How Do Dollar Stablecoins Challenge the Fiat System and National Forms?

1. The Ghost of History: The Digital Return of the East India Company

History always repeats itself with astonishing similarities. When Trump signed the "Genius Act," a historical ghost quietly emerged — that is, the commercial behemoths of the 17th and 18th centuries, the Dutch and British East India Companies, which were granted sovereign powers by the state.

On the surface, this bill is merely a technical adjustment to financial regulation, but in reality, it is a charter issued for the "New East India Company" of the 21st century, initiating a transformation that reshapes the global power landscape.

New Charter of Power

Four hundred years ago, the Dutch East India Company and the British East India Company were not ordinary trading firms; they were a hybrid of merchants, soldiers, diplomats, and colonizers. The Dutch government granted the East India Company the power to recruit armies, issue currency, sign treaties, and even wage war. The British East India Company was also given the power to monopolize trade in India and establish military and administrative functions. These companies controlled the lifeblood of globalization at the time — maritime trade routes.

Today, the "Genius Act" grants legitimacy to the new era's power giants - stablecoin issuers. On the surface, it appears to regulate the market by setting standards, but the actual effect is to create an oligopoly of stablecoin issuers recognized by the U.S. government. These companies will control the global trade routes of the new era - a borderless digital financial track operating 24/7.

From trade routes to financial tracks

The power of the East India Company stemmed from its monopoly on physical trade routes. The "digital East India Company" of the new era exercises power by controlling the financial tracks of global value flows. When a regulated dollar stablecoin becomes the default settlement unit for global cross-border payments, DeFi lending, and RWA transactions, its issuer holds the power to define the rules of the new financial system.

and the ambiguous symbiosis and confrontation between nations

The history of the East India Company is an epic that evolves in relation to its mother country. Initially, they were strategic agents of the state, but gradually grew into independent centers of power. They waged wars and engaged in unethical trade for profit, repeatedly dragging the government into a quagmire. Ultimately, they faced bankruptcy due to mismanagement and had to seek assistance from the state, leading to increased government regulation that ultimately stripped them of their administrative powers.

This history foreshadows the possible dynamic relationship between future stablecoin issuers and the U.S. government. As they grow into a "too big to fail" global financial infrastructure, their institutional interests may conflict with U.S. foreign policy. This suggests that when the system of dollar stablecoins issued by private entities becomes too large, it will inevitably clash with national sovereignty.

2. Global Currency Tsunami: Dollarization, Great Deflation, and the End of Non-Dollar Central Banks

The "Genius Act" not only gives rise to new power entities but will also trigger a currency tsunami sweeping across the globe. This tsunami originates from the collapse of the Bretton Woods system in 1971, paving the way for today's global conquest of the dollar stablecoin. For countries with fragile sovereign credit, the future will see the public choosing between a collapsing local currency and the readily accessible digital dollar. This will lead to an unprecedented wave of super dollarization, ending the monetary sovereignty of many nations and bringing about devastating deflationary shocks.

The Ghost of the Bretton Woods System

The Bretton Woods system linked the US dollar to gold, while other currencies were pegged to the dollar, creating a stable structure anchored by gold. However, this system contained the fatal contradiction of the "Triffin Dilemma." In 1971, Nixon closed the gold exchange window, signaling the death of the system.

The death of the dollar is the beginning of its rebirth. Under the subsequent "Jamaica System," the dollar decoupled from gold and became a purely fiat currency. The Federal Reserve could issue currency more freely, laying the foundation for dollar hegemony. Stablecoins are the ultimate technological form of this post-Bretton Woods system, elevating the dollar's liquidity supply capability to a new dimension.

The Arrival of Super Dollarization

The traditional dollarization faces many obstacles, while stablecoins have completely dismantled these barriers. Anyone with a smartphone can exchange their local currency for dollar stablecoins in seconds at a very low cost. This will transform dollarization from a gradual process into an instantaneous tsunami. When inflation expectations rise in a country, capital will instantly vanish from the local currency system and enter the global crypto network.

This will be a fatal blow to a government whose credit is on the verge of collapse. The status of the currency will be completely undermined, as the public and businesses have access to a more perfect and efficient alternative.

The Great Deflation and the Erosion of National Power

When an economy is swept by the wave of super dollarization, sovereign nations will lose two core powers: the power to print money to cover fiscal deficits and the power to regulate the economy through monetary policy.

The consequences are catastrophic. After the fiat currency is abandoned, the exchange rate will spiral downwards, falling into hyperinflation. However, on the level of economic activity denominated in dollars, there will be a severe deflation. Asset prices, wages, and the value of goods measured in dollars will plummet.

The government's tax base will also evaporate accordingly. Tax revenues denominated in a rapidly devaluing local currency will become worthless, and the national finances will fall into collapse. This fiscal death spiral will completely destroy the state's governance capacity.

White House vs. Federal Reserve: The Power Struggle within the United States

This currency revolution not only strikes at America's rivals but will also trigger a crisis within the United States. Currently, the Federal Reserve controls U.S. monetary policy. However, a privately issued digital dollar system regulated by a new agency under the Treasury Department or the White House will create a parallel monetary track. The executive branch can indirectly or even directly intervene in the money supply and flow by influencing regulatory rules for stablecoin issuers, thereby bypassing the Federal Reserve. This could become a powerful tool for the executive branch to achieve political or strategic goals, leading to a profound crisis of trust regarding the independence of monetary policy.

Three, The Financial Battlefield of the 21st Century: The United States Against China's "Free Financial System"

To the outside world, the stablecoin legislation is an important deployment by the United States in its competition with China. It supports a private, public blockchain-based "free financial system" centered around the US dollar through legislation.

The Financial Iron Curtain of the New Era

After World War II, the Bretton Woods system, led by the United States, not only rebuilt the post-war economic order but also constructed a Western economic group that excluded the Soviet Union and its allies against the backdrop of the Cold War. Today, the "Genius Act" aims to create a new version of the "Bretton Woods system" for the digital age, establishing a global financial network based on the US dollar stablecoin, ideologically opposing the model led by the Chinese state.

Open vs. Closed: Permissioned vs. Permissionless

The strategic paths of China and the United States in digital currency show fundamental differences. China’s digital yuan is a typical "permissioned" system that operates on a private ledger controlled by the central bank. In contrast, the stablecoins supported by the United States are built on a "permissionless" public blockchain, where anyone can innovate on this network without needing approval.

This is an asymmetric strategy. The United States is leveraging its opponent's weakest link—fear of losing control—to build its own moat, attracting global innovators, developers, and users seeking financial freedom into a dollar-centered open ecosystem.

Bypassing SWIFT: A dimension-reducing strike that cuts to the root.

In recent years, the core strategy of countries such as China and Russia in dealing with the hegemony of the US dollar has been to establish financial infrastructure that bypasses American control. However, the emergence of stablecoins has made this strategy seem outdated. Transactions involving stablecoins based on public blockchains fundamentally do not require intermediaries such as SWIFT or any traditional banks.

The United States no longer needs to laboriously defend the old financial fortress (SWIFT) but has instead opened up a completely new battleground. In this new battleground, the rules are defined by codes and protocols rather than intergovernmental treaties. As the majority of global digital value begins to operate on this new track, the attempt to establish a "SWIFT alternative" becomes meaningless.

Win the Battle of Network Effects

The core war in the digital age is a war of network effects. Through the "Genius Act," the United States is merging the dollar with the crypto world, and the resulting network effects will be exponential.

Global developers will prioritize developing applications for the US dollar stablecoin, which has the largest liquidity and the widest user base. Global users will flock to this ecosystem due to the rich application scenarios and asset choices. In contrast, the e-CNY may be promoted within a specific scope, but its closed, yuan-centric nature makes it difficult to compete globally with this open dollar ecosystem.

IV. The "Decentralization" of Everything: How RWA and DeFi Undermine State Control

Stablecoins themselves are not the endpoint of the revolution; they are more like the Trojan horse that breaches the city. Once global users become accustomed to holding and transferring value through them, a larger and deeper revolution will follow. The core of this revolution is to convert all valuable assets into digital tokens that can flow freely on a global public ledger. This process, known as "Real World Asset on Chain" (RWA), will fundamentally sever the connection between assets and specific national jurisdictions, achieving the "denationalization" of assets and ultimately disrupting the traditional financial system centered around banks.

stablecoin: The "Trojan Horse" to the New World

Stablecoins are playing a role similar to that of the Trojan Horse. In the eyes of governments and regulatory agencies, regulated and asset-backed stablecoins seem to be the "horse" that tames the world of cryptocurrency.

However, the GENIUS Act, while aiming to consolidate state power by promoting "secure" stablecoins, inadvertently built the largest user acquisition channel for truly decentralized non-state currencies in history.

The core function of stablecoins is to serve as a gateway connecting the traditional fiat currency world and the world of crypto assets. An ordinary user may initially just want to enjoy the low cost and high efficiency that stablecoins bring to cross-border remittances or daily payments. But once they download a digital wallet and get used to the on-chain transaction model, the distance between them and truly decentralized assets like Bitcoin and Ethereum is just a click away.

This creates a profound paradox for the country. The country must encourage and support the development and popularization of user-friendly wallets, exchanges, and various applications. However, this infrastructure is technically neutral and protocol-agnostic. The same wallet can hold regulated USDC as well as anonymous Monero; the same exchange can trade compliant stablecoins as well as completely decentralized Bitcoin.

RWA Revolution: Assets Breaking Free from the Shackles of National Borders

The core of RWA is to transform assets that exist in the physical world or traditional financial systems into tokens on the blockchain through legal and technical processes.

The entire process—tokenization of assets, collateralization, minting and transferring of stablecoins—is completed entirely on-chain, bypassing the traditional banking system. This is not just a superior payment track; it is a parallel financial universe that almost disregards the political and legal boundaries set by the Westphalian system.

This is precisely the "denationalization of currency" that drives the "denationalization of finance," ultimately achieving the "denationalization of capital." When capital can be denationalized, capitalists will naturally also be denationalized.

traditional financial system