Wang Yongli: The profound impact of US stablecoin legislation exceeds expectations

# Written by: Wang Yongli  

# Source: China Economic Times  

## Editor's Note  

Shortly before Hong Kong, China’s *Stablecoin Ordinance* took effect, the U.S. Congress swiftly passed the *Guiding and Establishing a National Innovation Act for U.S. Stablecoins* (hereafter referred to as the *U.S. Stablecoin Act*), which was subsequently signed into law via a presidential executive order. Upon its release, the act immediately drew intense global market attention—What are the U.S.’ strategic intentions? Will it accelerate the restructuring of the global capital flow landscape? Can it drive the evolution of international monetary rules and thereby reshape the global financial governance system? And how will major powers compete over underlying infrastructure standards such as blockchain? To address these complex questions, China Economic Times invited experts in the field to demystify stablecoins and map the logical chain of how the *U.S. Stablecoin Act* impacts various stakeholders.  

## Core Views  

Legislation on stablecoins and crypto assets will encourage widespread participation from financial institutions such as banks. By connecting these institutions to various public blockchains, clients will be able to directly convert off-chain fiat deposits into on-chain tokens or convert on-chain tokens back into fiat deposits. This reduces the additional links and costs associated with fiat-to-stablecoin conversion handled by non-bank payment entities, making banks a more convenient channel than stablecoins for connecting the crypto world to the real world.  

Urged by U.S. President Trump, the *U.S. Stablecoin Act* was signed into law on July 18 and took immediate effect—just ahead of the August 1 implementation of Hong Kong, China’s *Stablecoin Ordinance*. This has sparked widespread global attention and debate, with many interpreting it as a new manifestation of intense global currency power rivalry. It is expected to push more countries and regions to accelerate their own fiat-backed stablecoin legislation, leading to the emergence and large-scale expansion of new stablecoins, which may restructure the international monetary system and financial market rules.  

Fiat-backed stablecoins—pegged 1:1 to a specific fiat currency—first emerged in early 2015 with the launch of Tether’s U.S. dollar stablecoin "USDT," which has now operated for over a decade. USDT paved the way for the accelerated development of other dollar stablecoins (e.g., USDC) and stablecoins tied to other fiat currencies. By June 2025, the market capitalization of U.S. dollar stablecoins exceeded $250 billion, accounting for over 95% of the total stablecoin market cap. However, legislative oversight of stablecoins has only just begun. The hasty rollout of relevant acts means there is still room for revision and improvement—particularly in terms of understanding stablecoins and crypto assets, which requires breaking free from conventional thinking and adopting a broader, more forward-looking perspective for accurate assessment.  

### The Most Distinctive Feature of Stablecoins: "On-Chain Crypto Assets"  

Fiat-backed stablecoins use a designated range of assets denominated in a specific fiat currency as reserves to maintain a stable peg to that fiat currency. However, they must be converted into crypto assets usable within borderless, global blockchain systems. Unlike general non-cash digital currencies (including those held in deposit accounts or e-wallets), stablecoins are specialized "on-chain crypto assets."  

On-chain crypto assets are no longer physical banknotes or coins but exist as strings of characters. These strings serve both as the owner’s registered address on the blockchain and the account address for their currency (registration equals account opening). Behind these addresses lie multiple elements, including the owner’s identity information, private keys, account balances, and smart contracts. Blockchain platforms rely on distributed ledger technology to encrypt and protect the entire account operation process, ensuring authenticity, transparency, and security. This represents a fundamental divergence from the form and operational model of traditional fiat currencies. Therefore, discussing stablecoins in isolation from blockchain is impractical and divorced from their essence.  

### The Fundamental Application Scenario for Stablecoins: The "On-Chain Crypto World"  

In 2009, Bitcoin—a native on-chain crypto asset created through the deep integration of blockchain and cryptography—and its underlying blockchain were officially launched. This was followed by the Ethereum blockchain and its native crypto asset "Ether." Subsequent developments included more on-chain derivative crypto assets (commonly known as "altcoins") issued via Initial Coin Offerings (ICOs) to raise Bitcoin or Ether, as well as crypto asset trading platforms facilitating the issuance, trading, and exchange of these assets. These platforms enable 24/7 borderless, decentralized trading on a global scale, forming and expanding the "on-chain crypto world." As one of the most significant innovations of the 21st century leveraging blockchain and cryptography, the on-chain crypto world will exert a profound impact on humanity and demands close attention.  

However, developing and operating blockchains, as well as issuing and trading crypto assets, require substantial off-chain investments (in fiat currency). If crypto assets like Bitcoin can only generate revenue without easy conversion back to fiat currency, they cannot meet the development needs of the crypto asset ecosystem. Additionally, without attracting fiat currency investments, the value of crypto assets cannot be effectively realized. Compounding this issue, crypto assets such as Bitcoin exhibit extreme volatility against fiat currencies like the U.S. dollar, making direct exchange for essential off-chain goods impractical. These factors gave rise to fiat-backed stablecoins, which uniquely connect off-chain fiat currencies to on-chain crypto assets. Thus, the "on-chain crypto world" is the fundamental source of demand and application scenario for fiat-backed stablecoins.  

### Fiat-Backed Stablecoins Drive the Development of the On-Chain Crypto World  

While the integration of blockchain and cryptography has spawned native and derivative on-chain crypto assets (e.g., Bitcoin) and even non-fungible tokenized crypto assets (NFTs), the absence of sufficient fiat currency participation has confined these assets primarily to the on-chain crypto world. This limits their value realization and impact on the off-chain real world. The emergence of fiat-backed stablecoins has created a value channel linking the crypto world to the real world, adapting to the 24/7 global trading and payment settlement needs of on-chain crypto assets and strongly supporting the development of the crypto world. Moreover, as fiat currency represents real-world assets, fiat-backed stablecoins have pioneered and validated the on-chain tokenization of real-world assets (RWA), paving the way for more RWA products.  

Historically, stablecoins have emphasized decentralization and deregulation, resulting in a lack of legal recognition and regulatory protection. This has led to severe issues during their development, preventing financial institutions like banks from actively participating and significantly constraining the growth of stablecoins and the crypto world. Now, the enactment of legislation governing fiat-backed stablecoins and the broader crypto asset sector establishes their legal status. This will undoubtedly drive widespread participation from banks and other financial institutions, pushing large-scale on-chain trading of standardized financial assets via RWA. The accelerated development of the on-chain crypto world has become an irreversible trend—and this is arguably the most important contribution of U.S. stablecoin legislation.  

Fiat-backed stablecoins not only meet the development needs of the crypto world but also accelerate its growth, creating a mutually reinforcing relationship. Failing to contextualize stablecoins within the broader on-chain crypto world and limiting analysis to the monetary and financial sector will result in an inadequate understanding and assessment of stablecoins.  

### Crypto Assets Cannot Become True Currency in the Crypto World  

Despite being labeled as "coins" (referred to as "cryptocurrencies" or "digital currencies"), native and derivative on-chain crypto assets like Bitcoin and Ether have proven unable to function as true currency—they are merely a new type of crypto (digital) asset. This is precisely why fiat-backed stablecoins are needed.  

Currency has existed in human society for thousands of years, with its form (or carrier) and operational model evolving continuously: from early physical commodities (e.g., cowrie shells), to standardized metal coins (e.g., copper, gold, silver coins), to metal-backed banknotes, and finally to pure credit currency—unlinked to the value of specific commodities and whose total supply adjusts to changes in the total value of tradable wealth. This evolution has improved efficiency, reduced costs, enhanced risk prevention, and better fulfilled currency’s core functions.  

The evolution of currency is dictated by its fundamental connotations:  

- **Essential Attribute**: A unit of account (divisible and aggregable).  

- **Core Function**: A medium of exchange (a tool for value transfer and settlement).  

- **Fundamental Characteristic**: The most liquid value token (a transferable claim to value supported by the highest credit within its circulation scope).  

These three elements are indispensable for a complete definition of currency.  

As a unit of account, currency requires **singularity and stable value**. This means the total money supply must adjust flexibly to changes in the total value of tradable wealth, ensuring sufficient supply while maintaining stable purchasing power. Consequently, physical commodities once used as currency (e.g., cowrie shells, bronze, gold, silver) have been phased out, as their supply cannot keep pace with the infinite growth of tradable wealth. They have reverted to their original role as tradable goods. Attempts to reintroduce the gold standard or use new commodities with limited supply (e.g., rare earths) as currency or monetary anchors violate monetary principles and are destined to fail. This explains why the Bretton Woods system (which tied international currencies to gold) collapsed, why crypto assets like Bitcoin (with a fixed total supply and inflexible incremental issuance) cannot become true currency, and why stablecoins unpegged to a single fiat currency struggle to succeed. Ultimately, currency must break free from specific commodities to become pure legal tender, reflecting its essential attributes.  

Crucially, the **carrier or form of currency must be distinguished from currency itself**. Cowrie shells, coins, and banknotes are merely carriers—not currency itself. Currency is evolving toward invisibility, digitization, and intelligence: cash and cash payments account for an increasingly small share of total currency and payment volumes, with currency primarily existing as deposits (represented by account numbers) and transferable via account-based settlement. Physical cash (banknotes and coins) will eventually be phased out entirely. Equating currency with cash is a fundamental misconception. Additionally, the connotation of "currency" or "coin" must be accurately understood: not all on-chain crypto assets should be called "coins" or "tokenized currency." Bitcoin, altcoins, NFTs, and RWAs are assets—not currency.  

### The On-Chain Crypto World Brings Profound Changes to Monetary Finance  

Constrained by practical limitations, the current fiat currency system relies heavily on payment and settlement institutions like banks: aside from small cash transactions between payers and recipients, most currency is held in these institutions. Transfers require intermediation by clearing institutions:  

- If both parties hold accounts at the same bank, only one intermediary (the bank) is needed.  

- If accounts are held at different banks with direct clearing relationships, two intermediaries (the respective banks) are required.  

- If no direct account relationship exists, a third bank with mutual account ties is needed to "bridge" the transaction—requiring three or more intermediaries.  

Cross-border payments typically involve three or more intermediaries, relying on diverse national/regional payment systems and processing payment instructions in different languages and formats. More intermediaries and complex systems result in lower efficiency and higher costs.  

To improve efficiency and reduce costs, most countries have adopted centralized account systems, with clearing institutions holding accounts at a central clearing house to minimize intermediaries. Internationally, the Society for Worldwide Interbank Financial Telecommunication (SWIFT) provides a globally connected, shared platform for standardized payment messages, significantly improving cross-border payment efficiency and cost. However, the inability to drastically reduce or eliminate intermediaries means fundamental breakthroughs in cross-border payment efficiency and cost remain elusive.  

The emergence of the on-chain crypto world offers a solution. On borderless global public blockchains, rules are embedded in the system ("code is law"). Users register to open accounts directly, enabling peer-to-peer payment settlement without intermediaries. This drastically improves efficiency and reduces costs, offering clear advantages over traditional cross-border payments. Additionally, listing financial products on public blockchains enables global sales and trading, breaking the geographical limits of off-chain financial markets and attracting larger investor bases and capital. This will drive more financial products—especially highly digitized and standardized securities (e.g., stocks, bonds, money market funds)—to enter the on-chain space via RWA, enriching crypto asset diversity, boosting trading activity, and expanding influence.  

A more profound change may lie in this: legislation on stablecoins and crypto assets will drive banks to connect with public blockchains, allowing clients to directly convert off-chain fiat deposits to on-chain tokens (and vice versa). This eliminates the extra links and costs of fiat-to-stablecoin conversion by non-bank entities, making banks a more convenient channel between the crypto and real worlds. This shift will:  

- Reduce regulatory challenges posed by multiple stablecoins pegged to the same fiat currency.  

- Facilitate compliance with on-chain token tracking, Know Your Customer (KYC), Anti-Money Laundering (AML), and Countering the Financing of Terrorism (CFT) requirements.  

- Mitigate the impact of rapid fiat-backed stablecoin expansion on the existing financial system.  

- Enhance equal access to public blockchains for all countries.  

- Reshape the stablecoin issuer landscape (including challenging the U.S. dollar stablecoin’s dominant position).  

- Compress the survival space of unregulated stablecoins and "altcoins."  

- Impact SWIFT’s international influence.  

- Drive traditional financial products to adopt RWA and attract licensed institutions to participate in crypto asset trading and crypto exchange operations.  

- Potentially replace central bank digital currencies (CBDCs).  

China must adopt a clearer understanding and more proactive measures. The priority should not be developing RMB stablecoins (which have limited potential) but accelerating legislation, enabling bank participation, and advancing RWA to achieve "overtaking on a curve."  

### Strengthening and Refining Legislation and Oversight for the On-Chain Crypto World  

The emergence and development of fiat-backed stablecoins have expanded the on-chain crypto world from native/derivative assets to RWA. Global public blockchains now also act as intermediaries for off-chain cross-border settlement and remittances, deepening integration between the on-chain crypto world and the off-chain real world and amplifying its impact. This poses profound challenges to existing monetary sovereignty and financial regulation—unregulated development would be highly risky. Effective oversight of the on-chain tokenization of real-world assets (especially fiat currency) and their conversion back to off-chain assets is essential to meet KYC, AML, and CFT requirements.  

Legislation and oversight of fiat-backed stablecoins and crypto assets are still in their infancy. Balancing innovation and risk prevention, and reconciling national/corporate interests with global common interests, requires refining implementation rules and controlling key risks. Notably, safeguards must be in place to prevent the U.S. from prioritizing crypto industry support over necessary regulation through legislation. It is also critical to break free from traditional real-world thinking, taking the crypto world’s development seriously through in-depth research and accurate assessment. Responsible major powers must actively participate in establishing rules, maintaining order, and strengthening international cooperation for the crypto world.  

The foundation and rules of the crypto world rely on blockchain systems and their embedded protocols. Public blockchains—borderless and global—have the broadest reach and greatest influence (e.g., Ethereum, Solana, Binance Chain, Polkadot). Thus, the global applicability and fairness of blockchain rules, as well as the transparency and security of blockchain operations, are fundamental to the on-chain crypto world. We should encourage the development, fair competition (based on efficiency, cost, impartiality, and security), and iterative improvement of decentralized, non-state-controlled public blockchains—while preventing their control and exploitation by individual countries or interest groups.  

In conclusion, the profound impact of U.S. stablecoin legislation may exceed expectations.  

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