial activities, stablecoins and RWA raise many questions worthy of in-depth exploration.
The Impact of Stablecoins on the Hegemony of the US Dollar
According to US Treasury statistics, as of November last year, the scale of US national debt exceeded $36 trillion, accounting for over 124% of GDP, with annual interest payments alone reaching $1 trillion. Data released by the US Congressional Budget Office in early June further showed that if the tax reform bill passed by the House of Representatives is successfully implemented, the US federal budget deficit will increase by $2.4 trillion over the next decade.
Faced with massive fiscal deficits, an expanding national debt, and the new reality of foreign official investors significantly reducing their holdings of US debt since the Russia-Ukraine military conflict, the US government needs to find additional funding sources to address its fiscal challenges. Earlier this year, US Treasury Secretary [Janet] Yellen stated that the issuance of USD-backed stablecoins would increase demand for US Treasury bonds, helping to lower issuance costs and thereby reinforcing the US dollar’s hegemonic position in the international monetary system. She also optimistically predicted that the market capitalization of USD stablecoins would exceed $2 trillion by 2028, an eightfold increase from current levels.
It can be argued that if the market capitalization of stablecoins rises significantly and continuously as Yellen anticipates, USD stablecoins could provide strong support for the further expansion of US debt in the short term and strengthen the dollar’s hegemony. However, in the long run, the continuous expansion of US debt will inevitably raise concerns about its safety, leading to large-scale sell-offs by investors in secondary markets and a substantial depreciation of the US dollar. In such a scenario, as tokens pegged to the fiat US dollar, USD stablecoins would also lose stability, and their role in supporting the dollar’s hegemony could quickly reverse.
This article is based on the speech and has been confirmed by the author.
