Since the beginning of this year, stablecoins have shifted from a niche cryptocurrency to a focal point of attention. As of August 2025, the global market capitalization of stablecoins has exceeded $270 billion, with trading volume surpassing $30 trillion in 2024. Essentially, stablecoins are a form of financial disintermediation payment tool—a new type of payment instrument that operates outside traditional banking institutions, rather than a traditional or narrowly defined "currency." For example, within the United States, dollar-denominated stablecoins are similar to cash or PayPal balances, with the key difference being their decentralization—enabling payment and settlement functions without the involvement of third-party intermediaries like banks. Outside the U.S., they resemble offshore dollars in foreign markets, primarily serving as intermediaries in cross-border trade, investment, and financing. In the crypto space, they can be used to buy and sell crypto assets, acting as a bridge connecting the fiat value system of the real world with the virtual value system of the crypto world.
Functions and Roles of Dollar-Denominated Stablecoins
Stablecoins are a type of cryptocurrency pegged to specific fiat currencies or assets. Currently, 99% of global stablecoins are dollar-denominated, while the U.S. dollar accounts for 48% of payments under the traditional SWIFT system. Major dollar-denominated stablecoins include USDT and USDC, which together represent 85% of the stablecoin market capitalization.
Dollar-denominated stablecoins combine the dual advantages of cryptocurrencies and traditional fiat currencies, enhancing the digitalization of the U.S. dollar. On one hand, leveraging technologies like blockchain and distributed ledgers, stablecoins enable peer-to-peer payments with instant settlement, significantly shortening cross-border payment chains, improving payment efficiency, and reducing costs. Simultaneously, blockchain-based stablecoins offer transparency, encryption, and smart contract capabilities. On the other hand, by collateralizing assets such as U.S. dollar cash or short-term U.S. government bonds, dollar-denominated stablecoins maintain a 1:1 peg with the U.S. dollar, ensuring stability distinct from highly volatile cryptocurrencies like Bitcoin and Ethereum.
Dollar-denominated stablecoins expand the application scenarios and demand for the U.S. dollar, strengthening global economic reliance on it. Domestically, they are increasingly used in payment settlements and asset management. Internationally, as a global currency, the U.S. dollar enjoys broad acceptance, and dollar-denominated stablecoins, as digital "shadow dollars," offer diverse applications and demand—particularly in cross-border trade payments, where major international corporations are increasingly adopting them. In unconventional scenarios, such as hedging financial risks in emerging markets, combating inflation, and circumventing financial capital controls, dollar-denominated stablecoins also play significant roles. Underground economies (e.g., drug trafficking, organized crime) use them for large transactions, providing new liquidity for the U.S. dollar. Financial institutions in countries under U.S. financial sanctions, such as Russia and Iran, also use dollar-denominated stablecoins to bypass restrictions.
The U.S. Stablecoin Act and similar legislation in other countries mark the recognition of stablecoins as legal payment instruments, with immense potential for future development. Since 2023, the EU, Singapore, Japan, and others have introduced policies or regulations governing stablecoins, covering issuance, supervision, reserve assets, risk management,信息披露, and anti-money laundering. Since January 2025, with Trump’s return to the presidency, U.S. regulatory policy toward privately issued stablecoins has shifted significantly. The signing of the U.S. Stablecoin Act has legitimized stablecoin development in the U.S., tying them to national interests and supporting the growth of dollar-denominated stablecoins to maintain the dollar’s status as the leading international reserve currency.
Strategic Intent of U.S. Stablecoin Legislation
Previously, the Biden administration cracked down on cryptocurrency development and supported central bank digital currencies (CBDCs). However, with Trump’s inauguration, the U.S. government began supporting stablecoin development while adopting a cautious approach, defining them as "payment stablecoins" and emphasizing their payment function.
Addressing global "de-dollarization" trends, increasing demand for U.S. Treasury purchases, and consolidating the dollar’s status as an international reserve and payment currency. Dollar-denominated stablecoins enhance the digitalization and functionality of the U.S. dollar, expanding its global application and demand, thereby countering ongoing "de-dollarization" efforts and reinforcing the dollar’s international role. The U.S. Stablecoin Act mandates that stablecoin issuers must hold U.S. dollar cash or short-term U.S. Treasuries as primary reserve assets. As dollar-denominated stablecoins grow, demand for U.S. Treasuries will inevitably increase—according to the U.S. Treasury Borrowing Advisory Committee (TBAC), global stablecoin issuance could reach $2 trillion by the end of 2028, potentially adding up to $1.6 trillion in U.S. Treasury demand, alleviating the U.S. government’s long-term debt and fiscal deficit pressures.
Securing and consolidating the U.S. position in the crypto economy, enhancing U.S. economic strength and control over the global trade system. The crypto world and economy, built on cryptocurrencies, are unlikely to be fleeting and may become mainstream economic models. Through dollar-denominated stablecoins, the U.S. can bridge the traditional economy and the crypto world, securing a dominant position in the crypto economy and establishing a new "dollar-stablecoin-crypto asset" cycle. This enhances U.S. economic strength and inclusivity, reinforces global dependence on the dollar, and yields benefits such as "seigniorage." The U.S. Stablecoin Act also requires dollar-denominated stablecoins to embed a "digital kill switch" from the U.S. Treasury, meaning they, like SWIFT, can serve as political tools, strengthening U.S. control over the global trade system and deterring other countries’ economic security.
Meeting electoral needs. In the 2024 election, Trump reversed his previous opposition and expressed support for cryptocurrencies like Bitcoin, garnering campaign donations from the crypto community and winning support from right-wing voters.
Implications for China and Response Strategies
China should closely monitor the impact of the U.S. stablecoin strategy on the international monetary system, national monetary sovereignty, and financial stability. It should continue strengthening control over dollar-denominated stablecoins and cryptocurrencies, enrich the application scenarios of the digital yuan (CBDC) domestically, and appropriately encourage legislative supervision and pilot programs for offshore yuan-denominated stablecoins in free trade zones to enhance the digitalization of the yuan and counter dollar competition. This will prevent illegal economies, cross-border capital flows, and virtual assets from impacting the domestic financial system and endangering residents’ wealth.
Continue strengthening control over dollar-denominated stablecoins and cryptocurrencies to prevent disordered capital flows and financial disintermediation from threatening domestic economic security. Due to the decentralized, borderless, and anonymous nature of blockchain technology, dollar-denominated stablecoins and cryptocurrencies are difficult to incorporate into China’s current financial regulatory framework. Relaxing regulations could disrupt financial order, foster crimes like money laundering, illegal fundraising, and fraud, trigger cross-border capital flow disorders, and pose systemic financial risks from disintermediation, endangering residents’ wealth, financial institutions, and domestic economic security while undermining the yuan’s monetary sovereignty. Recommendations: First, clarify the consistent stance on dollar-denominated stablecoins and cryptocurrencies, prohibiting financial institutions, enterprises, and residents from engaging in related activities. Second, launch campaigns to clean up gray and black market activities like trading and matching within China, strictly prohibit overseas virtual currency exchanges from serving domestic residents and enterprises via the internet, and continue risk warnings and financial education. Third, develop policies to strengthen international financial coordination and regulatory cooperation, prevent currency substitution and systemic financial risks, and safeguard the security and stability of the yuan’s domestic and international payment systems.
Continue enriching the digital yuan’s retail and cross-border application scenarios under the CBDC framework, forming an ecosystem with banks and internet payment companies. Although the U.S. has abandoned CBDCs, its compatibility with blockchain分布式 technology and traditional financial systems is noteworthy. China should continue developing and refining the digital yuan (e-CNY) applications and ecosystem under this framework. Recommendations: Steadily advance the R&D and promotion of the digital yuan, apply offline payments, peer-to-peer payments, smart contracts, and other technical advantages to enhance its digital strengths and facilitate cross-border trade for China. Establish ecological integration with commercial banks, WeChat, Alipay, etc., gradually incorporating the digital yuan into traditional banking, e-commerce, and digital economy scenarios. Consider creating financial products exclusively for the digital yuan (e.g., digital yuan money market funds) to improve its investment functions. Explore CBDC swap agreements with central banks in Southeast Asia, BRICS countries, etc., encouraging trade partners to use the digital yuan for cross-border payments.
Explore launching offshore yuan-denominated stablecoins issued by licensed financial institutions in Shanghai Free Trade Zone, Hainan Free Trade Port, Hong Kong, and Macau to counter dollar-denominated stablecoin competition. Some Chinese merchants have already started using dollar-denominated stablecoins for international trade, not only with the U.S. and Europe but also with Africa and Asia, due to their convenience. To compete with dollar-denominated stablecoins while protecting the domestic financial system and encouraging innovation, a compromise approach could be adopted by promoting offshore yuan-denominated stablecoins in free trade zones and Hong Kong/Macau, isolating risks from the mainland market. First, improve policies and regulatory requirements for yuan-denominated stablecoins in free trade zones and Hong Kong/Macau, emphasizing their payment tool nature, allowing traditional licensed financial institutions to issue offshore yuan-denominated stablecoins, and enriching payment and trading ecosystems to compete appropriately with dollar-denominated stablecoins. Second, establish intermediaries in Hong Kong dedicated to cross-border payments and exchange transactions involving the digital yuan, yuan-denominated stablecoins, and other currencies, serving the offshore circulation of the domestic yuan, providing global liquidity support and services for the digital yuan, while managing offshore yuan exchange rates. Third, issue financial assets denominated and traded in offshore yuan-denominated stablecoins overseas, expand the issuance scale of offshore yuan bonds, provide reserve assets for stablecoin issuers, and enrich the usage scenarios and ecosystem of offshore yuan-denominated stablecoins.
