Is the stablecoin primarily a technical issue, a financial issue, or an industrial issue?

Question

Written by: Zhang Feng

The core value of stablecoins lies in utilizing blockchain technology to achieve instant settlement and cost reduction for cross-border payments. However, if we stop here, we underestimate its deeper significance. The focus of stablecoins is payment efficiency, the challenge is balancing financial regulation, and the emphasis is on the vast economic ecosystem it spawns—this precisely reveals a fundamental issue: stablecoins are essentially not a singularly dimensional technological tool, financial product, or industrial phenomenon, but a complex system of deep coupling among technology, finance, and industry, where the three are interwoven and shape each other, and each is indispensable.

Technological Transformation: Payment Focus Under the Efficiency Revolution

The core technological promise of stablecoins lies in their disruptive transformation of traditional payment systems, especially cross-border payments, using blockchain technology:

Distributed ledger technology eliminates the layers of intermediary institutions that traditional financial systems rely on, with transaction verification and recording being completed collaboratively by network nodes. This not only significantly shortens the payment chain but also compresses cross-border settlement times from the several days of the traditional SWIFT system to minutes or even seconds, while transaction costs also experience a dramatic decline.

The automated execution capability of smart contracts injects unprecedented programmability into stablecoins. The cumbersome manual review and reconciliation processes in payment flows are replaced by automatically triggered and executed code logic. This not only reduces operational risks and friction costs but also unlocks complex conditional payment scenarios, such as scheduled automatic payments and multi-condition triggered transactions.

The openness and interoperability potential of blockchain make it possible to build a unified underlying protocol for global payment networks. Different stablecoin projects are exploring cross-chain bridges, atomic swaps, and other solutions at the technical level, striving to break down value silos and achieve seamless value transfer between different blockchain ecosystems, paving the way for the construction of a truly global payment infrastructure.

Practice has proven its value: the widespread use of USDT and USDC in regions with weak traditional banking services, such as Southeast Asia and Latin America, provides an efficient and cost-controllable channel for cross-border trade and labor remittances. Technology, undoubtedly, is the leverage point for stablecoins to pry open the traditional financial payment structure, and it is their most significant value focus.

Financial Innovation: Regulatory Challenges in the Game of Trust

The financial core of stablecoins—the value stability mechanism—has become the source of heightened vigilance among global financial regulators.

The trust foundation of the anchoring mechanism. Laws related to stablecoins require issuers to provide sufficient, high-quality, and transparent reserve assets as support. Whether it is fiat deposits, short-term government bonds, or over-collateralized crypto assets, the authenticity, adequacy, and custody security of reserves (to prevent misappropriation and theft) are crucial to the survival of stablecoins. Algorithmic stablecoins attempt to bypass reliance on physical reserves, but the collapse of UST brutally reveals the vulnerability of purely algorithmic mechanisms under extreme market pressure.

The transmission path of systemic risk makes stablecoins a potential threat to financial stability. As a bridge connecting the crypto world with the traditional financial system, once a large stablecoin experiences a run or collapse, its impact will not be limited to the crypto market, but may also trigger broader financial turmoil through channels such as traditional banks and money market funds that hold substantial reserves of stablecoins.

The global fragmentation and lag of regulatory frameworks constitute the biggest institutional obstacles to the development of stablecoins. There are significant differences among regulatory authorities in various countries regarding key issues such as the classification of stablecoins (as payment instruments, securities, or currencies), reserve requirements, the qualifications of issuers, and anti-money laundering/anti-terrorism financing obligations. The strict regulations imposed by the United States, the European Union, and the Basel Committee on Banking Supervision regarding the risk weights for banks holding crypto assets reflect the difficult process of forming a global regulatory consensus.

The financial nature of stablecoins determines that they must operate under a strong regulatory framework to maintain public trust. How to build a globally coordinated regulatory system that can prevent risks, protect consumers, and not stifle innovation is currently the most challenging and core difficulty.

Industrial Ecology: Development Focus under the Value Network

The true vitality and future potential of stablecoins far exceed the scope of being merely a payment tool or a means of value storage; their core lies in the vast and vibrant economic ecosystem that is stimulated by their role as a foundational value carrier.

The "fuel" of DeFi (Decentralized Finance). Stablecoins are the core building blocks of DeFi Legos. As a non-volatile value anchor, they support the smooth operation of complex financial activities such as lending protocols (where users deposit stablecoins to earn interest or borrow in Aave, Compound), decentralized exchanges (DEXs like Uniswap where they serve as main trading pairs), derivatives platforms, yield aggregators, and more. Without stablecoins, the vast liquidity pools and efficient capital flows in DeFi would be unimaginable.

The penetration and integration of traditional finance and the real economy. Stablecoins are accelerating their "breakthrough", becoming a bridge connecting on-chain and off-chain, the crypto world and traditional commerce. Large institutions (such as PayPal launching PYUSD) are entering the market to issue stablecoins, exploring their application in scenarios such as supply chain finance, trade settlement, payroll distribution, and cross-border B2B payments. Global brands are beginning to accept stablecoin payments, the NFT market relies on them for high-value transaction settlements, and the metaverse economic system regards them as the core circulating currency.

Emerging economies and the booster of inclusive finance. In regions where fiat currency is highly volatile or banking services are scarce, stablecoins provide a relatively stable value storage and convenient payment means. They lower the barriers to entry for global financial services, enabling individuals and small enterprises to more easily access global markets, conduct cross-border trade, or receive remittances, exhibiting significant potential for inclusive finance.

The prosperity of the stablecoin ecosystem directly determines its long-term value and survival space. Payment is the entry point, regulation is the safeguard, while the ecosystem is the true fertile ground that nurtures value, creates demand, and drives innovation. Therefore, building and thriving a diverse, innovative, and open stablecoin application ecosystem is the top priority for its development.

Multi-dimensional Coupling: A New Chapter of Practice from a System Perspective

The evolution of stablecoins clearly demonstrates a spiral process driven by technology that transforms financial forms, which in turn gives rise to new industrial ecosystems; as the industrial ecosystem grows, it imposes higher and more complex demands on technology and financial regulation.

Technological innovation is the underlying engine. Every breakthrough in blockchain performance enhancement, privacy protection, and cross-chain interoperability opens up new space for the payment efficiency, security, and application scope of stablecoins.

Financial regulation is the cornerstone of stability. Stablecoins lacking effective regulation are like a rudderless boat, which can capsize at any time due to a collapse of trust or uncontrolled risks. A clear, robust, and internationally coordinated regulatory framework is a prerequisite for their acceptance and large-scale application in mainstream financial markets.

The industrial ecosystem is a source of value. Only when stablecoins are deeply integrated into a wide range of economic activities, creating real and sustainable value flows in areas such as DeFi, traditional commerce, and inclusive finance, does their existence possess irreplaceability and long-term viability.

Viewing any one dimension in isolation will lead to bias. If tech enthusiasts ignore the baseline requirements of financial regulation and the real needs of the industry ecosystem, they may create an efficient yet fragile or even dangerous "castle in the air"; if financial regulators only see risks and stifle technological innovation and ecological exploration, they will miss the historical opportunity to enhance financial efficiency and inclusiveness; if industry participants detach from a solid technical foundation and compliance framework, the prosperous ecosystem they build may also collapse in an instant.

Stablecoins are neither purely a technical issue nor a singular financial topic, and they are certainly not limited to industrial phenomena. They are a product of the deep intertwining and symbiotic fusion of blockchain technology, modern financial principles, and the digital economic ecosystem in the digital age. The focus lies in utilizing technology to optimize payment efficiency, the challenge is to construct a financial regulatory framework that balances innovation and risk, while the emphasis is on nurturing and thriving a vast, open, and innovative economic ecosystem centered around stablecoins as the core value medium.