Author: Zhang Weijian
Introduction: The Millennium Leap of Currency Form
The history of currency is a history of mankind's eternal pursuit and game of "efficiency" and "trust". From the Neolithic Age's coin, which established a consensus on value with its natural scarcity, to the bronze coins (such as the bronze coin) in the Shang and Zhou dynasties, which embedded the imprint of power into the currency form; from the Qin and Han Dynasty's half-liang coins with round square holes to unify the currency system, to the Tang and Song Dynasty's Jiaozi coins that broke through the circulation shackles of metal currency with mulberry paper - every transition in form is a resonance of technological breakthroughs and institutional innovations.
When the Jiaozi in the Northern Song Dynasty replaced iron coins with paper and solved the circulation dilemma of "a thousand-wen coins weighing a hundred taels", it was not only an innovation in materials, but also the prototype of credit currency: Jiaozi jointly issued by wealthy merchants established a credit anchor through "a thousand boxes of copper coins in reserve". The monetization of silver in the Ming and Qing Dynasties shifted trust from paper contracts to precious metals. After the collapse of the Bretton Woods system in the 20th century, the US dollar reconstructed global hegemony as a pure credit currency: the value of the US dollar, which was decoupled from gold, no longer relied on physical precious metals, but was tied to US Treasury bonds and military hegemony. This "credit hollowing out" model completely shifted monetary power from physical anchors to national credit. While Bitcoin is tearing apart the traditional financial system with an average daily volatility of over 10%, the rise of stablecoins marks a paradigm revolution in the trust mechanism: the "1:1 USD anchor" claimed by USDT is essentially replacing sovereign credit with algorithmic code, compressing trust into mathematical certainty. This new form of "code is credit" is rewriting the logic of the distribution of monetary power - from the seigniorage privilege of sovereign states to the consensus monopoly of algorithm developers.
Every transformation of the currency form is reshaping the power structure: the trust reliance of barter in the Bitcoin era, the centralized endorsement in the metal currency era, the national credit enforcement in the paper currency era, and the distributed consensus in the digital currency era. When USDT was denounced as a "digital Ponzi scheme" due to reserve disputes, and when the SWIFT system became a cold tool for financial sanctions due to political games, the rise of stablecoins has long surpassed the scope of "payment tools". It is not only a leap in payment efficiency, but also the prelude to the quiet transfer of monetary power from sovereign states to algorithms and consensus: in this digital age where trust is fragile, code is becoming a credit anchor that is harder than gold with mathematical certainty. Stablecoins will eventually push this millennium game to the end: when code begins to write the monetary constitution, trust is no longer a scarce resource, but a programmable, divisible, and gameable digital power.
Chapter 1 Origin and Germination (2014-2017): The “Dollar Substitute” in the Crypto World
In 2008, Satoshi Nakamoto published the Bitcoin White Paper, proposing a decentralized digital currency concept based on blockchain technology. On January 3, 2009, the first Bitcoin block (Genesis Block) was mined, marking the official birth of Bitcoin. In the early days, Bitcoin transactions relied entirely on peer-to-peer (P2P) networks, and users exchanged keys directly through local wallets to complete transfers, but lacked standardized pricing and liquidity.
In July 2010, the world's first Bitcoin exchange, Mt.Gox, was established, and users could purchase Bitcoin through bank transfers for the first time. However, the transaction efficiency at this stage was extremely low: bank transfers took 3-5 working days to arrive, the handling fee was as high as 5%-10%, and there were exchange rate losses between different countries. For example, if an American user wanted to buy $1,000 worth of Bitcoin, he had to first remit money to Mt.Gox's offshore account and wait for the bank to clear the Bitcoin before he could get it. The whole process could take more than a week. This inefficient payment system severely restricted the circulation of Bitcoin, trapping it in the "small circle" of technology geeks and early enthusiasts for a long time. And due to lack of supervision and hacker attacks, it declared bankruptcy in February 2014, which was called the "Mentougou" incident. Since 2022, compliant exchanges around the world have begun to emerge. Compliance digital asset exchanges represented by Coinbase in the United States and Hashkey in Hong Kong have begun to provide compliant and secure trading services to global customers.
By 2014, the market value of Bitcoin had exceeded 10 billion US dollars, but the shackles of traditional bank transfers have not been lifted. When users were waiting for Bitcoin to arrive at Mt.Gox, Tether (USDT) came out with the promise of "1:1 anchoring to the US dollar" - it was like a sharp surgical knife, cutting through the barriers between legal currency and cryptocurrency, becoming the first "legal currency substitute" in the crypto world. Tether (USDT) is a stablecoin launched by Tether in 2014. It was originally called "Realcoin" and was founded by Brock Pierce, Reeve Collins and Craig Sellars in Santa Monica, and the first batch of tokens were issued through the Omni Layer protocol of the Bitcoin blockchain. In November of the same year, it was renamed Tether, claiming that for every USDT issued, it would reserve an equivalent amount of USD assets, aiming to provide a price-stable cryptocurrency trading medium. Its parent company, Hong Kong iFinex, also operates the cryptocurrency exchange Bitfinex, a connection that has caused controversy. Early academic research questioned the correlation between Tether issuance and Bitcoin price manipulation (such as Griffin and Shams pointed out that when the market went down, USDT issuance was accompanied by BTC price increases), but subsequent research denied the direct causal relationship and believed that it was a normal market response to liquidity news. After years of development, Tether has expanded to multiple blockchains (such as Ethereum, TRON, etc.) and supports multiple fiat-pegged versions. As of June 2025, the total circulation will exceed US$150 billion, but its reserve transparency and compliance continue to face regulatory scrutiny and market doubts.
USDC (USDCoin) is a US dollar stablecoin launched in September 2018 by Centre Consortium, a joint venture between Circle and Coinbase, a US financial technology company. It was initially anchored to the US dollar at a 1:1 ratio and issued based on the Ethereum ERC-20 protocol. Its original design was to provide a transparent and compliant fiat currency anchoring tool for the cryptocurrency market. In the early days, it gradually expanded its influence through the Coinbase exchange and Circle's payment network. In March 2021, Visa announced support for USDC as a settlement currency, marking its official entry into the mainstream financial payment system. In September of the same year, USDC announced that its reserve assets would be fully shifted to highly liquid legal instruments such as cash and short-term US Treasury bonds, completely divesting itself from the cryptocurrency mortgage model and strengthening the credibility of its "full fiat currency reserves." As of January 2022, USDC's circulation volume reached 45.2 billion US dollars, surpassing USDT to become the world's largest stablecoin. After the collapse of FTX in 2023, the proportion of cash in USDC reserves increased from 80% in 2022 to 93% in 2024 to enhance market confidence. On the technical level, USDC has gradually expanded to multi-chain ecosystems such as Algorand and Solana, and strengthened its compliance layout through measures such as the acquisition of Paxos. Although it was questioned due to the brief decoupling incident in 2023, its close cooperation with regulators (such as the US SEC review found no major violations) still makes it a representative of institutional-level stablecoins, and continues to promote the integration of the crypto economy and traditional finance. Circle went public on June 5, 2025, and has risen six times in ten days.
By 2017, USDT, with its advantage of seamlessly connecting traditional finance and the crypto ecosystem, quickly occupied 90% of the trading pairs on exchanges, and its market value surged from one million US dollars to two billion US dollars. It has spawned a carnival of cross-platform arbitrage: traders shuttle between Binance and Huobi, using USDT's second-level settlement to complete dozens of spread transactions per day, which is a hundred times more efficient than the SWIFT system; it has built a liquidity bridge: in 2017, USDT's on-chain transaction volume exceeded 100 billion US dollars, accounting for 40% of Bitcoin's transaction volume, and even attracted Standard Chartered Bank to complete the first cryptocurrency wage payment for an African mining company through USDT; it has become the "digital gold" of countries with hyperinflation: in Argentina, the black market USDT premium rate once reached 30%, and the public regarded it as a "back line" against the depreciation of the local currency. But beneath the surface of prosperity, cracks in trust are quietly spreading.
USDT's "1:1 anchoring" has always been shrouded in black box suspicion: in 2015, Bitfinex had 1,500 BTC stolen by hackers, and in 2016, another 120,000 BTC was stolen. Since Bitfinex and USDT are both managed and operated by its parent company iFinex Inc, it is generally believed that Bitfinex and USDT are sister companies; in 2018, Tether disclosed its reserve assets for the first time, with cash accounting for 74%. In the controversial incident in 2021, the cash ratio dropped sharply to 2.9%, and the rest were commercial bills and reverse repurchase agreements, which aroused market doubts about its solvency. What’s more dangerous is that its anonymity has turned it into the “golden channel” of the dark web: in 2016, the USDT transaction volume seized from Silk Road 2.0 reached 42 million US dollars, accounting for 1.2% of its circulation; in 2017, the US SEC investigation showed that at least 12% of exchange OTC transactions involved money laundering - stablecoins have become an “invisible channel” for the flow of criminal funds.
The root cause of this trust crisis is the deep contradiction between "efficiency first" and "trust rigidity": the coded "1:1 commitment" attempts to replace sovereign credit with mathematical certainty, but falls into a "trust paradox" due to centralized custody and opaque operations. When users discover that USDT's reserves are actually stored in Deutsche Bank's offshore branch and can be used at will by the issuer, its claimed "rigid redemption" instantly becomes a digital illusion. This foreshadows the ultimate proposition that stablecoins must answer in the future: How to find a balance between the ideal of decentralization and the actual financial rules?
Chapter 2 Wild Growth and Trust Crisis (2018-2022): Dark Web, Terrorism and Algorithm Collapse
When Bitcoin was born in 2009 with the ideal of decentralization, no one could foresee how it would transform into the "black gold" of the digital age. The anonymity and cross-border liquidity of early cryptocurrencies were originally utopian experiments to combat financial censorship, but gradually became a "digital Swiss bank" for criminals. The dark web market was the first to smell the business opportunity: Silk Road 2.0 used Bitcoin to trade drugs and arms, and Monero became the preferred payment tool for ransomware due to its completely anonymous nature. By 2018, cryptocurrency crimes had formed a complete industry chain - hacking, money laundering, kidnapping and extortion formed a closed loop, and the annual amount involved exceeded US$100 billion.
Stablecoins have been transformed from "payment tools" in the crypto world to carriers of "dark finance", and the rapid advancement of the efficiency revolution and the abyss of trust collapse have come at the same time. After 2018, the anonymity and cross-border liquidity of stablecoins such as USDT have made it a "golden channel" for criminal activities: in 2019, the US Department of Justice accused the North Korean hacker organization Lazarus of laundering more than $100 million through USDT, and the funds were hidden between Philippine casinos and Dubai virtual currency exchanges; in 2020, Europol cracked a cross-border fund case in which ISIS used stablecoins to raise $500,000, and the funds were completed through the TornadoCash mixer. The whole process of "laundering-transfer-deployment" was completed. These incidents forced FATF to issue the "Risk-Based Approach Guidance for Virtual Assets and Virtual Asset Providers" in 2021, requiring virtual asset providers to implement KYC and AML reviews. However, the lag in supervision has instead spawned more complex circumvention methods - criminal gangs took advantage of loopholes in virtual asset service provider licenses and concealed funds through the three-step process of "stablecoin-mixer privacy coin".
The rise and fall of algorithmic stablecoins has pushed the trust crisis to a climax. In May 2022, Terra Ecosystem's UST was decoupled due to a liquidity crisis, and its collapse mechanism can be described as a "perfect storm": through high-interest pledges (20% annualized), users were attracted to pledge Luna to mint UST. When market panic triggered a sell-off, the algorithm forced the burning of Luna to maintain the anchor, but due to excessive selling pressure, Luna was issued indefinitely. The collapse of UST caused a market value of about US$18.7 billion to return to zero, and institutions such as 3AC and Celsius collapsed, and the market value of the DeFi market shrank by 30% in a single week. This disaster exposed the fatal flaw of algorithmic stablecoins - the stability of their value depends entirely on the fragile balance between market confidence and code logic. When the panic index breaks through the critical point, the mathematical model instantly becomes a "death countdown."
The trust crisis of centralized stablecoins stems from the "backroom operations" of financial infrastructure. When Tether disclosed its reserve assets in 2021, insufficient cash reserves caused the market to question its solvency; in the 2023 Silicon Valley Bank bankruptcy, USDC's price once fell to $0.87 due to the freezing of $5.3 billion in reserves, revealing the deep binding risks of the traditional financial system and the crypto ecosystem. These events forced the industry to re-examine the nature of trust: when users discovered that USDT's reserves were actually stored in Deutsche Bank's offshore branch and could be used at will by the issuer, its claimed "1:1 rigid redemption" instantly became a digital illusion.
Faced with a systemic trust crisis, the stablecoin industry has launched self-rescue through over-collateralization defense and transparency revolution: DAI has built a multi-asset collateral system (ETH, WBTC, etc.), anchored the collateral rate threshold at 150%, and resolved more than US$20 billion in risks through a smart contract liquidation mechanism during the Luna collapse in 2022. Its market value has increased by 60% against the trend, verifying the resilience of the decentralized collateral model; USDC has implemented a "glass box" strategy, publishing a reserve report audited by Bank of New York Mellon every month (the proportion of cash will increase from 52% in 2021 to 80% in 2023), and using blockchain browsers to achieve real-time tracking of reserve flows, becoming the first choice for institutional funds to hedge risks during the SVB crisis, with a market value of over US$50 billion. The essence of this self-rescue movement is the transformation of cryptocurrency from the utopia of "code is credit" to the compromise of the traditional financial regulatory framework. When 72% of DAI's collateral assets rely on centralized custody and USDC accepts the Federal Reserve's "window guidance" on U.S. Treasury reserves, the contradiction between technological idealism and institutional realism is highlighted: algorithmic stablecoins have triggered a death spiral due to market panic (such as UST's market value evaporated by 40 billion U.S. dollars), exposing the fragile balance between mathematical models and financial reality; and the new regulatory paradigm and the coding of sovereign credit predict that the future of stablecoins may evolve into a symbiotic game between "regulatory-compatible technology" and "censorship-resistant protocols", finding a new balance between quantum entanglement-like regulatory certainty (wave function collapse) and innovation uncertainty (superposition state).
Chapter 3 Regulatory Incorporation and Sovereignty Game (2023-2025): Global Legislative Competition
On June 17, 2025, the U.S. Senate passed the Guidance and Establishment of a United States Stablecoin National Innovation Act (GENIUS Act) with 68 votes, requiring stablecoins to be anchored to U.S. dollar assets and included in the regulatory framework of the Federal Reserve; just two days later, the Hong Kong Legislative Council passed the Stablecoin Ordinance in the third reading, becoming the world's first jurisdiction to implement full-chain supervision of legal currency stablecoins. The essence of this competition is the ultimate contest between sovereign states for currency pricing power and control of payment infrastructure in the digital financial era.
The US GENIUS Act (US Stablecoin Innovation Guidelines and Establishment Act of 2025) was passed by the Senate on June 17, 2025 with 68 votes to 30, becoming the first federal-level stablecoin regulatory framework in the United States, marking the formal inclusion of stablecoins into the national financial regulatory system. The bill requires that stablecoin issuers must be US-registered entities, and reserve assets must be matched 1:1 with highly liquid assets such as US dollar cash or short-term US Treasury bonds, and establish a dual-track regulatory mechanism: issuers with a market value of more than US$10 billion must be subject to federal supervision (Federal Reserve/OCC), and those below this threshold can choose state-level supervision. The bill clarifies that stablecoins are not securities or commodities, exempting them from the traditional financial regulatory framework, while strengthening anti-money laundering (AML), consumer protection and bankruptcy liquidation priority, and stipulating that the rights of coin holders take precedence over other creditors. Its core significance is to consolidate the digital hegemony of the US dollar through a compliant path, attract global stablecoin resources to flow into the US market, promote institutional funds to enter the market, and provide legal certainty for innovative fields such as DeFi. However, it also faces challenges such as state and federal regulatory coordination and the absence of algorithmic stablecoin supervision. The bill will be reviewed by the House of Representatives and signed by the President before it can take effect. It is expected to enter the full implementation stage in 2026.
The EU Crypto-Asset Market Regulation Act (MiCA) will officially take effect on December 30, 2024, covering 27 EU countries and three European Economic Area countries such as Norway and Iceland. It is the world's first framework regulation for systematic regulation of crypto assets. The Act divides crypto assets into electronic money tokens (EMT), asset reference tokens (ART) and utility tokens (UTs) through a classified regulatory model. MiCA requires stablecoin issuers to hold at least 1:1 legal currency or highly liquid assets (such as eurozone government bonds), and prohibits issuers from using user funds for high-risk investments. A dual-track regulatory mechanism at the EU level will be established: the European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA) are responsible for formulating technical standards, and member state regulators are responsible for specific implementation. The bill also strengthens consumer protection measures, including mandatory information disclosure, anti-money laundering compliance, and segregated custody of customer funds, and sets a transition period until July 2026, requiring countries to gradually complete domestic legislation. Its core significance is to promote compliance in the EU crypto market through a unified regulatory framework, enhance financial stability, and attract global compliant companies to settle in, but it also faces challenges such as vague supervision of decentralized finance (DeFi), innovation suppression, and cross-border enforcement coordination.
The Hong Kong Stablecoin Ordinance will come into effect on May 30, 2025, becoming the world's first systematic regulatory framework for fiat stablecoins. The Ordinance requires any stablecoin issuer that issues or claims to be anchored to the Hong Kong dollar in Hong Kong to apply for a license from the Financial Services Authority, with a minimum paid-in capital of HK$25 million, and must meet the requirements of high liquidity of reserve assets, segregated management, and redemption at par value. Reserve assets must be strictly separated from own assets and their value must match the face value of stablecoins in circulation in real time. The scope of supervision covers the issuance and promotion of Hong Kong dollar-anchored stablecoins in and outside Hong Kong, explicitly prohibits unlicensed institutions from selling stablecoins to retail investors, and strengthens compliance through anti-money laundering, KYC mechanisms and audit disclosures. Its core significance lies in establishing Hong Kong as the world's first jurisdiction to systematically regulate stablecoins, which not only prevents financial risks (such as bank runs and money laundering), but also provides legal certainty for innovation in digital financial infrastructure, helping Hong Kong consolidate its position as an international financial center and explore the development path of the RMB stablecoin.
In addition to the United States, Europe, and Hong Kong, other regions in the world have different paths for the regulation of stablecoins: Singapore has passed the Payment Services Act, requiring stablecoin issuers to meet 100% low-risk asset reserves, instant redemption, and anti-money laundering compliance, and allowing banks and non-bank institutions to participate; Japan has revised the Funds Settlement Act, limiting the issuer to a licensed bank or trust company, mandating custody of reserve assets, and prohibiting interest payments; South Korea and Australia are drafting a regulatory framework that focuses on consumer protection and transparency; China completely bans virtual currency transactions, but Hong Kong promotes compliant stablecoin pilots (such as JD.com HKD) through sandbox testing; Russia allows USDT to be used in cross-border trade to circumvent sanctions, but restricts domestic financial applications; Africa (such as Nigeria and Kenya) encourages the use of stablecoins for remittances and payments due to a shortage of US dollars, and has relaxed regulations to promote inclusive finance. Data from the Nigerian Paxful platform shows that USDT accounted for 85% of local cryptocurrency trading volume in 2024, mainly used for cross-border remittances (over US$20 billion per year); Latin America (Brazil and Argentina) explored the issuance of local stablecoins, and El Salvador listed USDC as legal tender to cope with inflation.
Comparative analysis of stablecoin regulations in various regions
The deepening of global stablecoin regulation is reshaping the financial system, and its profound impact is reflected in three aspects: First, the reconstruction of financial infrastructure - stablecoins achieve a leap in cross-border payment efficiency through blockchain technology, challenging the traditional settlement system represented by SWIFT; The second is the game of currency sovereignty - according to CoinGecko data, as of June 2025, US dollar stablecoins (USDT, USDC, etc.) account for 92.7% of the total market value of global stablecoins, but the EU and Hong Kong promote the issuance of non-US dollar stablecoins (such as Hong Kong dollar stablecoins), and emerging markets use stablecoins to cope with the shortage of US dollars, forming a binary structure of "US dollar dominance + regional compliance innovation"; third, financial system risk transmission - the full reserve requirement of stablecoins (such as USDC holding US$120 billion in US Treasury bonds) may increase the pressure on banks to shrink their balance sheets, and the risk of algorithmic stablecoins de-anchoring (such as the collapse of Terra) and the increased linkage with crypto market volatility (according to CoinMetrics statistics, the peak correlation between the Nasdaq 100 Index and Bitcoin prices in 2024 is 0.73 (data period: January-May 2024)), forcing regulators to seek a balance between innovation inclusion and systemic risk prevention and control. In the future, stablecoins may become an alternative infrastructure to CBDC, but their long-term impact on monetary sovereignty, financial stability, and geopolitics still needs to be observed dynamically.
Chapter 4: Present and Future: Deconstruction, Reconstruction and Redefinition
Looking back from the node of 2025, the ten-year history of stablecoins is an epic of technological breakthroughs, trust games and power reconstruction. From the "technical patch" that initially solved the liquidity dilemma of the crypto market to the "disruptor of the global financial order" that now shakes the status of sovereign currencies, it has always swung on the balance of efficiency and trust, and grown in the cracks between regulation and innovation.
Its rise is essentially a re-questioning of the "nature of money": when money evolves from the physical credit of metal coins to the sovereign credit of legal tender, and then to the code credit of stablecoins, the definition of value carriers is shifting from "reliable physical objects" to "verifiable rules". Every crisis and self-rescue of stablecoins is reshaping this rule - from the black box of centralized custody to the transparency of over-collateralization; from the hotbed of anonymity in the dark web to the regulatory adaptation of KYC/AML; from the fragile balance of algorithms to the resilience of multi-asset collateralization.
Its controversy reflects the deep contradictions in the digital age: the game between efficiency and security, the role of innovation and regulation, the ideal of globalization and the reality of sovereignty. When the US dollar stablecoin becomes the "liquidity engine" of the crypto market, when the Hong Kong stablecoin builds a "digital bridge" for cross-border trade, and when the collapse of the algorithmic stablecoin warns that "code is not a panacea" - stablecoins have become a mirror that reflects the infinite possibilities of digital finance and exposes mankind's eternal desire for trust and order.
Looking ahead, stablecoins may continue to evolve in the game of regulation and innovation, may become the cornerstone of the "new monetary system" in the digital economy era, or may usher in another reconstruction amid systemic risks. But no matter where it goes, it has profoundly rewritten the logic of monetary history: currency is no longer just a symbol of national credit, but also a symbiosis of technology, consensus and power. In this monetary revolution, we are both witnesses and participants. Stablecoins will eventually become an important beginning for mankind to explore a more efficient, fairer and more inclusive monetary order.
