Clarification of Stablecoin Regulation: Analysis of Investment Opportunities in the Second Wave

Stablecoins, as a type of digital asset pegged to fiat currency (typically the US dollar), are essentially a series of standardized smart contracts. They are neither the same as fiat currency nor equivalent to central bank digital currency (CBDC).

The Trump administration has a friendly attitude towards stablecoins, believing they help consolidate the global dominance of the US dollar. In contrast, they oppose CBDC, fearing it may strengthen government power and infringe on personal freedoms. The EU and China, on the other hand, have taken the opposite stance, supporting CBDCs but imposing stricter regulations on stablecoins.

The stablecoin regulatory framework being developed in the United States will promote the deep integration of stablecoin networks with the existing dollar system. This will trigger unprecedented fierce competition in the stablecoin sector, with some large financial institutions already starting to venture into this field.

Stablecoins are currently primarily used for value storage, transaction medium, and payment. These functions are basically derived from the fiat currency they are pegged to. However, the rapid confirmation and programmable features of stablecoins greatly enhance their efficiency in cross-border transactions and settlements compared to traditional SWIFT systems. In fact, the annual settlement amount of stablecoins is already twice that of the Visa payment network.

In the first wave of stablecoins (2018-2019), most projects focused too much on regulatory approval and the asset side, neglecting liquidity network effects and user experience, which led to the failure of most projects. In the upcoming second wave, with the US stablecoin regulatory framework about to be clarified, project teams will pay more attention to asset scale, liquidity network effects, and user experience.

In addition to stablecoin projects launched by some large financial institutions, a significant number of new stablecoin innovation projects are expected to emerge.

For ordinary investors, this wave primarily offers two types of investment opportunities: one is to participate in yield farming of decentralized CDP stablecoin protocols, and the other is to focus on stablecoin infrastructure projects. The latter is relatively more suitable for most investors.

Stablecoin infrastructure projects can be mainly divided into two categories: one category provides liquidity support, while the other develops new application scenarios for stablecoins. These projects play a significant role in supporting the development of the stablecoin ecosystem.