Author: Miao Yanliang, Zhang Xinyu, etc. Source: CICC Research Report "Stablecoins, Financial Markets and RMB Internationalization"
summary
Recently, the financial market and even the whole society have held many discussions on the topic of stablecoins, but there are still many differences. For example, what is the essence of stablecoins? Is it a revolutionary innovation or just a new vest of old things? Different groups have different perspectives on stablecoins. How should we dialectically view the impact of stablecoins on financial markets and the international monetary system and grasp the main contradictions? For China, should it consider participating in the development of stablecoins? We propose that stablecoins have the potential to become a new type of infrastructure, and by analyzing the incentive compatibility mechanism of all participants in stablecoins, we will look forward to the potential impact of stablecoins on financial markets and the international monetary system, and further explore China's response strategies. We believe that the embryonic stage of infrastructure is an important development opportunity, and the issuance of offshore RMB stablecoins may be China's first choice for participating in the development of stablecoins; but it should be noted that stablecoins are only a "technique" to promote the internationalization of RMB. Whether RMB can become a widely trusted international currency depends fundamentally on "Tao", that is, the "legal anchor" and "functional anchor" of RMB.
What are stablecoins? Why have they attracted so much attention recently?
What is a stablecoin? The balance between “centralization” and “decentralization”
A general consensus is that stablecoins are the "on-chain cash" of the crypto world, and also the bridge between crypto and the real world. We can summarize its essence in one sentence: " Stablecoins are the most decentralized in centralization, and the most centralized in decentralization ." Decentralization lies in technology, and centralization lies in operation and supervision. This dual characteristic not only gives stablecoins the advantages of blockchain technology, but also ensures their compliance in the real financial system.
From a technical perspective, stablecoins inherit the "decentralized" gene of blockchain technology, and rely on distributed ledger technology to achieve peer-to-peer transactions, getting rid of the reliance on traditional financial intermediaries. The ledger is shared between multiple nodes in the network, and each transaction node participates in the maintenance of the ledger to ensure the transparency and immutability of transaction records. This technical architecture allows stablecoins to become "digital cash" that circulates freely in the crypto world.
At the same time, the other foot of stablecoins is in traditional finance. Mainstream stablecoins adopt a centralized operation model and need to be regulated by the traditional financial system. In the issuance stage, mainstream stablecoins such as USDT and USDC adopt a centralized operation model. The issuing institution must hold sufficient legal currency reserves on the asset side in order to mint a corresponding number of stablecoins on the liability side, thereby achieving currency stability. In the transaction stage, users currently mainly exchange legal currency and stablecoins through centralized exchanges (CEX). These exchanges play a transaction intermediary role similar to that of traditional exchanges, perform KYC (know your client) certification like traditional financial institutions, and centrally manage users' virtual assets. It is this centralized operation structure that enables regulators to effectively regulate stablecoins, prevent risks such as insufficient asset reserves and hacker attacks, and ensure their compliance operations in the real financial system. This dual characteristic of technology and operation allows stablecoins to maintain the advantages of blockchain technology while gaining recognition from the traditional financial system, becoming a bridge connecting the two worlds.
Figure 1: Stablecoins are “the most decentralized of the centralized, and the most centralized of the decentralized”
Source: GAO, Binance, CICC Research
What are stablecoins not? Not a currency, nor a money market fund
Stablecoins are not currencies, they are tokens. The credit of legal tender stablecoins comes from the national sovereignty represented by legal tender, and on this basis, the credit of private enterprises proved by reserve assets is superimposed. Therefore, there must be demand for legal tender before there will be demand for stablecoins anchored to legal tender. Central bank digital currency (CBDC) is currency, issued by the central bank, and its credit comes directly from national sovereignty. The similarities between the two are that they are both digital currencies, and some CBDCs explore the use of blockchain and distributed accounting technology in some links.
What is the difference between stablecoins and money market funds? Some people believe that stablecoins are no different from money market funds such as Yu'ebao, and there is no need to develop stablecoins at a time when money market funds are well developed. It is true that the two have similarities, both of which allocate highly liquid assets such as cash and short-term bonds on the asset side, but they also have obvious differences: in terms of liquidity, stablecoins can be converted into cash almost at any time and can be used directly for payment, but the conversion of money market funds usually faces trading and redemption rules, and the payment function of Yu'ebao in China is supported by platform advance payment. In terms of income mechanism, the issuer of stablecoins obtains investment gains and losses of reserve assets, and does not directly pay interest to stablecoin holders. Holders can mortgage stablecoins to exchanges and other platforms to obtain income; money fund holders bear investment gains and losses, receive cash dividends, and choose whether to reinvest dividends, and fund companies only earn management fees.
Stablecoins have been around for a long time, why have they attracted attention recently?
Recently, the market and even the whole society have paid more and more attention to stablecoins, so much so that they are often regarded as a "new invention", but stablecoins are not new in the cryptocurrency industry. It has been more than ten years since the first stablecoin BitUSD was issued. Why have stablecoins suddenly attracted so much attention recently?
Recently, there have been a number of events that have catalyzed the increase in attention to stablecoins. 1) The United States and Hong Kong have made significant progress in the legislation of stablecoins. On May 20, the "National Innovation Act for the Guidance and Establishment of a US Dollar Stablecoin" ("Genius Act") passed a key procedural vote in the U.S. Senate and was gradually advanced to be officially signed by U.S. President Trump on July 18 [2]. On May 21, the Legislative Council of Hong Kong also passed the "Stablecoin Bill", which will take effect on August 1 [3]. 2) Circle went public. Circle is the second largest issuer of USDC, which accounts for about a quarter of the total size of stablecoins. It has attracted much attention as the first IPO in the stablecoin field and has soared after its listing. 3) Some Chinese securities firms have successively obtained licenses related to Hong Kong's crypto asset business.
The incident is just a superficial phenomenon. Behind it is the support of technology and the call of public opinion. Quantitative change leads to qualitative change. On the technical level, the scale and application of stablecoins are gradually growing. The total scale of stablecoins has exceeded US$260 billion, and the transaction scale has gradually increased. According to ARK Invest, the total amount of stablecoin transfers will reach US$15.6 trillion in 2024, surpassing Visa for the first time in annual units (Figure 3). On the public opinion level, the increasing voice of the younger generation in the United States, who are more accepting of cryptocurrencies, has brought about a change in public opinion. According to a survey conducted by FINRA and CFA [4], the proportion of relatively young Generation Z and millennials investing in cryptocurrencies and non-fungible tokens (NFTs) in the United States is generally higher than that of the older Generation X (Figure 4). As they age, the younger generation gradually increases their pricing power in the market and their voice in society; more and more Generation Z gain voting rights after adulthood, and their political voice also increases, which directly affects the progress of stablecoin legislation.
From the perspective of narrative economics, the narrative of stablecoins meets the characteristics of a "successful narrative", with a high rate of dissemination and a "breaking circle effect". In "Narrative Economics", Robert Shiller believes that narratives spread by word of mouth or media can promote the formation of specific views or values. Narratives with certain elements are more likely to achieve high dissemination rates and low forgetting rates, becoming relatively successful narratives. In our previously published "Technology Narratives, Geopolitical Reassessment and Global Capital Re-Layout", we combined Shiller's works and scholars' views [5] to summarize the four key elements of a "successful narrative", and the current narrative of stablecoins meets these elements:
► 1) Repeatability: Through repeated publicity and continuous exposure to social media traffic, the rate of dissemination is increased while the rate of forgetting is significantly reduced. Since the end of May, many important events have occurred in the field of stablecoins, and many well-known experts and scholars have expressed relevant views. In addition, in the era of self-media, information dissemination is wide and fast, and there are many sources of dissemination, which has prompted the public to repeatedly contact stablecoin-related information.
► 2) Relevance: When people feel that they have a vested interest in the story, the communication effect is best. Stablecoins can reduce the cost of cross-border payments. Cross-border e-commerce, overseas workers, and families of international students have a vital interest in cross-border payments, so they pay attention to stablecoins. However, the fact that stablecoins can gain wider attention is largely related to the "global currency game" element in the stablecoin narrative. U.S. Treasury Secretary Benson said that "stablecoins can stabilize the status of the dollar" [6]. As a result, some narratives are directed towards the "global currency game", thereby strengthening the relevance of the stablecoin narrative and attracting the attention of a larger group of people to stablecoins.
► 3) Narrative constellation: A system composed of multiple interrelated narratives is called a narrative constellation, which is more influential and communicative than a single narrative. This year, the topic of "global game" has continued to develop, from the technological issues caused by AI, to the cultural issues caused by Labubu, to the trade issues caused by "reciprocal tariffs", to the monetary issues caused by stablecoins, forming a multi-faceted "global game" narrative constellation.
► 4) Self-reinforcement: People tend to share content that can strengthen their own ideas. When narratives, actions and results form a self-reinforcing cycle, the sense of identity will be further consolidated and the forgetting rate will decrease. As the stablecoin narrative ferments, some investors believe that stablecoins are an important development direction with potential, so they invest in related concept stocks and other assets, which leads to an increase in the prices of related assets. The increase in asset prices has become a verification of their views, thus forming a self-reinforcing cycle.
Stablecoins meet the characteristics of a "success narrative", with a high rate of dissemination and a wide range of dissemination. They have spread from the niche "crypto" that already understands and pays attention to stablecoins to the general public who have not paid attention to cryptocurrencies in the past, forming a "breaking circle effect."
Chart 2: Stablecoin transfers will exceed Visa and Mastercard in 2024
Source: ARK Invest Big Ideas 2025, CICC Research
Chart 3: Young people are more receptive to crypto assets
Source: FINRA, CFA, CICC Research Department, Note: The data comes from an online survey in November-December 2022, in which only those in Generation Z who were 18 years old or older at the time were surveyed.
Stablecoin is a new infrastructure supported by technology
Although the current market's high attention to stablecoins and high expectations for their influence are to some extent affected by the "FOMO" (fear of missing out) mentality, we believe that stablecoins as a set of financial infrastructure deserve attention.
Stablecoin is a new type of financial infrastructure with characteristics of economies of scale and network effects. In cross-border payment scenarios, compared with cross-border clearing systems such as SWIFT that need to go through multiple links, stablecoins can simplify the process. After users have encrypted wallets, they can use distributed accounting to realize peer-to-peer transactions, unify information flow and capital flow, and realize "payment is settlement" when both parties recognize stablecoins. However, there are still some difficulties in the current chain. Stablecoins also have infrastructure characteristics such as economies of scale and network effects. The market value is positively correlated with price stability and liquidity. If competition is liberalized, the market structure is likely to develop in the direction of a few dominant players rather than a hundred flowers blooming. The scope of use of stablecoins is also expanding, and has exceeded the field of cryptocurrency transactions. In addition to cross-border payments, stablecoins are also regarded as a value-preserving asset. In many countries and regions with underdeveloped financial infrastructure, local residents are more motivated to hold stablecoins anchored to the US dollar due to the large fluctuations in the value of their local currencies. At the same time, stablecoins are also used as collateral assets and liquidity media in the DeFi ecosystem.
In the spectrum of global value flow, stablecoins are like a "supersonic passenger plane" flying across continents. If traditional bank transfers are still stuck in the era of roads and railways—queuing, speed limits, and frequent transfers—then this passenger plane, with its programmable engines, can deliver “capital passengers” to all corners of the world almost instantly. However, every takeoff still requires passing “customs”—namely KYC, AML (anti-money laundering) and other security checks; its routes and terminals are mapped to open public chains, cross-chain bridges, and various exchanges, jointly building a backbone transportation network for digital value.
Figure 4: Stablecoin market capitalization is negatively correlated with volatility
Note: The size of the circle represents the operating time of the stablecoin. The median volatility of each stablecoin is calculated based on the daily volatility from January 1, 2019 to September 30, 2023. The daily volatility is the 30-day moving standard deviation (annualized) of the daily return, and the closing price is the UTC zero closing price defined by Coingecko. The logo circles of PAX Gold and Tether Gold overlap, with PAX Gold having a slightly smaller market value and a higher median volatility. Market value data as of September 30, 2023.
Source: BIS (2023). Will the real stablecoin pls stand up?, CICC Research Department
The application and impact of stablecoins in the financial market
How does the stablecoin industry work? Trust mechanism and incentive compatibility
As a key hub connecting off-chain fiat currencies and on-chain crypto ecosystems and laying the foundation for the next generation of cross-border digital financial infrastructure, how does the stablecoin industry operate? Who are the core participants, how do they build mutual trust, and how can they achieve long-term development?
We can understand the trust mechanism between participants through the life cycle of stablecoins. The trust foundation of stablecoins begins with the close mapping of off-chain fiat currency reserves and on-chain smart contracts, which lays the foundation for the security and transparency of the subsequent life cycle. The trust mechanism of stablecoins begins when traditional fiat currency is deposited in a custodial bank. After the funds are deposited, the issuer mints stablecoins of equal value on the chain through public chain smart contracts (i.e. programmable protocol codes deployed on an open blockchain). The contract automatically executes the issuance and redemption logic when the 1:1 guarantee and reserve disclosure conditions are met, and discloses the reserve proof to any third party through a near-real-time on-chain data interface. The stablecoins held by users in payment or investment scenarios can be exchanged for fiat currency at any time according to the "minting-circulation-redemption-destruction" process. Compared with the traditional post-reconciliation model, public and automated contract verification enables on-chain assets and bank custody funds to maintain continuous mapping.
In order to promote the long-term development of the stablecoin ecosystem, it is crucial for the relevant parties in the industry chain to achieve incentive compatibility. Among the main participants of stablecoins, users obtain payment efficiency and asset preservation, issuers obtain income from the interest rate spread of reserve assets as reserves, market makers and authorized institutions earn spreads by providing liquidity, custodian banks charge custody fees, and regulators focus on consumer protection and financial risk prevention. Against the backdrop of rising global interest rates, the interest rate spread generated by reserve funds invested in short-term government bonds has significantly widened, and the asset size and liquidity risk managed by issuers have gradually approached large money market funds. Therefore, the focus of supervision needs to be on further evaluating the liquidity mismatch driven by interest rate spreads on the basis of anti-money laundering and identity identification to ensure that the efficiency and security of the stablecoin system are balanced.
Figure 5: The life cycle of a stablecoin - creating a “closed loop of trust”
Source: Circle's USDC White Paper, Tether's Transparency Report, Paxos' BUSD Monthly Reserve Report, Etherscan on-chain data, CICC Research Department
Figure 6: Participants and value flows: How to achieve incentive compatibility in the stablecoin industry chain
Source: Circle, MakerDAO, DeFi Llama, Messari, CICC Research
The “Blockchain Trilemma” of Stablecoins: Price Stability, Decentralization, and Capital Efficiency
Different stablecoins have different mechanisms. What kind of stablecoins are easier to develop in the long run? There is an "Blockchain Trilemma" for stablecoins: as a bridge connecting the crypto world and the real world, the primary goal of stablecoins is "price stability", but from practical experience, it is often necessary to balance "price stability", "decentralization" and "capital efficiency": 1) If you pursue price stability and capital efficiency, you need to rely on the credit of centralized institutions, such as the fiat stablecoins USDC and USDT stablecoins, which rely on the credit of Circle and Tether, which violates the principle of decentralization; 2) If you pursue price stability and decentralization, you need to hedge risks through over-collateralization and other methods. For example, the over-collateralized stablecoin DAI required ETH to be collateralized at a 150% collateral rate in the early days, and the capital efficiency was relatively low; 3) If you pursue capital efficiency and decentralization, you need to rely on algorithms to adjust the supply chain and not anchor fiat currencies or safe assets. For example, the algorithmic stablecoin UST maintains price stability through a dual-token mechanism with LUNA, but the failure of this adjustment mechanism in extreme markets will lead to drastic price fluctuations (UST decoupling and collapse in May 2022), and it is difficult to achieve security goals. Judging from the practical experience of the failure of the algorithmic stablecoin UST, the current successful stablecoins all focus on achieving the goal of "price stability", thereby playing the role of an intermediary currency. Therefore, the development direction of stablecoins is to integrate with traditional finance and accept certain centralized supervision. This is why most of the current mainstream stablecoins are centralized stablecoins.
Figure 7: The “Blockchain Trilemma” of stablecoins: price stability, decentralization, and capital efficiency
Source: Decentralised Finance, EU Blockchain Observatory and Forum, CICC Research Department
What impact does stablecoin have on the financial market? Efficiency, inclusiveness, and stability
As a new type of infrastructure, if stablecoins can be developed on a large scale, they will have a multi-faceted and profound impact on the entire financial market, which includes both the optimization of traditional financial models and the new risks and hidden dangers brought about by breaking through traditional frameworks. Specifically:
First, as a payment tool, stablecoins are convenient, efficient, and low-cost, and are particularly suitable for cross-border payments. Global cross-border payments have long relied on the traditional bank wire transfer system based on SWIFT. Under this model, commercial banks open clearing accounts at overseas agent banks, then send cross-border messages based on the SWIFT channel, and then use the payment and clearing system of overseas agent banks to complete cross-border fund payment and clearing[8]. SWIFT, as a financial information transmission system, is mainly responsible for the transmission of information flow and does not handle capital flow. However, the traditional cross-border payment system has long been plagued by relatively high costs and low efficiency. In contrast, we believe that stablecoins, based on their characteristics of "integration of information flow and capital flow", can fully demonstrate their efficiency and cost advantages in cross-border payments: First, it improves transaction speed. Stablecoins are based on the "point-to-point" transaction characteristics of blockchain. Different from the multiple agency bank links under the traditional system, stablecoin payments can reduce intermediate links, achieve almost instantaneous arrival of funds, and support 7x24-hour transactions, which helps to improve payment efficiency; second, it reduces payment costs. Traditional cross-border payments are relatively costly due to factors such as monopoly caused by its highly centralized infrastructure, complex and lengthy processes, and compliance costs being passed on layer by layer. Stablecoins have low fees due to their digital economy characteristics. At the same time, they are currently in the early stages of development and the stablecoin market competition is relatively sufficient, which is conducive to achieving low-cost cross-border payments.
It should be noted that the high efficiency of stablecoins in cross-border payments is more reflected in the transfer of funds in the on-chain channel, but there are still certain problems between the upper and lower chains. If stablecoin payments are compared to a "stablecoin sandwich" architecture [9], then the characteristics of stablecoins based on blockchain may make the efficiency and value of the middle part of the "sandwich" higher, that is, the substitution effect on the traditional funds transmission channel is stronger. However, both ends of the "sandwich" still face certain difficulties, that is, they are still relatively dependent on the traditional financial payment system. On the one hand, there are difficulties in cross-border liquidity management . Stablecoin payments can achieve free exchange with currencies of various countries, and can achieve faster and more efficient transfers between different regions, which brings certain difficulties to capital flow control. On the other hand, there are still costs for the exchange between stablecoins and legal tender (i.e. on-ramp and off-ramp). Especially for cross-border payments between some developed countries, the exchange cost between stablecoins and legal tender is even higher than the cost of direct exchange in the traditional bank foreign exchange market [10]. In this case, the speed advantage and cost efficiency advantage of stablecoins may be affected to a certain extent.
In addition, compared with cross-border payment scenarios, the advantages of stablecoins in local payment scenarios are not obvious. For example, domestic third-party payment platforms such as WeChat/Alipay have formed strong network effects and economies of scale, and have the first-mover advantage of incumbents. The convenience of Internet wallets and the perfection of their infrastructure are difficult to replace; and in addition to third-party payment platforms such as Apple Pay/PayPal, traditional bank cards also have strong user dependence due to their points/credit system and other advantages. At the same time, card organizations/clearing networks such as Visa/MasterCard are also more efficient. From the perspective of payment convenience and security, we believe that within the same currency zone, stablecoins may not have obvious advantages, and their potential to reduce costs and improve efficiency is still more focused on cross-border payments. It is like a passenger arriving at the airport on a "supersonic passenger plane" of stablecoins, but after landing, he still needs to choose a taxi and use an e-wallet or bank card to complete the last mile.
Second, stablecoins help expand service coverage and improve financial inclusion, especially in emerging markets, where they are increasingly used as a savings tool. Relying on technology empowerment, stablecoins are committed to improving financial accessibility, especially in retail financial scenarios, mainly in the following aspects: First, they lower the financial entry threshold and improve financial inclusion. According to World Bank statistics, there are still about 1.3 billion adults in the world who do not have bank accounts (Unbanked population) [11]. Especially in some developing countries and remote areas, the traditional financial system is relatively underdeveloped. Stablecoins provide them with a more convenient channel to obtain financial services. Second, they serve the preservation of residents' wealth, especially asset hedging in high-inflation economies. For example, in high-inflation countries such as Turkey and Argentina, the proportion of people holding cryptocurrencies is close to 20%, far exceeding the global average of 7%, and most of their cryptocurrency transactions are completed through stablecoins [12]. For some high-inflation regions such as Africa, Southeast Asia, and Latin America, due to the relatively stable value of stablecoins and their ability to be used for preservation and exchange, stablecoins are increasingly used as a means of savings and have become an important tool to combat local inflation and currency depreciation.
Figure 8: Comparison between SWIFT and Web3.0 transaction networks
Source: BIS, SWIFT, McKinsey, Solana, Tether, CICC Research
Chart 9: The proportion of people holding cryptocurrency in high-inflation regions such as Türkiye and Argentina is relatively high
Note: Data for 2024 source: Triple-A, CICC Research Department
Third, attention should also be paid to the impact on stability. Stablecoins can help improve payment efficiency and financial inclusion, but at the same time, the relationship between efficiency, inclusion and stability should be weighed. Specifically, on the one hand, efficiency and stability should be weighed. The relatively complete regulatory system under the traditional cross-border payment system brings relatively high payment costs, and banks face strict customer identity identification KYC, anti-money laundering AML, counter-terrorism financing CFT and other reviews. In contrast, the regulatory environment faced by stablecoins is relatively loose, and compliance reviews have not yet fully covered the above links, leaving a certain regulatory arbitrage space; and the issuer may move to offshore "regulatory lowlands" (such as the Cayman Islands and the Marshall Islands) to evade supervision. On the other hand, balance inclusion and stability. For some developing countries with fragile fundamentals, stablecoins can be used to broaden financial coverage and resist local inflation, but considering that about 99% of stablecoins are still denominated in US dollars, if these countries gradually rely on US dollar stablecoins, stablecoins may replace local fiat currencies, threaten their monetary sovereignty, and even pose certain challenges to the effectiveness of their monetary policy and the stability of their financial system.
In addition, the potential risks of stablecoins themselves will also affect the stability of the financial market . The first is bank runs and liquidity risks. Since stablecoins are issued by private institutions and their stability depends on the quality and transparency of their reserve assets, if the reserve mechanism is insufficient or the asset quality faces downward pressure, it may bring about a crisis of trust and easily cause bank runs, leading to the sale of their holdings, which will indirectly affect the stability of the traditional financial system and even trigger a wider range of liquidity risks. The second is deposit relocation and financial disintermediation. Stablecoins may divert the bank's deposit/loan/exchange business. For example, residents of some countries with high inflation tend to hold stablecoins rather than bank deposits, and stablecoin cross-border payment settlement bypasses the bank's traditional remittance system. If decentralized finance develops further, it may even aggravate the loss of business of traditional financial institutions and trigger financial disintermediation. The third is price fluctuations and market linkage. Stablecoins are highly correlated with the crypto asset market. At the same time, the boundary between crypto assets and traditional stocks is gradually blurring, showing a trend of "coin-stock integration", which is reflected in the fact that crypto assets are beginning to appear in traditional financial markets (such as the listing of coin stocks such as Circle, stablecoins and crypto asset-related targets affecting stock prices through fundamental changes), and traditional financial institutions are beginning to deploy in the crypto asset field (such as providing crypto asset trading services, issuing stock tokenization products, directly holding coins to participate in crypto asset investment, etc.), thereby enhancing the price transmission and linkage effects of the entire crypto asset and traditional financial markets.
From Stablecoins to RWA: Can Everything Be Put on the Chain?
From a broader perspective, stablecoins connect the world of traditional finance and crypto assets, focusing on the capital side, that is, the mapping of real-world funds on the chain. The corresponding asset side is the mapping of real-world assets on the chain, that is, tokenized RWA. Looking forward, how will RWA and stablecoins jointly affect the on-chain ecology? Can all assets be put on the chain? How will putting everything on the chain rewrite traditional finance?
Stablecoins and tokenized RWAs are respectively the on-chain mappings of real-world funds and assets, which promote each other and jointly improve the liquidity and activity of the on-chain ecosystem. In a broad sense, stablecoins themselves are also a kind of tokenized RWA, that is, the tokenized form of legal currency. At the same time, stablecoins provide tokenized RWA with the funds and liquidity required for transactions. To summarize the characteristics of tokenized RWA, they are mainly reflected in: First, it is efficient. Transactions are executed based on blockchain smart contracts. Compared with the cumbersome processes and reliance on a large number of intermediaries under traditional IPO and ABS models, the tokenized RWA process is more efficient and has lower intermediary costs; second, it is inclusive. Tokenized RWA can split assets into smaller units through tokenization, which helps to lower the threshold for investors to participate; at the same time, with the cross-border characteristics of blockchain, tokenized RWA can achieve the joint participation of global investors in the same asset, which helps to expand market coverage.
The difficulty of “everything on the chain” does not lie in technology. Regulatory considerations on the suitability of investors and the size of funding demand may be the main constraints. The current global tokenized RWA scale is nearly US$26 billion[13], of which financial assets including credit, government bonds, stocks, etc. are still the main ones, while the scale of tangible assets including commodities, real estate, etc. accounts for a relatively small proportion. From the perspective of practical project cases, financial asset RWAs include BlackRock BUIDL US debt on the chain, Robinhood US stock tokenization, etc., and tangible asset RWAs include RealT's real estate tokenization in the United States, Ant Digits and Longsun Technology's charging piles, and GCL Energy's photovoltaic power station on the chain project. However, looking forward, will stablecoins accelerate the integration with tokenized RWA and promote the process of “everything on the chain”? We believe that the core problem lies not in the technology itself, but more in: On the one hand, based on regulatory compliance considerations, such as the U.S. stock tokenization product launched by Robinhood to European customers in June, which lowered the threshold for investors to invest in U.S. stocks, and the launch of OpenAI and SpaceX non-listed company tokens, breaking the closed nature of traditional private equity. However, it should be noted that whether everyone is suitable for investing in tokenized U.S. stocks and whether everyone is suitable for investing in private equity shares? We believe that the so-called "financial democratization" may not meet the investor suitability requirements. On the other hand, due to the consideration of capital demand, for on-chain funds that are themselves for speculation, the tokenized RWA yield may not be attractive. At the same time, considering the scarcity of high-quality assets, not all on-chain assets have capital demand. Overall, "everything on the chain" still has a long way to go.
Figure 10: Stablecoins are becoming a key hub between traditional finance and crypto infrastructure
Source: Circle, Tether, MakerDAO, Binance, Coinbase, Uniswap, SushiSwap, Aave, Compound official website and white paper, DeFi Llama, Messari, CICC
Figure 11: Global RWA size is nearly US$26 billion, of which private credit/US debt accounts for a high proportion
Note: Data as of July 19, 2025. Institutional alternative investment funds include private equity, hedge funds, venture capital, etc. Source: rwa.xyz, CICC Research Department
How Stablecoins Affect the International Monetary System
Among the topics related to tokenization, its impact on the international monetary system has attracted much attention and constitutes an important part of the successful narrative of stablecoins. In "Asset Changes under the Reconstruction of Monetary Order", we proposed that as the security of US dollar assets decreases, the international monetary system is accelerating towards diversification and fragmentation, driving global capital to flow from the United States to other economies. In this process, the RMB has ushered in a critical opportunity period for improving its international status by virtue of its advantages such as AI narrative change, China's manufacturing resilience, and the structural quality of its balance sheet. However, the rise of stablecoins has introduced new complex factors to this process. Stablecoins are reshaping the global capital flow pattern by building a decentralized payment network parallel to the traditional US dollar system. US Treasury Secretary Bessant pointed out that stablecoins can help consolidate the US dollar's position as a global reserve currency[14], which has also triggered discussions on whether the US dollar can be re-expanded on the "chain" with the help of stablecoins. How will stablecoins affect the international monetary system? The answer to this question will directly affect the strategic positioning of the RMB in the future monetary order.
How do stablecoins affect the international monetary system?
As mentioned above, from the essence, the credit of stablecoins depends on the fiat currency (such as the US dollar) to which they are anchored. In fact, they are a digital token rather than an independent currency. In its 2025 Economic Report[15], the BIS pointed out that stablecoins "maintain their value commitment through the issuer's reserve asset pool and its ability to redeem." This design makes them essentially a derivative of fiat currency rather than an independent currency. If measured by the three key standards of the monetary system, namely, singleness, elasticity, and integrity, stablecoins do not meet the requirements of being the pillar of the monetary system. In terms of singleness, there are price differences between different stablecoins due to differences in the credit of the issuers, and they do not have a uniform face value like fiat currency. In terms of elasticity, their supply is strictly limited by the size of their reserve assets, and they cannot create elastic currency through credit like the banking system. In terms of integrity, the anonymity of stablecoins leads to essential differences between stablecoins and regulated fiat currencies. From this perspective, stablecoins rely on the credit of fiat currencies to exist, and do not directly create new currency demand. There must be demand for fiat currency before there will be demand for stablecoins anchored to that fiat currency.
However, the technical characteristics of stablecoins objectively create demands that cannot be met by traditional fiat currencies, and may create new demand space in specific scenarios: First, stablecoins show unique alternative value in areas with weak financial infrastructure. Stablecoins are a new type of payment and settlement tool that uses blockchain technology to integrate information flow and capital flow, shortening the traditional cross-border clearing time from 2-3 days to minutes. This efficiency revolution may make stablecoins an important choice for regions with underdeveloped financial infrastructure (such as Southeast Asia, Latin America, etc.) to replace the traditional agency banking model, and derive incremental demand for stablecoins. Secondly, the decentralized nature of stablecoins can meet the risk aversion demands of some countries, especially in areas with unstable political and economic situations, high inflation, or large market fluctuations. Stablecoins are particularly attractive. For example, Argentina has long suffered from inflation, with an average inflation rate of 189.97% from 1944 to 2024. The long-term hyperinflation has made Argentina one of the countries with the highest demand for stablecoins in Latin America, and local residents hold a large number of stablecoins such as USDT and USDC to cope with high inflation and currency depreciation. This phenomenon was particularly evident after the Argentine government abolished the currency control measure “cepo cambiario” on April 14, 2025. After the country’s Minister of Economy announced the measure, the stablecoin market trading volume on Argentine cryptocurrency exchanges increased significantly[16].
In summary, in developed economies with sound financial systems, stablecoins mainly exist as derivatives of legal tender and do not create new currency demand; however, in regions with weak financial infrastructure or unstable macroeconomics, they may trigger deep currency substitution and create new stablecoin demand. In the current global stablecoin market, US dollar stablecoins dominate, which essentially builds a set of global digital financial infrastructure for the US dollar system. By lowering the threshold for the use of the US dollar and transaction costs, US dollar stablecoins objectively expand the scope of the US dollar's penetration in global economic activities and may further consolidate the US dollar's reserve currency status. However, this process is not without challenges. US dollar stablecoins are facing competitive pressure from two dimensions: on the one hand, the rise of non-US stablecoins anchored by major currencies such as the euro and the renminbi; on the other hand, the accelerated development of central bank digital currencies (CBDCs) in various countries. At present, the international monetary order is undergoing profound changes: factors such as the US debt problem and geopolitical conflicts have jointly promoted the deepening of the "de-dollarization" process. This structural shift has given rise to incremental market demand for non-US currencies. Against this background, the emergence of stablecoins provides new opportunities for non-US economies to participate in currency competition. By building alternative payment networks based on blockchain, these countries are able to establish new channels for currency circulation outside the SWIFT system.
Impact on China: Will stablecoins break through capital controls?
For China, stablecoins not only provide a new tool for China to participate in global financial governance, but also pose new challenges to the existing regulatory system.
In terms of cross-border trade , stablecoins may show two core advantages: First, as the world's largest trade country, China has a natural scale advantage in the application of stablecoins. Stablecoins can improve the efficiency of cross-border payments, avoid the high fees and cumbersome processes of traditional methods, and significantly improve the efficiency of capital turnover. Secondly, stablecoins have built a new decentralized payment network, breaking through the dilemma of having to use US dollars and correspondent banks for settlement, providing Chinese companies with alternative payment channels in a complex international financial environment, helping to enhance the resilience and flexibility of companies in global trade, and have important strategic significance in the current geo-economic landscape.
In the capital market , stablecoins may increase financial penetration and enhance the efficiency and liquidity of financial resource allocation. In some areas where financial infrastructure is backward, stablecoins can provide a low-threshold financial service entrance. In addition, stablecoins provide new ideas for asset tokenization innovation, but their application requires prudent assessment of asset adaptability and investor suitability. Taking the case of Longxin Group in 2023 as an example, the group uses more than 9,000 charging piles as RWA anchor assets and issues digital assets representing partial income rights based on Ant Chain technology. In the future, in scenarios such as charging payment and green energy settlement, stablecoins can play a payment and settlement function, and smart contracts can also realize the automatic distribution of carbon emission reduction benefits. However, it is necessary to be vigilant that not all assets are suitable for tokenization, and we must be wary of the bubble risks brought about by everything being on the chain.
However, as mentioned in Section 2, stablecoins have many potential risks of their own and face the trade-off of financial stability in addition to cost efficiency and inclusive expansion. In addition, for China, two points should be paid special attention to:
►Since stablecoins are highly anonymous, they can usually bypass traditional cross-border bank settlement systems and do not need to be subject to strict foreign exchange or capital flow controls, which may weaken the effectiveness of capital controls . Some even believe that stablecoins may "break through" capital controls. From a technical perspective, there are indeed levers for regulating stablecoin accounts: On the technical level, capital control nodes can be set up on the public chain, and transaction or performance specifications can be set on smart contracts; custodial wallets can also implement monitoring. However, it is undeniable that stablecoin technology fundamentally solves the point-to-point coordination problem (double coincidence of wants), which may encourage cross-border "counter-trading". Compared with the traditional model, stablecoin counter-trading has faster capital turnover, lower costs, and greater anonymity. Traditional counter-trading relies on underground banks[17] as intermediaries, and the flow of funds is relatively easy to track; while stablecoin counter-trading reduces the transaction threshold and regulatory visibility. Specifically, under the traditional model, capital outflows need to go through a complex chain of remittances from domestic accounts to underground banks, and then from underground banks to overseas accounts, involving multiple exchanges of RMB and foreign currencies. Under the stablecoin model, some intermediate links are omitted, which may increase transaction speed and concealment.
► The increase in the share of US dollar stablecoins may hinder the internationalization of the RMB. The global stablecoin market has exceeded US$260 billion, of which more than 95% is pegged to the US dollar. If the US dollar dominates the stablecoin field, it may squeeze the cross-border payment share of the RMB, which is not conducive to the internationalization of the RMB. In the face of this situation, how should China respond? Should it participate in the development of stablecoins and how to participate? We will discuss this in detail in the next section.
Figure 12: Schematic diagram of the funding path of the traditional model vs. stablecoin “counter-trading”
Source: CICC Research Department
How China can participate in the development of stablecoins
Stablecoins have the potential to become infrastructure, and the embryonic stage is an important development opportunity
Why should China participate in the development of stablecoins? Stablecoins connect fiat currencies with blockchain networks and have the potential to become global financial infrastructure. US dollar stablecoins represented by USDT and USDC dominate the market, with a total market value that has increased nearly tenfold since the beginning of 2021. This digital currency has technical advantages such as 24/7 cross-border transactions, real-time settlement, and low costs, and has the potential to become a substitute for traditional financial payment networks. History has proven that financial network technology innovation has a profound impact on the international monetary landscape. In the 1970s, the SWIFT network replaced traditional telegraph communications and built an interbank payment system dominated by the United States and other countries; credit card networks such as Visa formed a global network effect with electronic authentication technology, supporting the global expansion of dollar-denominated currencies. The global financial network established by the United States based on its technological advantages has laid the foundation for the dollar to become the infrastructure of global currency.
The current stablecoins are still far from being “mainstream financial infrastructure”. The Bank for International Settlements (BIS) and other institutions have pointed out that qualified stablecoins must meet the requirements of currency stability, supply elasticity, compliance and credibility. The embryonic stage of infrastructure is an important development opportunity. If we can participate in the construction of new infrastructure at a reasonable cost, it may be conducive to the construction of a financial power.
Five pathways of engagement that are not suitable for China
If China wants to participate in the development of stablecoins, how should it participate? Before discussing the feasible paths to participate in stablecoins, we believe that there are five popular paths that have great limitations and are not suitable for actual implementation:
► Onshore RMB stablecoins. Stablecoins issued by domestic institutions and supported by onshore RMB reserves conflict with the current financial management system. Anonymous transactions and decentralized settlements increase the difficulty of supervision.
► Stablecoins anchored to the central bank digital currency (CBDC). The digital RMB does not pay interest, while existing stablecoins rely on the interest of reserve assets to cover costs. If anchored to the digital RMB, the issuer will either charge high fees and lose market competitiveness, or deviate from the 100% reserve requirement to make risky investments and violate the original design of the stablecoin.
► Stablecoins anchored to gold. That is, issuing stablecoins (such as "digital gold yuan") with physical gold as the value support. Although gold has a stable value, it has two major problems as a stablecoin anchor: supply elasticity and cost-benefit. The total amount of gold reserves is limited and the incremental amount is scarce, which cannot meet the demand for economic activity expansion. Bank runs during market panic may trigger a redemption crisis. Secondly, the opportunity cost and holding cost of holding large-scale gold reserves are high, and no interest income is generated, and long-term holding forms a negative interest rate spread.
► Stablecoins anchored to central bank reserve assets. Stablecoins that are collateralized by national foreign exchange reserves or SDRs may bind national foreign exchange reserves to stablecoin liabilities, which implies huge risks. The core function of foreign exchange reserves is to maintain exchange rate stability and balance of payments security, and high liquidity must be maintained. The large-scale circulation of stablecoins will "lock" reserve assets, and a run on the bank may force the central bank to use foreign reserves to pay . The central bank passively acts as the last guarantor of stablecoins and bears potential losses.
► Centralized asset tokenization (deposit token) stablecoins. First, low-risk asset stablecoins such as deposit tokens issued by commercial banks face questions about their attractiveness and positioning. Domestic money market funds such as Yu'ebao have fully met residents' demand for safe and convenient monetary assets, and the introduction of stablecoins lacks incremental value. Secondly, stablecoins issued by commercial banks are unlikely to become a neutral public payment network. Financial institutions do not want to use stablecoins issued by competitors, which will damage the network effect of stablecoins. In addition, banks converting deposits into low-interest stablecoin reserves is equivalent to deposits being squeezed . If stablecoins cannot be used for lending, it will reduce the bank's profitability, conflict with the traditional business model, and lack internal motivation.
A feasible path for China to participate in stablecoins: offshore RMB stablecoins
Taking into account regulatory constraints and market demand, issuing "offshore RMB stablecoins" may be China's first choice for participating in the development of stablecoins. The core idea is that digital stablecoins denominated in RMB and 1:1 anchored to the value of RMB are issued by trusted institutions in overseas jurisdictions, but their operation and circulation are limited to overseas markets. With offshore RMB as reserves, circulation is limited to overseas markets and does not directly impact the domestic capital control system. The central bank can adjust offshore liquidity through tools such as currency swaps with the Hong Kong Monetary Authority to prevent overshooting in the exchange rate market.
At the same time, the offshore center helps to take advantage of Hong Kong's institutional advantages as an international financial center. Hong Kong has a mature financial infrastructure, an independent legal environment, and a large number of international participants. It can flexibly design a stablecoin architecture and achieve compliant operations through local legislation and regulatory sandboxes. In short, "offshore issuance and offshore use" allows the RMB to participate in the global digital currency competition while minimizing interference with the domestic financial system.
While issuing offshore RMB stablecoins, we should build real application scenarios in the fields of trade and investment and create a network for the use of RMB stablecoins . The success of a currency network lies in the formation of a network effect, and the basis of the network effect is a rich use scenario. Offshore RMB stablecoins should start with serving the real economy, focusing on trade scenarios and investment scenarios to create an "usable and indispensable" ecosystem. In the field of trade settlement, chain-leading enterprises with cross-border payment scenarios can be encouraged to issue stablecoins, including both import and export entities that already have a certain cross-border trade volume, such as large home appliance and automobile manufacturers, and platform companies that operate cross-border trade, including JD.com and Alibaba. In the field of financial investment, relying on Hong Kong, develop financial products denominated in stablecoins. Encourage Chinese financial institutions to issue stablecoin bonds, trade financing bills, etc. in the offshore market to lower the threshold for international investors to participate.
The “principle” and “technique” of RMB internationalization: Don’t lose sight of the main point and pursue the trivial
Stablecoin is just a "technique" to promote the internationalization of the RMB. Whether the RMB can become a widely trusted international currency fundamentally depends on the "Tao" - the "legal anchor" and "functional anchor" of the RMB. When the international community believes that the RMB has solid sovereign credit and a predictable policy environment, the RMB will have the foundation to become a widely accepted international currency. This is the "legal anchor" of the RMB. When there are sufficient types of RMB-denominated assets, smooth market flows, and complete risk management tools, international investors will be more willing to hold and use RMB. This is the "functional anchor" of the RMB.
On the road to participating in stablecoins, we should steadily promote technological innovation and avoid losing sight of the main goal . Technological innovations such as stablecoins need to serve core goals and we must be vigilant against the risk of putting the cart before the horse. Technical means are certainly important, but the willingness of investors and governments to RMB depends on more macro factors such as China's economic fundamentals, the robustness of the financial system, and international political trust. We can consider placing measures such as promoting RMB stablecoins under the framework of the national financial strategy, and complementing institutional and market construction. With the combination of strategic design and favorable opportunities, the internationalization of RMB can be steady and long-term.
