The Potential Impact of Stablecoins on the Financial System

A stablecoin is a cryptocurrency that is pegged to the value of a specific asset, usually anchored to fiat currency. It serves as a bridge connecting decentralized finance ( DeFi ) with the traditional financial system and is also an important infrastructure for DeFi. Recently, several major regions have successively introduced regulatory frameworks for stablecoins, marking the formal inclusion of stablecoins under regulation. This brings opportunities for the development of DeFi, while also potentially deepening its integration with the traditional financial system, posing new challenges and risks to the global financial system.

Establishment of the Stablecoin Regulatory Framework

The United States, Hong Kong, and the European Union have recently passed stablecoin regulation bills, establishing targeted regulatory frameworks. These bills address prior risk points in the industry, such as the opacity of reserve assets, liquidity management risks, and price instability of algorithmic stablecoins, and have formulated a series of regulations. The main contents include:

1. Require 100% reserve assets, limited to cash, short-term government bonds, and other highly liquid assets.
2. Establish entry barriers and licensing system for issuing institutions
3. Include in the anti-money laundering regulatory framework
4. Strengthen Consumer Protection
5. Prohibition of interest payments on stablecoins

These regulatory requirements refer to the framework of traditional financial institutions, but are stricter in terms of liquidity management. Regulators position stablecoins as "on-chain cash" rather than "on-chain deposits" to build the foundation of DeFi.

Potential Impact on Financial Systems

1. Improve cross-border payment efficiency

Stablecoins can significantly reduce the cost and time of cross-border payments. However, after regulatory standardization, their compliance costs may rise. In the long run, the share of stablecoins in international payments is expected to increase, but this process still requires industry development and regulatory improvement.

2. Impact on the currency creation function

The 100% reserve requirement limits the credit expansion capabilities of stablecoin issuers. The issuance of stablecoins itself does not affect the supply of fiat currency, but it may lead to a loss of bank deposits. DeFi lending platforms can create "quasi-money", but their current scale is limited.

3. Impact on bank deposits

Stablecoins may lead to a loss of bank deposits, resulting in financial disintermediation. This is similar to the impact of money market funds on the banking system. The short-term impact is limited, but there are risks in the long term:

• The development speed of stablecoins exceeded expectations.
• Obtain investment returns indirectly to enhance the attractiveness of deposits.

4. Undertake government debt demand

Stablecoin issuers have become important short-term U.S. Treasury buyers. As their scale expands, the demand for short-term U.S. Treasuries may increase, but the impact on long-term U.S. Treasuries is limited.

5. Impact on the transmission of monetary policy

Stablecoins may lower short-term interest rates, and central banks need to adjust monetary supply. In the long term, financial disintermediation may weaken the effectiveness of monetary policy.

6. Impact on the financial market

Mainly through three channels:

• The creation of "quasi-currency" within the DeFi system
• The price fluctuations of crypto assets affect market sentiment.
• Fluctuations in stock prices of cryptocurrency-related listed companies

7. Impact on the International Monetary System

The impact of stablecoins on the status of the US dollar has two sides:

• Consolidate the dominance of the US dollar
• Provides the possibility for diversification of the global financial system.

Challenges to emerging market currencies, with some countries implementing restrictions.

8. Insights on Currency Internationalization

Regulating the issuance of stablecoins helps enhance the international influence of related currencies. The Hong Kong stablecoin legislation provides a "testing ground" for the internationalization of other currencies. However, attention must still be paid to financial stability risks, and policies should be adjusted 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 not progressing as expected.

![CICC Interpretation of Stablecoins: Three Major Regulatory Models Established, On-Chain US Dollar Accelerating Formation](https://img-cdn.gateio.im/webp-social/moments-e85f9a14a125ba5b14791602a1981802.webp01

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