Xiao Feng's latest speech: Stablecoins are a new stage in the evolution of currency.

On June 15, the China Wealth Management 50 Forum (CWM50) held a special seminar titled "The Rapid Development of Stablecoins: Potential and Challenges," where Xiao Feng, Vice Chairman of Wanxiang Holdings, attended and gave a keynote speech.

Xiao Feng stated that stablecoins represent a new stage in the evolution of currency, which can be referred to as "tokenized currency." Based on distributed ledger technology, it enables peer-to-peer transactions without the need for intermediaries to align information. Since the advent of distributed ledger technology, there have been significant changes in financial market infrastructure. The emergence of stablecoins also marks the rise of the digital twin trend, which involves bringing real assets into the blockchain for tokenization. Asset tokenization enhances global liquidity for assets, introduces new clearing and settlement models, offers programmability, and holds significance for the future AGI era.

From the perspective of the functions of currency, stablecoins have functions such as payment and settlement. They are high-circulation currencies that transcend time and space, solving the "last mile" problem of inclusive finance and playing an important role in facilitating cross-border payments.

The goal of the US dollar stablecoin is to maintain the global mainstream currency status of the US dollar, and its impact on China is multidimensional, having reached a stage that requires active response. China may consider using Hong Kong as a testing ground to launch an offshore RMB stablecoin pilot, exploring its collaborative mechanism with central bank digital currency.

*This article only represents the personal views of the author and does not represent the position of the forum.

From a practical operational perspective, stablecoins have actually evolved beyond just being a payment tool; they represent a new phase in the evolution of currency, which can be referred to as "tokenized currency."

The Significance of Stablecoins

(1) Technical Value as a Distributed Ledger

To truly understand stablecoins, one must first sort out their development background. Stablecoins are built on the foundation of distributed ledger technology. Distributed ledger technology is the third iteration of human computational methods over thousands of years. The first was single-entry bookkeeping. From the clay tablets discovered in the Sumerian region, it can be seen that the single-entry bookkeeping method was used, recording only income and expenses.

Around the year 1300, double-entry bookkeeping emerged in Italy. This method not only records income and expenses but also tracks assets and liabilities. In the 700 years that followed, the calculation methods were only optimized, and no new iterative versions appeared.

It wasn't until 2009, when the Bitcoin blockchain appeared, that a new method of computation, known as distributed accounting, appeared for the first time. The biggest difference between the distributed bookkeeping method and the previous bookkeeping method is that the previous bookkeeping method records its own accounts and belongs to the private ledger. For example, if a remittance from Beijing to New York involves the participation of multiple institutions, it will take time and money to align all the information on the private ledgers of these institutions. However, a distributed ledger is a public ledger in which both institutions and individuals across the globe keep accounts on the same ledger, so there is no need for many institutions to align information, and the two parties to the transaction can directly complete the payment in a peer-to-peer manner, which is the biggest difference between the two calculation methods.

After the emergence of the Bitcoin blockchain, stablecoins began to appear in 2014. During the continuous engineering experiments, maturation, and optimization of distributed ledger technology, two trends emerged: on one hand, since 2009, people have "created" Bitcoin, Ethereum, and others "out of nothing" on the blockchain, which are referred to as "digital natives." On the other hand, since 2014, stablecoins represented by USDT have emerged, marking the emergence of another trend, namely "digital twins." The so-called digital twin refers to the introduction of an already existing asset in the real world, such as the US dollar, into the blockchain and tokenizing it, that is, mapping existing assets onto the chain in a digital way.

At the same time, with the approval of the launch of Bitcoin ETFs in the United States and Hong Kong last year, a new phenomenon has emerged: the transfer of digitally native assets from on-chain to off-chain. Bitcoin ETFs are listed on the New York Stock Exchange (NYSE) and the Hong Kong Stock Exchange (HKEX), and investors can invest in and buy and sell them in the same way that stock trading works. Bitcoin itself exists on-chain, while Bitcoin ETFs exist off-chain. Therefore, in this process, the transformation of On-Chain and Off-Chain is involved, as well as the interaction between digital twins and digital natives.

In the practice of distributed ledger technology over the past decade, if we regard it as a social engineering experiment, we can observe the changes within it and gradually prove the value of these technologies.

(2) As a new financial market infrastructure

Since 2009, financial market infrastructure has undergone significant changes based on distributed ledger technology, which has resulted from the transformation brought about by distributed accounting methods. Financial market infrastructure mainly includes a series of mechanisms such as payment, trading, clearing, and settlement. So what is new about the new mechanisms compared to the old ones? What characteristics do the old and new mechanisms have respectively?

Currently, the financial infrastructure assets we rely on adopt a centralized registration, centralized custody, central counterparty trading, and centralized settlement model, which requires the collaboration of at least three institutions to complete the clearing and settlement of a transaction. However, on a distributed ledger, since all participants are recording on the same ledger, the trading model shifts to a peer-to-peer transaction, allowing any two individuals to complete a transaction directly without the need for intermediaries.

The settlement model of existing financial market infrastructures is netting, while the settlement mode on distributed ledgers is transaction-by-tick. In other words, once the transaction is confirmed, the settlement is completed and the money is settled. From the perspective of the stock market, the New York Stock Exchange will launch a 5×23-hour trading model at the end of this year, setting aside one hour for clearing after the end of trading hours; The Nasdaq will launch a 5×24-hour trading model in the future, however, the Nasdaq will not be able to achieve this goal within this year because under the old financial infrastructure, the trading process must be suspended for a period of time for liquidation. In contrast, Hong Kong's virtual currency exchanges have enabled 24×7 trading without holidays, precisely because of the different types of ledgers, which leads to different financial market infrastructures. This is also one of the backgrounds of stablecoins, which are built on top of new financial market infrastructures.

2. Asset Tokenization (RWA)

(1) What is asset tokenization

In the author's view, asset tokenization actually originated from USDT, referring to the process of bringing real-world assets on-chain and tokenizing them through blockchain technology. Its development has gone through three stages:

The first stage was the emergence of USDT, which occurred in 2015. The ten years of practice and social experiments from 2015 to the present demonstrate that the tokenization of fiat currency holds immense value, not only in the realm of payment settlement but also reflected in other areas, which will be elaborated on later. Against this backdrop, countries began legislating to regulate and further promote it under licensing and regulatory frameworks. According to various statistics from 2024, the trading volume based on USD stablecoins is at least $16 trillion, with higher statistics reaching $28 trillion. Whether it is $16 trillion or $28 trillion, this indicates that the application of stablecoins based on distributed ledgers and blockchain has become a "killer application" widely used. Its largest user base consists of unbanked individuals in Africa who use USDT and USDC for cross-border payments.

The second phase began last year, with firms like BlackRock and Fidelity launching tokenized fund products in the U.S., such as U.S. Treasury bond funds and dollar currency asset funds. These funds have been tokenized and put on the blockchain, initiating the process of tokenizing financial assets.

The third stage is the tokenization of physical assets, which means tokenizing physical assets such as real estate and hotel assets. This stage is still in the exploratory phase and may gradually advance starting this year. Currently, there are already tokenization practices of physical assets with a scale of several billion dollars.

The three stages are arranged in order from easy to difficult. Tokenization of fiat currencies is relatively easy because it does not require reliance on other means for credit endorsement. Fiat currencies such as the US dollar and the Chinese yuan are backed by national laws, so the market has a high degree of trust in them, and the tokenization process is relatively simple. Tokenization of financial assets is comparatively more complex, but it is still easier than tokenization of physical assets because its issuers and custodians are usually regulated licensed financial institutions, and the custody is mainly in banks. People trust these licensed financial institutions, which are subject to strict financial regulation, and therefore are more receptive to their tokenization.

The biggest difference before and after tokenization is that once an asset is minted into a token on the blockchain, it is detached from the banking system, leaving both the bank account system and the SWIFT system, transforming into a decentralized form. Therefore, whether a token exists on the blockchain and whether it exists permanently needs to be guaranteed by strictly regulated financial institutions (custodian banks). Tokens are generated based on instructions issued by the custodian bank; for example, after the custodian bank confirms receipt of $100,000 from a client, it mints a token worth $100,000 (such as a US dollar stablecoin). Such instructions are only recognized if issued by the custodian bank, so this process is relatively straightforward.

However, there is currently no mature solution for the tokenization of physical assets. The main issues lie in how to put information on the chain, establish rights, and ensure a strong binding between the on-chain information and the off-chain physical assets, as the two can easily become decoupled. For example, for real estate, it is necessary to put property information on the chain, which requires the cooperation of multiple parties, such as the housing authority and other relevant departments, but this problem has not yet been well resolved.

In the blockchain industry, although there is a potential solution, it is currently not mature, called DePin (Decentralized Physical Infrastructure Network). Theoretically, each block can collect data onto the chain, thereby ensuring the real existence of assets and verifying them on-chain. For example, charging stations can install blockchain communication modules to directly upload data such as usage duration, charging amount, and income to the chain through this module. However, this path currently lacks technological maturity and has high costs, so the tokenization of physical assets is relatively rare. It is expected to develop starting in 2025.

(2) The Significance of Asset Tokenization

Some viewpoints point out why tokenization is necessary and what is special about it compared to traditional currencies such as the Renminbi or US dollar. The necessity of tokenization lies in:

1. Increase the liquidity of assets globally

When assets are minted as tokens on a public chain, global investors can easily access them, thereby granting the asset global liquidity. This is equivalent to incorporating it into a global liquidity pool. For example, purchasing stocks on the Hong Kong Stock Exchange is a complex process for Brazilian investors, requiring them to open an account in Hong Kong and exchange their currency for Hong Kong dollars before they can trade. However, on the blockchain, these cumbersome procedures are eliminated because it removes traditional mechanisms such as central registration and central custody, enabling peer-to-peer transactions. Investors can independently search for information and decide whether to purchase. This greatly enhances the accessibility and convenience of trading assets.

2. New Clearing and Settlement Model

Tokenization has brought about a peer-to-peer clearing and settlement model, with fewer links, higher efficiency, and lower costs. Preliminary statistics show that the turnover of funds in traditional banks is about 7 to 8 times a year, while in decentralized finance (DeFi) collateralized lending, the turnover can reach 67 times a year, nearly 10 times that of traditional banks. The fastest case of completing a loan on the blockchain is 10 seconds, including lending, repayment, and interest settlement, and this model is called "flash loans." "Flash loans" are realized through over-collateralization of assets rather than leveraged lending, and the interest for USDT on-chain lending is 8%. This high interest comes from the significant increase in the frequency of fund turnover, rather than through leveraged amplification of returns. Therefore, tokenization not only improves the efficiency of fund turnover but also reduces risk without the use of leverage.

3. Programmability

Traditional currencies (such as the renminbi and US dollar) are non-programmable, while tokenized currencies can be programmed through smart contracts. This feature has been widely applied in settlement and default handling within smart contracts, significantly improving efficiency. For example, in on-chain lending, once a default condition is triggered, the smart contract automatically executes the liquidation without the need for accountants, banks, or courts to intervene. This process can be completed in just a few seconds, whereas handling defaults in traditional financial markets requires numerous intermediaries and takes much longer.

4. The AGI Era Facing the Future

With the arrival of the era of Artificial General Intelligence (AGI), machines will create economic value independently of humans, and payments and settlements will also need to occur between machines. In this case, transactions between machines cannot rely on traditional payment methods and must be completed through smart contracts and programmable currency for payments, clearing, and settlement. If fiat currency wishes to maintain its importance and value in the AGI era, it must possess programmability. Therefore, tokenization is not only a necessity for current financial innovation but also an inevitable choice for future technological development.

3. The Monetary Attributes of Stablecoins

The attributes of currency have undergone three iterations: First, early currencies had natural attributes, whether shells, gold, silver, or copper, all derived from nature, with people bestowing currency attributes upon them. Second, with the emergence of sovereign states, legal tender such as the Renminbi, US Dollar, and British Pound were born, marking a stage where currency possessed legal attributes. Third, the advent of digital currencies like Bitcoin introduced technical attributes to currency, based on digital technologies such as cryptography, distributed ledgers, digital wallets, and smart contracts, achieving global consensus. Based on this consensus, the total market value of Bitcoin has reached over two trillion US dollars.

Stablecoins have dual properties: on one hand, fiat currency is a type of money that is given value by law and is used by people. On the other hand, when fiat currency is converted into stablecoins, it possesses technical attributes, operating on a distributed ledger and relying on technologies such as cryptography, distributed ledger, digital wallets, or smart contracts during issuance, minting, and operation. From this perspective, stablecoins can be seen as the tokenization of fiat currency and are considered a superior form of money created by humanity so far.

From the perspective of currency attributes, stablecoins have functions such as payment and settlement. In addition, stablecoins not only possess technical attributes like programmability, but they also serve as a currency that transcends time and space. Once currency is converted into stablecoins and operates on the blockchain, it overcomes spatial limitations and jurisdictional restrictions. For example, in Africa, where over 60% of the population does not have a bank account and cannot access currencies like the US dollar through banks, mobile wallets enable convenient purchases of US dollar stablecoins on the blockchain. Thirdly, stablecoins are highly liquid currencies, with their circulation on the blockchain constrained by smart contracts, resulting in higher efficiency than traditional currency circulation. Fourthly, they are democratized currencies. Specifically:

(1) Discussion of Stablecoins from the Perspective of Reserve Assets

Stablecoins are the same as money market funds in terms of asset reserve management. The stablecoin issuer receives the customer's USD and deposits it with the custodian bank, which issues instructions to the issuer, such as receiving $100,000 from someone, and the issuer then mints $100,000 of stablecoin for them on-chain. The underlying asset of the stablecoin is fiat currency, but the fiat currency is not directly circulated, but circulated through tokens, and its management method is the same as that of money market funds. There are concerns about whether this involves money creation, but there is no money creation in reality. Because the fiat currency is only deposited in place, the issued currency has no leverage and no currency storage, so the disturbance to financial stability is relatively small. Stablecoins only circulate at high speed across time and space in the form of tokens, replacing leverage. The reason why there is no currency storage is because it improves the efficiency of capital turnover, for example, "flash loans" can be lent and repaid in less than 10 seconds.

From the perspective of reserve assets, stablecoins actually solve the "last mile" problem of financial inclusion. Financial inclusion requires easy access to financial services, and without a financial account, financial inclusion is impossible. Stablecoins are widely adopted in Africa, albeit in modest amounts. In Kenya, for example, 60% of the population does not have a bank account, so the development of mobile number-based payment methods has become a classic case of financial inclusion. Now, through mobile wallets, Kenyans can not only send text messages to telecom operators to complete payments, receive or payments, but also obtain US dollar stablecoins more conveniently on-chain through digital wallets, which is more convenient than bank account systems.

(2) Analysis of Stablecoins from the Perspective of Facilitating Cross-Border Payments

After acquiring USD stablecoins, holders gain cross-border payment capabilities, which is a significant advancement for inclusive finance and greatly increases access to financial services. As a result, people in Africa without bank accounts can access global payments through mobile wallets, making Chinese cross-border e-commerce the biggest beneficiary. Research in Yiwu found that local exporters have started accepting USD stablecoins. Merchants engaged in international trade in Chinese cross-border e-commerce receive customer payments in USD stablecoins but need to return for currency exchange. However, they cannot directly exchange USD stablecoins; they must convert them into USD at the Hong Kong Stock Exchange before returning to their bank accounts to proceed with the currency exchange. From a practical business perspective, this addresses the 'last mile' issue of inclusive finance.

At present, a new model of C to B has emerged in China's cross-border trade and international trade, that is, global C-end users directly place orders and purchases on China's Internet e-commerce platform, and Chinese merchants no longer transport goods through containers, but in the form of parcels. Compared with the traditional B to B To C container trade, C to B parcel trade urgently needs a faster payment method. If the payment takes 7 days to arrive, the merchant will have to wait for the payment to be collected, and the parcel trade cycle will be extended to two or even three weeks if the traditional payment method is used. If the US dollar stablecoin is used, when the C-end customer makes a payment to the Chinese Internet platform, the payment is fast and the cost is very low. In this context, cross-border e-commerce has become the biggest beneficiary of stablecoins, and China's cross-border e-commerce has benefited a lot. Although China does not currently recognize such payment methods, Chinese have benefited greatly from them, providing a powerful boost to cross-border trade facilitation.

Four, US Dollar stablecoin

Further focusing on the US dollar stablecoin, its fundamental goal is not to assist in the sale of US Treasury bonds or to increase US Treasury buyers, but to maintain the US dollar's dominance as a global mainstream currency. It can be regarded as a legacy and development from gold-backed dollars, oil-backed dollars to tokenized or digital dollars. Observations indicate that last year, approximately ten to twenty trillion dollars in transaction and payment volumes have already departed from the banking system. Once a stablecoin is minted, it becomes unrelated to banks; customers holding stablecoins no longer depend on the banking account system and do not need to rely on SWIFT. Currently, the transaction volume has reached nearly twenty trillion dollars. Although from a pure payment perspective, it is less than one hundred billion dollars, when combining transactions and payments, the scale is around twenty trillion dollars.

Given that the US dollar stablecoin has bypassed SWIFT, this poses a significant blow to American financial power, yet this trend is driven by technology and is unstoppable. The US may ultimately have to accept a compromise, allowing for the bypass of SWIFT while striving to maintain the dollar's status. In this context, out of the $20 trillion stablecoin trading last year, 99.99% was in US dollars, simply because other countries have not issued their own stablecoins, resulting in the US dominating this market.

Currently, the U.S. government expects to pass the stablecoin bill before Congress adjourns in August. At this stage, there are two types of USD stablecoins, which are divided into two types: onshore and offshore. As of May 2025, the total amount minted will reach $250 billion. The first is USDC, which is issued by Circle, a US fintech company, and Coinbase, a mainstream cryptocurrency exchange, and is an onshore USD stablecoin favored by US users. The second is USDT, which is issued by Tether, a company registered in El Salvador and has no branches in the United States. However, as a US dollar stablecoin, its reserve asset management is the same as that of a monetary asset fund, which requires the purchase of a large number of US short-term Treasury bonds, US dollar deposits and cash, and the relevant operations are completed by US institutions, so it can be regarded as an offshore US dollar stablecoin.

Hong Kong's "Stablecoin Regulation" also distinguishes the Hong Kong dollar stablecoin into onshore and offshore categories. Hong Kong dollar stablecoins approved by the Hong Kong Monetary Authority can be used by individual retail investors locally in Hong Kong. However, Hong Kong dollar stablecoins issued outside of Hong Kong, if recognized to a certain extent by Hong Kong regulatory authorities, can be used in Hong Kong but are limited to qualified investors, with retail investors excluded. The same applies to relevant regulations in the United States. As for why USDT chose El Salvador as its registration location, the reason lies in the fact that the legal tender of El Salvador is already the US dollar. The country does not have its own legal tender, and the legislation has designated the US dollar as the legal currency, so there are no legal obstacles to conducting US dollar stablecoin-related business in El Salvador.

The Significance of Stablecoins for China

(1) Impact and Response

The impact of stablecoins on China is multidimensional at the monetary level. On the one hand, the form of currency continues to evolve over time. When the technological attributes are integrated with legal attributes to empower currency, the competitiveness of that currency will be significantly enhanced. In the landscape of currency competition among nations, superior currencies will inevitably have a strong competitive advantage over those with relatively weaker competitiveness.

On the other hand, the process of currency globalization is accelerating. In 2024, the global stablecoin trading volume is expected to reach 20 trillion USD, with the vast majority of transactions denominated in US dollars. This public ledger-based currency circulation model provides a more efficient and cost-effective way for currency internationalization.

In addition, the global currency landscape is gradually shifting towards a multipolar direction. In this process, countries need to actively consider how to enhance the competitiveness of their own currencies and explore the possibilities of creating higher-quality currencies through means such as technological empowerment.

The facilitation of currency is also an important aspect that cannot be ignored. The key reason why stablecoins are widely used in Africa lies in their ease of access and payment, as there is no need to meet bank account opening conditions; global peer-to-peer payments can be achieved simply through mobile wallets, greatly enhancing the accessibility and efficiency of payments.

In view of the many effects brought by stablecoins, China is at a stage that requires active response. Relevant work can be promoted in phases and layers. First, Hong Kong can be considered as a "testing ground" to carry out related pilot projects for offshore RMB stablecoins. For example, support Hong Kong in conjunction with mainland free trade zones, such as Hainan Free Trade Zone, Guangdong-Hong Kong-Macao Greater Bay Area, Shanghai Free Trade Zone, etc. Especially, the FTN accounts in the Shanghai Free Trade Zone have unique advantages, as their financial policies are relatively more convenient and complete, allowing for the combination of these policies with stablecoin pilot projects, starting with offshore RMB stablecoins for exploration. By accumulating experience through pilots, a foundation can be laid for broader promotion within the domestic market.

(2) The Collaborative Mechanism with Central Bank Digital Currency (CBDC)

If the RMB stablecoin is officially launched in the future, it is necessary to consider the synergy mechanism between it and the central bank's CBDC. One possible option is to build a two-tier architecture, where the central bank opens accounts directly for stablecoin issuers. The stablecoin issuer deposits the customer's fiat currency into the account after receiving it, and the central bank issues CBDC to it accordingly, and the issuer then uses the CBDC to mint stablecoins on the blockchain for customers to use globally. Of course, this idea needs to be further explored and refined, but its core lies in exploring the organic combination of the central bank's CBDC research results and the stablecoin architecture.

The positioning of central bank CBDC and commercial institution stablecoins each has its focus, and the two complement each other. Central bank CBDC emphasizes centralized issuance to ensure monetary sovereignty and financial stability; while commercial institution stablecoins achieve decentralized circulation relying on blockchain technology after leaving the banking system, breaking through national and judicial regional limitations for free circulation. In this model, the first half is led by the central bank's issuance, and the second half is driven by commercial institutions to promote market circulation, fully leveraging their respective advantages to jointly promote the innovative development of the monetary system.

(3) Understanding "Decentralization"

The concept of decentralization can be understood from multiple perspectives: firstly, from an economic standpoint, decentralization is essentially a trade-off between fairness and efficiency. If the emphasis is on fairness, decentralization is necessary to avoid excessive concentration of power in a single entity. Conversely, if the pursuit is for efficiency, centralized decision-making is favored. Therefore, the degree of decentralization is closely related to the emphasis on fairness and efficiency. Ideally, a balance needs to be struck between the two.

Secondly, from the perspective of the technical protocol layer, decentralization is an inherent requirement of the underlying technology and cannot be achieved at the application layer. The application layer must consider various factors such as user convenience and functional completeness, making it difficult to achieve decentralization. However, the underlying protocol must be decentralized. Taking blockchain protocols as an example, they possess characteristics such as being open source, permissionless, and free, which are similar to IP protocols, UDP protocols, HTTP protocols, etc., in the Internet. These protocols do not require permission from any entity and are universally applicable, exhibiting typical decentralized characteristics. It is precisely this decentralization feature that enables the Internet and blockchain technology to achieve widespread interconnection and interoperability on a global scale.

Third, in the field of data privacy protection, decentralization means that individuals have sovereignty over their own data. From the perspective of data privacy protection, the underlying protocol is required to be decentralized to protect the rights of personal data. However, in the context of global interconnection, if there are multiple different underlying protocols on the Internet, it will lead to problems in interconnection. Due to the need to produce huge social benefits, the application layer must be regulated, and the negative externalities must be eliminated and the positive externalities enhanced through regulation. Therefore, it is an inevitable requirement for the application layer to present the characteristics of centralization.

Source: Xiao Feng