Source: Wang Jian's Perspective
01 What is a Stablecoin
A stablecoin is a monetary system design that differs from legal digital currencies and cryptocurrencies. We used an awkward term "monetary system design" because we cannot yet determine if it truly qualifies as a currency.
A stablecoin mechanism is (referring to the Hong Kong model, with variations in other places):
issuer (sector) reserves real assets (domestic or foreign legal tender, or other credible financial assets like government bonds, precious metals, and can include cryptocurrencies), issuing a certain number of stablecoins with 100% backing of one or a group of real assets, which then trade on ledger.<>(1) The issuer is a private sector, not an official monetary authority (like a central bank)span p2is 100% real asset, which can be a single or multiple asset combination.
This approach ensures stablecoins areconot be over-issued, as, each stablecoin has a real asset reserve, and holders can redeem reserve assets from the issuer at any time. If the reserve reserve asset is legal tender,,, it can stcan guarantee the stablecoin's credit is basically consistent with legal tender.
Moreover, if the reserve assets are set as a combination of multiple assets, it can offset currency value fluctuations caused by significant volatility in any single asset.
Then, running on a distributed ledentralger, stststableoin enjoy various benefits of a decentralized system, such as limited anonymity (market participants cannot peek at others' transactions, but judicial judicial or regulatory authorities can under necessary procedures),, difficult to tamper with, and cannot "kick out" users (like some payment organizations). Additionally, peer-to-peer transactions on a distributed ledger are naturally cross-border, making it an inherent international payment settlement mechanism.
02 Characteristics of Stablecoins
The earliest stablecoin was USDT, launched by Tether in July 2014 and officially traded on exchanges in February 2015. Its backing was the US dollar and is currently the largest stablecoin globally.
USDT was initially designed because cryptocurrencies like Bitcoin were market favorites but had massive price volatility,ility clearly unable to perform monetary functions. Therefore, a currency pegged 1:1 to the US dollar was designed, running on a decentralized distributed ledger like a cryptocurrency.
It's clear that stablecoins were intended to bridge traditional and crypto finance.
Looking purely at the 1:::dollar, it more resembresembles a US dollar token, just integrated into a decentralized distributed ledger for convenient use. Later, USDT's became diversified, cryptocurrencies,, bonds. Its US dollar reserves include deposits and US bonds.
< ><><>At this point,, point and financial began accepting stablecoins, such as for trade payments. some international investors started using stasas an investment or savings tool, as as it corresponds to a nice basket of assets.
If a new thing truly has value and challenges regulation, the best response is to incorporate it into standardized regulation.. recent years, multiple countries and regions have begun formulating regulatory methods to normalize stablecoin operations.
03 The Future of Stablecoins
Now, multiple countries and and and regions are normalizing stablecoin regulation and launched their own stablecoin plans. Due to stableoin cross-attributes, nature various stableins will compete on the, vying for user adoption.
First, stablecoins for cross-border payment settlement challenge existing centralized payment methods. The most classic cross-border payment settlement is centralized, similar to "SWIFT + clearing institution", but suffers from high costs, low efficiency, and easy political intervention. The multi-lateral digital currency bridge (using central bank digital currencies) is a recently emerging decentralized solution, currently rapidly developing. Stablecoins represent a completely new approach, cross seemingly advantageous in many details, but pose significant regulatory to challenges many issues still needing resolution.
