The Potential Impact of Stablecoins on the Financial System

Stablecoins are a type of cryptocurrency that is pegged to a specific asset, serving as a bridge between decentralized finance and traditional finance, and also representing an important infrastructure for decentralized finance. Recently, the United States and Hong Kong have successively passed stablecoin regulation bills, marking the formal establishment of a regulatory framework for stablecoins in some major regions around the world. This will promote the development of decentralized finance, deepen the integration with traditional finance, while also bringing new challenges and opportunities to the global financial system.

Summary

Regulatory framework established. The United States and Hong Kong have recently passed stablecoin legislation, filling the regulatory gap and helping stablecoins integrate into the mainstream financial system. The legislation sets standards for industry risk points, including requirements for reserve assets, liquidity management, anti-money laundering, etc., referencing traditional financial regulation but with stricter measures.

Rapid growth in scale. As of May 2025, the market value of mainstream stablecoins is approximately $230 billion, an increase of over 40 times compared to early 2020. Although the scale is still small relative to traditional finance, the annual transaction volume has exceeded that of mainstream payment systems, demonstrating its importance as infrastructure for the cryptocurrency ecosystem.

The impact is mainly reflected in:

1. Improve the efficiency of international payments, but attention must be paid to regulatory arbitrage and capital control challenges.

2. The full reserve requirement limits the currency creation function, having a limited impact on the money supply.

3. It creates a disintermediation effect on bank deposits, but the short-term impact is controllable.

4. Undertake part of the government debt demand, affecting the transmission of monetary policy.

5. The price fluctuations of crypto assets have spillover effects on the financial market.

6. Potentially reconstruct the international monetary order.

7. Provide new ideas for currency internationalization.

Main Text

1. Stablecoin Bill: A Milestone in Cryptocurrency Regulation

Recently, the United States and Hong Kong have successively passed stablecoin bills, establishing a regulatory framework following the European Union, marking an important step for stablecoins to integrate into the mainstream financial system.

Stablecoins are a type of cryptocurrency whose value is pegged to specific assets (, usually fiat currencies ), connecting decentralized finance and traditional finance, and serving as an important infrastructure for decentralized finance. Currently, the mainstream stablecoins mainly include:

• Centralized stablecoins backed by fiat reserves ( such as USDT, USDC )
• Decentralized stablecoin ( backed by over-collateralized crypto assets like DAI )
• Algorithm stablecoin ( such as USDD )

Among them, centralized stablecoins based on US dollar reserves dominate.

2. From "barbaric growth" to gradual standardized development

In the past, the stablecoin sector has seen several significant risk events, such as the collapse of TerraUSD and the lack of transparency in Tether's reserves. Legislation in the United States and Hong Kong has established regulations targeting industry risk points, with the main content including:

1. Require 100% reserve assets to be pegged to fiat currency or high liquidity assets
2. Issuers must obtain regulatory licenses and capital requirements.
3. Incorporate into the anti-money laundering regulatory framework
4. Strengthen Consumer Protection
5. Prohibition of interest payment on stablecoins

The bill refers to the traditional financial regulatory framework, but is stricter in liquidity management. It positions stablecoins as "on-chain cash" rather than "on-chain deposits," thereby strengthening the foundation of decentralized finance.

Three, the potential impact of stablecoins on the financial system

As of May 2025, the market value of mainstream stablecoins is approximately $230 billion, an increase of over 40 times compared to early 2020. Although the scale is still small compared to traditional finance, the annual transaction volume has exceeded that of major payment systems, demonstrating its importance as an infrastructure of the cryptocurrency system. The main impacts are reflected in:

1. More efficient means of international payment

Stablecoins can significantly reduce the cost and time of cross-border payments, but they also face challenges such as regulatory arbitrage and capital controls. In the long term, they are expected to increase market share, but further industry development and regulatory improvement are still needed.

2. Full reserve requirement restricts the currency creation function

The 100% reserve asset requirement limits the credit expansion ability of stablecoin issuers, having a limited impact on the money supply.

• The deposit exchange for stablecoins is only a transfer of funds and does not affect the money supply.
• Other currencies exchanged for USD stablecoin are only for USD liquidity and do not affect the total supply.
• The cryptocurrency lending platform can create "quasi-currency", but on a smaller scale.

3. The Disintermediation Impact on Bank Deposits

Stablecoins may lead to deposit outflows, affecting the bank's liability structure and profitability in the long term. However, the short-term impact is manageable:

• The bill prohibits interest payments on stablecoins, reducing their attractiveness for deposits.
• Currently, the scale accounts for only about 1% of the deposits.
• Banks are also exploring their own stablecoin business.

But long-term risks need to be noted:

1. stablecoin development exceeds expectations
2. obtain investment returns in an indirect form

4. Undertaking government debt and affecting the transmission of monetary policy

Stablecoin issuers hold a large amount of short-term U.S. Treasury bonds and may become important buyers in the future. However, they mainly affect short-end rates, with limited impact on the long-end. The impact on the transmission of monetary policy:

• Lower short-term interest rates, the central bank needs to hedge.
• Long-term may lead to financial disintermediation, weakening the effectiveness of policies.

5. The Transmission of Cryptocurrency Price Volatility to Financial Markets

Mainly through three channels:

1. Decentralized lending creates "quasi-currency"
2. affects market sentiment and expectations
3. affects the fundamentals of related listed companies.

6. The Potential Forces Restructuring the International Monetary Order

The impact on the US dollar is relatively "contradictory":

• Consolidate the dominance of the US dollar
• Provide a bridge for a diversified currency system

Pose challenges to emerging economies, with multiple countries implementing restrictive measures.

7. Insights on Currency Internationalization

The Hong Kong stablecoin bill helps to:

• Enhance the influence of Hong Kong Dollar in cross-border payments and cryptocurrency asset fields.
• Provide a "testing ground" for the internationalization of other currencies

But we still need to pay attention to financial stability risks and optimize policies in a timely manner.

Risk Warning

1. There is uncertainty in the development of the cryptocurrency industry.
2. The impact of stablecoins on the traditional financial system exceeds expectations.
3. Regulatory policies are progressing slower than expected.

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