The Future of Stablecoins: Transformation Path Under Threefold Challenges

In the wave of digital assets, stablecoins have attracted attention as an innovative financial tool. By pegging to fiat currencies, they create a "safe haven" of value in the volatile world of cryptocurrencies, gradually becoming an important infrastructure for decentralized finance and global payments. The rapid growth of their market capitalization seems to herald the rise of a new form of currency.

However, the Bank for International Settlements (BIS) issued a stern warning about stablecoins in its recent economic report. The BIS pointed out that stablecoins are not true currencies, and that beneath their prosperous facade lies systemic risks that could destabilize the entire financial system. This conclusion has prompted a reevaluation of the nature of stablecoins.

This article will provide an in-depth interpretation of the "triple gate" theory of currency proposed in the BIS report - that is, a reliable currency system must pass three tests: singularity, elasticity, and integrity. We will analyze the challenges faced by stablecoins in these three areas with examples and discuss the future development direction of digital currency.

The Dilemma of Uniqueness: The Value Anchoring Problem of Stablecoins

The "uniqueness" of currency is the cornerstone of the modern financial system, meaning that the value of currency should remain constant and uniform. This is the fundamental premise for currency to perform its functions as a unit of account, medium of exchange, and store of value.

The BIS believes that the value anchoring mechanism of stablecoins has inherent flaws that fundamentally prevent a 1:1 exchange with fiat currency. Its credit foundation does not come from the state, but depends on the commercial credit of the issuer and the quality of reserve assets, which exposes it to the risk of "decoupling."

The "Free Banking Era" in history can serve as a warning. At that time, private banks chartered by various states in the U.S. could issue their own banknotes, which were theoretically redeemable for precious metals, but their actual value varied depending on the issuing bank's creditworthiness. This chaotic situation severely hindered economic development. Today's stablecoins, to some extent, are reminiscent of this historical disorder.

The recent collapse of the algorithmic stablecoin UST is a typical case. Its value dropped to zero in a short period, wiping out hundreds of billions in market value. Even asset-backed stablecoins have faced continuous scrutiny regarding the composition and auditing of their reserve assets. Therefore, stablecoins are already facing severe challenges in terms of "singularity."

The Tragedy of Elasticity: The Limitations of 100% Reserves

If "uniqueness" pertains to the "quality" of currency, then "elasticity" pertains to the "quantity" of currency. The "elasticity" of currency refers to the financial system's ability to dynamically create and contract credit according to economic demand, which is key to the self-regulation and sustained growth of a market economy.

The BIS pointed out that especially those stablecoins that claim to have 100% high liquidity assets as reserves actually adopt a "narrow banking" model. Although this model seems safe, it completely sacrifices the "elasticity" of the currency.

The traditional banking system achieves credit creation through a fractional reserve system, supporting the operation of the real economy. In contrast, the stablecoin system "locks" funds in reserve assets, making it unable to create credit based on economic demand and lacking self-regulating ability.

This "inelastic" characteristic not only limits the development of stablecoins themselves but may also impact the existing financial system. If a large amount of funds shifts from the banking system to stablecoins, it will reduce the available lending funds in banks, which could trigger credit tightening, ultimately harming small and medium-sized enterprises and innovative activities.

Of course, with the widespread use of stablecoins, stablecoin banks may emerge in the future, realizing a new form of credit creation. This will be a development direction worth paying attention to.

The Lack of Integrity: The Game Between Anonymity and Regulation

The "integrity" of currency is a safety net for the financial system, requiring payment systems to be secure and efficient, and effectively prevent illegal activities. This requires a sound legal framework, clear division of responsibilities, and strong regulatory enforcement.

The BIS believes that the underlying technological architecture of stablecoins, especially those built on public chains, poses a severe challenge to the "integrity" of finance. Their anonymity and decentralized characteristics make traditional regulatory measures difficult to implement.

Large anonymous transfers on public chains facilitate the flow of illegal funds, making it difficult to implement core regulatory requirements such as KYC and AML. In contrast, traditional international bank transfers, although less efficient, operate within a stringent regulatory network, providing a fundamental safeguard for the "integrity" of the global financial system.

However, with the maturity of on-chain analysis tools and the improvement of global regulatory frameworks, the ability to track and conduct compliance reviews of stablecoin transactions is increasing. In the future, fully compliant, transparently reserved, and regularly audited "regulatory-friendly" stablecoins may become mainstream in the market, alleviating the "integrity" issues to a certain extent.

Technical Vulnerabilities: Another Challenge Facing Stablecoins

In addition to the challenges at the economic level, stablecoins are not flawless at the technical level either. They are highly dependent on the internet and underlying blockchain networks, and once a large-scale network disruption or targeted attack occurs, the entire system may come to a standstill or even collapse. This absolute dependence on external infrastructure is a significant weakness.

The longer-term threat comes from the disruption of cutting-edge technology. For example, the maturity of quantum computing could pose a fatal blow to existing public key encryption algorithms. Once the encryption system protecting blockchain account private keys is compromised, the security foundation of the entire digital asset world will cease to exist. This is a fundamental security risk that must be addressed.

The Impact of Stablecoins on the Financial System and the "Growth Ceiling"

The rise of stablecoins has not only created a new asset class but has also competed with traditional banks for core deposit resources. If this trend of "financial disintermediation" continues to expand, it will weaken the core position of commercial banks in the financial system.

The process by which stablecoins support their value through the purchase of U.S. Treasury bonds is not simple or straightforward; there are bottlenecks related to the reserve requirements of the banking system. The large-scale purchase of U.S. Treasury bonds resulting from the expansion of stablecoins may deplete bank reserves, leading to liquidity and regulatory pressures. Therefore, the upper limit on the growth of stablecoins is constrained by the adequacy of bank reserves and regulatory policy restrictions.

In contrast, traditional money market funds deposit funds back into commercial banks through the repurchase market, increasing bank deposit liabilities and reserves, which can be used for credit creation, directly restoring the deposit base of the banking system. This difference is worth noting.

The Future of Stablecoins: Between "Siege" and "Pacification"

The future of stablecoins is at a crossroads, facing the pressure of global regulatory "surrounding", while also seeing the possibility of being incorporated into the mainstream financial system. The core contradiction lies in the game between "wild innovative vitality" and the modern financial system's requirements for "stability, safety, and controllability."

The solution proposed by the BIS is a "unified ledger" based on the "tokenization" of central bank currencies, commercial bank deposits, and government bonds. This is essentially a "co-optation" strategy aimed at absorbing the advantages of tokenization technology while placing it on a trust foundation led by central banks.

The evolution path of the market may be more complex. Some stablecoin issuers will actively embrace regulation to achieve full transparency and compliance. Others may choose to operate in regions with loose regulation, continuing to serve specific niche markets, but their scale and influence will be limited.

The dilemma of stablecoins reveals both their inherent flaws and the deficiencies of the existing financial system. The future development direction may lie in cautiously integrating top-level design with market innovation, seeking a balance between "suppression" and "reconciliation," and moving towards a more efficient, secure, and inclusive financial future.