The first part mainly interprets the significance of the US dollar stablecoin, while the second part focuses on the stablecoin economy and the opportunities that RWA brings to Chinese entrepreneurs. The views in this article are only one person's opinion, and readers are welcome to communicate.
Author: Meng Yan's thoughts on blockchain
Cover: Photo by Adam Nir on Unsplash
Introduction
With the US Senate passing the voting motion for the US dollar stablecoin bill and the Hong Kong Legislative Council passing the Hong Kong dollar stablecoin bill, stablecoins have quickly become the hottest industry topic and have attracted wider attention. It is generally expected that with the implementation of the US dollar stablecoin bill, the blockchain digital economy will usher in a very exciting outbreak, and a new entrepreneurial window will emerge around the US dollar stablecoin and real world assets (RWA). Dr. Xiao Feng is a leader in Chinese blockchain research and practice, and has a very deep understanding of blockchain, stablecoins and RWA. In order to fully understand the opportunities of this era, I had the honor of having an in-depth exchange with Dr. Xiao Feng through video conferences and text, and I sorted it out and published it for discussion with my peers. Due to the large length of the original text, it is published in two parts. The first half mainly interprets the significance of the US dollar stablecoin, while the second half focuses on the prospects for the opportunities that the stablecoin economy and RWA bring to Chinese entrepreneurs. The views in this article are only one person's opinion, and readers are welcome to communicate.
1. The motivation for stablecoin legislation is transparent
Meng Yan: Dr. Xiao, your recent speeches have caused a great response in the entire Chinese blockchain community, especially the "Back to the Origin" speech for blockchain entrepreneurs, which has a wide impact. In this speech, you not only reiterated the value logic of blockchain, but also clearly pointed out that this industry is facing a new outbreak cycle, and entrepreneurs need to return to their original intentions and start again to get on the right track. This is my understanding of your speech.
The timing of your speech is indeed very accurate. The US Senate passed the voting motion of the GENIUS Stablecoin Act on May 19, and the Hong Kong Legislative Council passed the Stablecoin Bill on May 21. A legislative competition on stablecoins has quietly begun. At present, a new consensus is forming that the blockchain field is about to usher in a golden window period for entrepreneurship and innovation, and its energy intensity may exceed that of AI for a period of time. Now many outsiders who have never participated in blockchain and Web3 may have been dismissive of it last month, but now they have adjusted their ideas and started to pay attention to opportunities in this field.
This situation is hard-won. I have been involved in this industry for ten years, and I am still quite emotional about this. In the past few years, major countries around the world have basically adopted a very cautious or even negative attitude towards blockchain, encrypted assets, Tokens, DeFi, Web3 and other new technologies. Supervision is tight, and the mainstream media almost unanimously engages in stigmatization. In the more than 200 years since the Industrial Revolution, there is no other example in my memory of treating an emerging technology in this way. But the green mountains cannot cover it, after all, it flows eastward, and finally waited for this day.
However, the public still needs an explanation for the sudden U.S. Trump administration’s about-face. I’ve seen some self-media interpret this from a conspiracy theory perspective, such as a tool for the Trump family to enrich themselves, or a currency war launched in conjunction with the trade war.
So what do you think is the motivation behind the United States’ push for stablecoin legislation?
Xiao Feng: The US Presidential team and Congress are relatively frank and transparent about the motivations for stablecoin legislation. They openly say that the first is to modernize the US payment and financial systems, and the second is to consolidate and enhance the status of the US dollar and create trillions of dollars of demand for US Treasury bonds within a few years. I think this is the answer, there are not so many conspiracy theories here.
Not long ago, I talked with a crypto policy advisor to the US President. He told me very directly that the national reserve of Bitcoin is secondary to the United States, and the stable currency of US dollar is the first, which is the core interest of the United States . As far as I know, the goal of President Trump's team is to ensure that the GENIUS Act is passed before the US Congress goes on vacation in August. Now it seems that it may be even faster.
Under such circumstances, the Hong Kong legislative authorities demonstrated flexibility and efficiency and passed the Stablecoin Ordinance in the third reading, which is commendable.
Meng Yan: Some people have compared this bill to the Bretton Woods Conference in 1944 and the Nixon Shock in 1971, saying that it is building the "Bretton Woods system in the digital economy era." The general logic of this statement is that the United States is very worried about the weakening of the status of the US dollar in the process of deglobalization. Therefore, the use of digital currency as a "nuclear weapon" will have a dimensionality reduction impact on the existing international monetary and financial system, hedge the impact on the US dollar, and consolidate the hegemony of the US dollar. What do you think of this view?
Xiao Feng: I mentioned earlier that the United States has publicly acknowledged that one of the important purposes of promoting stablecoin legislation is to consolidate and enhance the status of the US dollar. And judging from the Senate’s vote, this is a bipartisan consensus, and they also know that they are making history.
It took the United States a long time to come to this understanding, and it also paid a price. The previous US government, especially expert bureaucrats like former SEC Chairman Gensler, knew about blockchain, but why did they still struggle with it for so many years? It was simply because they were reluctant to give up the existing payment network, including SWIFT, and the financial governance, supervision, and anti-money laundering mechanisms built on this network.
However, the progress of blockchain technology in recent years, especially the practice of financial sanctions against Russia after the Russo-Ukrainian war, shows that the technological advantages of blockchain are solid and irrefutable. Therefore, the entire financial infrastructure is moving towards blockchain, just like the transition from steam engines to the electrification era. There is no doubt that no force can stop it. There is no point in burying your head in the sand. The situation is stronger than people.
Compared with the previous administration, the Trump administration has shown a more realistic attitude in all aspects. At worst, it is unprincipled, but at best, it is proactive. So the current attitude of the United States is that if it is inevitable for payment and settlement to bypass SWIFT, then at least do not let it bypass the US dollar; if the tokenization of the US dollar is inevitable, then at least ensure that each US dollar token is created based on US assets. Since it cannot be blocked, then it can be properly guided to ensure that the US dollar remains the main payment and settlement tool in the digital economy, in the Web3 world, and in the AI era. This is the core national interest of the United States. From the perspective of the United States, this is an open conspiracy and an open card.
Can the US dollar stablecoin create a new "Bretton Woods system"? It remains to be seen. Over the past few years, the global status of the US dollar has declined. If the United States hopes to consolidate the status of the US dollar through stablecoins, there is no doubt about that. However, whether such a measure alone can achieve the goal, especially whether it can be said that it has created a new system, I am afraid it still needs to see the subsequent practice and legislative interaction process. However, I have a judgment that although the Trump team and the US Congress have a deep understanding of the US dollar stablecoin, the long-term impact of this matter may not be fully imagined. In this sense, promoting the GENIUS Act is taking some risks. Will the future be like his trade war policy? It remains to be seen.
2. Two US dollar stablecoin systems and their complex consequences
Meng Yan: Speaking of long-term impact, the conspiracy theory of "currency war" is very popular on the Chinese Internet now, which believes that the United States launched stablecoin legislation to "weaponize" stablecoins. Do you agree with this statement?
Xiao Feng: "Currency war" has been a popular narrative for more than a decade. From the perspective of other countries, it is indeed necessary to make a full estimate of the impact of the US dollar stablecoin. Legislation to promote tokenized fiat currency is an unprecedented event in the history of world currency, which is bound to trigger a series of complex economic and financial reactions. No one can fully foresee its consequences, not even the US President and Congress. However, there are at least two issues that need special attention in terms of the content revealed by the GENIUS Act.
The first is that the boundaries of sovereign currencies have become more fragile . The current use of currency is based on national administrative divisions. Sovereign states have internal currency monopolies and control foreign exchange exchange at the border. This governance mechanism has been in place for hundreds of years. Once the US dollar stablecoin is widely used, this mechanism will be broken. Blockchain transforms the Internet into a payment network and financial infrastructure, so that currency no longer relies on the traditional banking system and clearing network, but can penetrate into the micro level of another economy like capillaries through smart contracts, encrypted accounts and peer-to-peer transmission mechanisms, covering daily consumption, labor payment, cross-border e-commerce, freelance settlement, and even AI-to-AI and machine-to-machine payment behaviors. At this stage, stablecoins are no longer just a payment tool, but a financial infrastructure that can be embedded in the economic system of other countries . It can "incorporate" part of the economic activities of other countries into its own economic map, essentially forming a new monetary network expansion mechanism . This poses a structural challenge to existing sovereign currencies, financial regulatory frameworks, and even macroeconomic policy control measures. Because what you originally relied on to build the banking system, foreign exchange controls, and payment settlement rules are becoming increasingly fragile in the face of blockchain and stablecoin technology.
Meng Yan: The situation you are talking about has already happened. In some countries in Africa, Southeast Asia, and Latin America, the national currencies have been depreciating year after year, and young people are using USDT and other stablecoins in large quantities, which has caused headaches for the monetary authorities of these countries. When I was on a business trip to Ghana last year, local central bank officials told me that the US dollar stablecoins were spreading like wildfire among young people in Ghana and Nigeria, weakening the status of their national currencies. They asked me how to resist the invasion of US dollar stablecoins through technical means, and I couldn't answer. Because your national currency depreciates by 20-30% every year, it would be strange if ordinary people didn't use US dollars.
Xiao Feng: This is just the beginning. With the development of the US dollar stablecoin, the second problem will arise, that is, the complex ecology that may emerge in the offshore US dollar stablecoin system. According to the GENIUS Act, institutions outside the United States can also issue US dollar stablecoins, but they must be based on US dollar legal currency assets, registered in the United States, subject to the supervision of relevant US institutions, comply with relevant US laws, and respond to orders from US law enforcement authorities at any time. These requirements are very high, but it is important to understand that these requirements are conditions for "legal circulation in the US market." If you do not enter the US market and do not contact Americans and US entities, then even these conditions can be relaxed. This is actually equivalent to opening up a gray space, conditionally allowing foreign institutions to mint US dollars. In this way, there will be two systems of onshore US dollar stablecoins and offshore US dollar stablecoins in the future, similar to today's US dollar and Eurodollar system. Among them, the onshore US dollar is relatively strict and consistent, while the offshore US dollar ecosystem will be more complex. Dozens or even hundreds of digital currencies called "US dollar stablecoins" will circulate, circulate, map, exchange, and interact in dozens of public chains and hundreds of private chains in the two systems, which will produce complex effects that no one has seen before and no one can foresee.
Meng Yan: Can we think that this is actually the United States ceding part of its coinage rights to foreign non-bank institutions, and decentralizing the coinage rights of the US dollar stablecoin ? This reminds me of the early Western Han Dynasty in China, when the coinage rights were decentralized and private currency was allowed to be minted, but there was no detailed record in the literature on how these currencies interacted and what kind of economic problems they caused. Since the advent of industrial civilization, no country has tried to decentralize the coinage rights to foreign entities, and today we are about to witness a new stage in the history of world currency development. I will make a comparison that may not be appropriate. The future US dollar stablecoin is like the copper coins during the reign of Emperor Wen and Emperor Jing. There are many "brands", some high-quality, some low-quality, some minted by Deng Tong, and some minted by Liu Bi, circulating and competing in the global market. On the surface, the US government has ceded part of the US dollar coinage rights, but in fact, through supervision and law enforcement, it has turned US debt into a "copper mine" for minting copper coins, retreating to advance, and making the world's stablecoin issuers become "chain stores" of the US dollar, greatly increasing the global economy's demand for US debt, enhancing the penetration of the US dollar, and magnifying the long arm of US financial supervision.
Xiao Feng: Yes, but the actual situation is more complicated. When trade frictions lead to "anti-globalization", the global digital economy is experiencing a "dollarization" trend. When AI is advancing by leaps and bounds, the "value Internet" is suddenly accelerating. The complex reactions of these economic and technological trends are beyond everyone's ability to predict.
In particular, the offshore dollar stablecoin system will have multiple levels, attracting many financial institutions, Internet companies and even sovereign states to participate, and a particularly rich ecology will emerge. From high-level offshore dollar stablecoins issued by foreign countries but fully complying with US regulatory rules and circulated in the United States, to local dollar stablecoins that follow the supervision of other sovereign countries but do not enter the United States and do not touch Americans, to "wild" non-compliant dollar stablecoins, and the inevitable problems of various counterfeit coins, over-issuance, dirty money, etc., on the one hand, it will lead to a sharp increase in the "brand effect" of the US dollar, the global spread of the psychological anchoring effect of the US dollar as a "unit of account", and the expansion of the scope of US financial regulatory enforcement. On the other hand, the super-complex currency system is bound to bring unprecedented challenges to the supervision and financial stability of countries around the world and the United States. In the early stage, the US regulatory capacity is likely to be unable to keep up and reach the problem, and it may even lead to policy repetition. In short, the real world will be very exciting and very messy. I can say with certainty that we will enter a period of ecological explosion of the digital economy, and soon see many new digital economic phenomena and business species .
At this stage, the discussion on this issue is still insufficient, especially on the Chinese Internet.
However, I still believe that the main purpose of the United States to introduce a stable dollar currency is to follow the trend of technological development, take the initiative, and consolidate the status of the dollar, rather than to attack the current international monetary system. The so-called "weaponization" is the "companion" effect of the disruptive technological advantages of blockchain. If we discuss this issue emotionally, it is easy to be misled. In the current Chinese Internet public opinion, conspiracy theories and struggle narratives are very fashionable and exciting. We must pay special attention to prevent being misled by emotions and standing on the opposite side of the historical trend. It's very simple. If this is a currency war, should we guard against it? Should we continue to block the entire set of technologies such as blockchain, tokenization and crypto finance? If you think about it this way, you will make a big mistake.
We need to understand that the "aggressiveness" of blockchain stablecoins is to naturally absorb and bind more real economic activities under a framework of higher efficiency, lower cost and fewer links. Its expansion is based on technological advantages, relying on efficiency, institutional design, technological advantages and network effects, and it is impossible to resist it for a long time. We admit that it has the characteristics of disruptive innovation, and it is aggressive and destructive to the existing technological system. It is not an exaggeration to say that it is a dimensionality reduction attack. But what attitude should we use to treat it? Isn't it a dimensionality reduction attack on hot weapons against cold weapons in history? Isn't it a dimensionality reduction attack on steam engines against human and animal power? Isn't it a dimensionality reduction attack on the postal and telephone networks by the Internet? So which side are you on?
My attitude has been consistent and has not changed in the past ten years. In the face of technologies like blockchain, we should follow the trend and develop our own stablecoin ecosystem in an open, compliant and trustworthy way, so as to have a place in the new generation of financial networks . Some people talk about monetary sovereignty and financial sovereignty. I would like to say that in the face of disruptive technological innovation, actively responding is the truly responsible attitude towards sovereignty.
3. The breakthrough of stablecoins is ultimately a victory of technological innovation
Meng Yan: The United States is the first to promote stablecoin legislation, which is still special. The special thing is that the first to come out to eat crabs is actually the world's largest and most advanced economy to promote the transformation of the world's most important reserve currency. For many countries, they may prefer to do some pilots in some less important economies with less important currencies and slowly promote this matter, which will be safer. But now the attitude of the United States is equivalent to pushing a storm of changes directly in front of everyone, which has indeed formed a situation of reverse pressure, and posed a Sphinx-like problem to everyone: answer me, or I will eat you.
Therefore, facing this challenge, many people have a defensive mentality out of stress reaction. Especially in the media, how blockchain is used for money laundering, illegal financing and illegal transactions, and various speculation stories are reported every day. Now suddenly the United States uses this technology to promote stablecoins and RWA. Many people naturally think that this is the United States trying to start a currency war and using blockchain as a weapon. This mentality is understandable.
Xiao Feng: The mentality is understandable, but we still have to use the first principles and go back to the origin to think. Now when we discuss the topic of blockchain and stablecoin, there are too many macro discussions. The first thing we talk about is the monetary system, the hegemony of the US dollar, and the financial war, but the micro discussion is very insufficient. Many of us have forgotten that the first driving force for the development of stablecoins has always been technological innovation, which is to create value for ordinary users and consumers. The reason why stablecoins have such a great impact is that the root cause is still the series of technical advantages given to it by blockchain. I have talked about these contents for ten years, but it is not enough. At this moment, it is necessary to repeat them again and again to make everyone understand that the blockchain technology really has great advantages. It is bound to succeed and no one can stop it.
Meng Yan: It is indeed important to make this point clear. I saw you mentioned in a speech that you have been fascinated by blockchain for ten years and your original intention remains unchanged. So can you summarize again what technical advantages of blockchain fascinate you?
Xiao Feng: Its most fundamental technical advantages are reflected in four aspects: accounts, ledgers, accounting methods and accounting units .
In terms of accounts , traditional finance relies on bank custody accounts to record all our economic activities, but in blockchain, there are no bank accounts, and digital asset wallets take their place, called crypto accounts. The creation of crypto accounts is done by users themselves through cryptographic tools, and assets are self-custodied.
From the perspective of ledgers , the public chain is a global public ledger with global liquidity. It is not restricted by administrative divisions and has no boundaries in geographical space or time.
In terms of accounting methods , distributed accounting is different from double-entry accounting, and the clearing and settlement models are also different. Traditional finance is net settlement, while blockchain is transaction-by-transaction settlement, where both money and goods are paid, which is the so-called payment is settlement, and payment, clearing and settlement are completed in one go.
In terms of accounting units , the accounting units on the blockchain are native encrypted digital currencies. If you want to use legal currency as the accounting unit, it is useless to just issue orders. You must first tokenize the legal currency and create a digital twin of the legal currency on the chain.
These technical advantages are more abstract, but reflected in the application, they will provide tangible benefits to users. There is actually a simple way to judge whether a new technology has an overwhelming advantage, that is, to see how many times the efficiency has increased and how many times the cost has decreased. A ten-fold advantage means upgrading, and if it is a hundred or a thousand times advantage, then no force can stop it. For example, a car is about ten times faster than a horse-drawn carriage, so the entire system of horse-drawn carriages must be eliminated. The Internet is a hundred times cheaper than telegraph, telephone and television networks, so when the Internet first appeared, many people also spared no effort to prevent the use of Internet phones and online videos, but what was the result? These networks have now been replaced by the Internet. In the face of such a huge technological advantage, any reason for conservatism or resistance is invalid.
I have always said that users' demand for finance is eternal . They want to borrow money easily and receive money quickly . Let's compare the efficiency of remittances. Now it may take days or even weeks to send money from Shanghai to the United States; but with blockchain stablecoins, it can be received in seconds. How many times is this efficiency improvement? There is an even more extreme case. I recently sent money from Hong Kong to Shanghai, but it was confirmed to be a failure after a month. If I use stablecoins, it may be completed in ten seconds. How many times is this efficiency improvement? It may be tens of thousands or hundreds of thousands of times. With such a huge technological advantage, what force can stop it?
Let me give you another example. It is difficult to achieve 7x24 hours of uninterrupted operation in traditional trading systems. Now some leading stock trading systems are seeking to extend trading hours. Some are already planning 5x23, five days a week, 23 hours a day, but they still have to stop for one hour every day, because in the traditional clearing and settlement system, there needs to be a time point to pause, net and make net settlement. But you see that we do payments and transactions on the blockchain, which are all running around the clock. Why can it be done? It is because it is a transaction-by-transaction settlement of silver and goods on the global ledger, so it can achieve uninterrupted clearing and settlement. I heard that NASDAQ is working on a 7x24 hour trading system, and I guess it will use blockchain technology internally. Once it is done, investors around the world can use the US dollar stablecoin to trade US assets uninterruptedly, which is self-evident for investors and US companies. So you see, these discussions at the macro-strategic level, in the final analysis, still have to be built on technological innovation.
There are many other advantages, such as no intermediary, peer-to-peer, borderless, global second-level payment, near zero fees, automation and irrevocable transactions on smart contracts, etc. Users can see the advantages as soon as they compare. Do we need to convince anyone? It's like comparing electric motors with steam engines, electric lights with gas lights, and integrated circuits with electron tubes. As an ordinary user, you don't need any professional knowledge or other conditions to know which one is better and which one will be eliminated. This is an obvious fact.
If we understand the basic technical facts above, we will come to a simpler conclusion - the fundamental starting point for the United States to promote stablecoins is to follow the trend of technological development and promote the modernization of payment and financial infrastructure.
Of course, such a strategy must have multiple considerations, including maintaining the hegemony of the US dollar, competing in the monetary and financial system, and even making money for the Trump family. However, all considerations are based on the basic fact that blockchain, as a new generation of financial infrastructure, has overwhelming technical advantages . Many people regard blockchain as a scourge, and one important reason is that they do not have a deep understanding of the inherent advancement and inevitability of blockchain technology itself. I often say that the situation is stronger than people. If you can stop it, you can certainly discuss whether to stop it. If you can't stop it at all, then what's the point of discussing how to stop it? Doing something knowing that it is impossible will only miss the opportunity and fall behind in the new round of competition in financial infrastructure and monetary and financial systems.
So I am very excited about the early passage of the Hong Kong Stablecoin Bill. This is the right response.
(To be continued)
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