Original Title: "Dr. Xiao Feng Dialogue (Part 1): US Dollar Stablecoin Legislation is a Triumph of Technological Innovation, But the Impact Will Be Very Complex"
Original Author: Meng Yan
With the US Senate voting to advance the US Dollar Stablecoin Bill and the Hong Kong Legislative Council passing the Hong Kong Dollar Stablecoin Bill, stablecoins have quickly become the hottest topic in the industry, attracting broader attention. It is widely expected that with the enactment of the US Dollar Stablecoin Bill, the blockchain digital economy will usher in a very exciting eruption, and a new entrepreneurial window period will emerge around this US Dollar stablecoin and Real-World Assets (RWA). Dr. Xiao Feng is a leading figure in the Chinese blockchain research and practice, with a deep understanding of blockchain, stablecoins, and RWA. In order to fully grasp this era of opportunity, I had the privilege of engaging in a profound exchange with Dr. Xiao Feng via video conference and text, which I have organized and published for discussion with colleagues. Due to the length of the original text, it is divided into two parts for publication. The first part mainly interprets the significance of the US Dollar Stablecoin, while the second part focuses on the prospects of the stablecoin economy and the opportunities it brings to Chinese entrepreneurs through RWA. The views in the article are merely the author's opinions, and readers are welcome to discuss further.
Meng Yan: Dr. Xiao, recently, several of your speeches have caused quite a stir in the entire Chinese blockchain community, especially the speech aimed at blockchain entrepreneurs, titled "Back to Basics." The impact was very widespread. In this speech, you not only reiterated the value logic of blockchain but also clearly pointed out that this industry is entering a new cycle of eruption, and entrepreneurs need to return to their original intentions and set off again on the right path. This is my understanding of your speech.
The timing of your speech was indeed very precise. The US Congress passed a vote on the GENIUS Stablecoin Bill on May 19, followed by the Hong Kong Legislative Council passing the "Stablecoin Bill" proposal on May 21. A legislative competition on stablecoins has quietly begun. Currently, a new consensus is forming that the blockchain field is about to usher in a golden window of entrepreneurship and innovation, with its energy intensity likely to surpass even AI for a period of time. Now, many outsiders who have never been involved in blockchain and Web3 may have scorned it just last month, but have now adjusted their views and begun to focus on the opportunities in this field.
This situation has not come easily. I have been involved in this industry for ten years and I am quite emotional about it. Over the past few years, major countries around the world have taken a very cautious or even negative attitude towards this whole new set of technologies such as blockchain, crypto assets, Tokens, DeFi, and Web3, with tight regulation, and the mainstream media almost unanimously stigmatizing them. In the over two hundred years since the Industrial Revolution, I can't recall another example of treating an emerging technology in this way. But after all, a green hill cannot block the river from flowing; the day has finally come.
However, the sudden U-turn by the Trump administration in the United States still requires an explanation from the public. I have seen some self-media outlets interpreting this matter from a conspiracy theory perspective, such as seeing it as a tool for the Trump family to line their pockets or as part of a currency war launched in conjunction with a trade war. So, what do you think is the motive behind the United States pushing for stablecoin legislation?
Xiao Feng: The motive behind stablecoin legislation as stated by the U.S. presidential team and Congress is quite frank and transparent. They openly state that first, it is to modernize the U.S. payment and financial system, and second, to consolidate and strengthen the U.S. dollar's position, creating trillions of dollars in demand for U.S. Treasury bonds in the coming years. I believe this is the answer, without much room for conspiracy theories. Not long ago, I had a conversation with a U.S. presidential crypto policy advisor, and he was very straightforward in telling me that for the United States, Bitcoin as a national reserve is secondary, with the U.S. dollar stablecoin being primary and a core U.S. interest. From what I understand, the Trump administration's goal is to ensure the passage of the GENIUS Act before the U.S. Congress goes on recess in August, and it now seems like it may happen even sooner. In this context, the flexibility and efficiency shown by the Hong Kong legislative authorities in passing the stablecoin bill on the third reading are commendable.
Meng Yan: Some people have now likened this bill to the 1944 Bretton Woods Conference and the 1971 Nixon shock, calling it the construction of a "Bretton Woods system for the digital economic era." The rough logic behind this argument is that as the U.S. moves towards de-globalization, it is very concerned about the weakening of the U.S. dollar's position. Therefore, using digital currency as a "nuclear weapon" to de-escalate the existing international monetary financial system, counteract the impact on the U.S. dollar, and strengthen U.S. dollar hegemony. What is your view on this point?
Xiao Feng: As I mentioned earlier, the United States openly acknowledges that one of the key purposes of pushing for stablecoin legislation is to consolidate and strengthen the U.S. dollar's position. From the Senate's vote, it is clear that this is a bipartisan consensus, and they know they are making history. The U.S. has come to this realization through a process and has paid some price for it. The previous U.S. government, especially expert bureaucrats like former SEC Chairman Jay Clayton, had an understanding of blockchain, but why did they still hesitate for so many years? It's simply because they are reluctant to let go of the existing payment network, including SWIFT, and the financial governance, regulatory, and anti-money laundering mechanisms built on this network.
However, in recent years, the advancement of blockchain technology itself, especially the practice of financial sanctions against Russia following the Russia-Ukraine conflict, has shown that the technological advantages of blockchain are undeniable and indisputable. Therefore, the transition of the entire financial infrastructure to blockchain, just like the transition from steam engines to the electrification era, is unquestionable, and no force can stop it. There is no point in burying our heads in the sand; the situation is stronger than any individual.
The Trump administration, compared to its predecessor, has shown a more pragmatic attitude in all aspects, which can be negatively described as unprincipled or positively described as proactive. Therefore, the current U.S. attitude is that if bypassing SWIFT for payment settlement is inevitable, at least do not let it bypass the U.S. dollar; if dollarization is inevitable, then at least ensure that each dollar token is backed by U.S. assets. Since you can't block it, then guide it well, ensuring that in the digital economy, in the Web3 world, in the AI era, the U.S. dollar remains a major payment and settlement tool, which is a core national interest of the United States. From the U.S. perspective, this is a strategy, an open move.
Can a U.S. dollar stablecoin create a new "Bretton Woods system"? It remains to be seen. Over the past few years, the status of the U.S. dollar globally has declined, and if the United States hopes to strengthen the U.S. dollar's position through a stablecoin, there is no doubt about it. However, whether this measure alone can achieve the goal, especially whether it can be said to have created a new system, may require observation of the subsequent practical and legislative interaction processes. But I have an assessment that although the Trump team and the U.S. Congress have a deep understanding of the U.S. dollar stablecoin, they may not fully envision the long-term impact of this matter. In this sense, pushing the GENIUS Act carries some risks. Will the future repeat itself like his trade war policy? It needs observation.
Meng Yan: Regarding long-term impacts, the conspiracy theory narrative of "currency wars" is now very popular on the Chinese internet, suggesting that the U.S. is initiating stablecoin legislation with the aim of "weaponizing" stablecoins. Do you agree with this view?
Xiao Feng: "Currency wars" has been a popular narrative for over a decade. From the standpoint of other countries, a full assessment of the impact of the U.S. dollar stablecoin is indeed necessary. Legislatively promoting tokenization of fiat currency is an unprecedented event in the history of world currencies and is bound to trigger a series of complex economic and financial reactions that no one can fully anticipate, not even the U.S. President and Congress. However, in light of the content revealed by the GENIUS Act, at least two issues need special attention.
The first is that sovereign currency boundaries are becoming more fragile. The current currency use is based on national administrative boundaries, with sovereign nations having a currency monopoly internally and controlling foreign exchange at their borders. This governance mechanism has been in place for over a hundred years. Once U.S. dollar stablecoins are widely applied, this mechanism is broken. Blockchain transforms the internet into a payment network and financial infrastructure, making currencies no longer rely on traditional banking systems and clearing networks but can rather penetrate another economy's micro-level through smart contracts, encrypted accounts, and peer-to-peer transmission mechanisms, akin to capillaries, reaching into another economy's daily consumption, labor payments, cross-border e-commerce, freelancer settlements, and even payments between AI to AI, machine to machine. At this stage, stablecoins are no longer just a payment tool but become a financial infrastructure that can 'incorporate' a part of another country's economy into its own economic landscape, effectively forming a new currency network expansion mechanism. This poses a structural challenge to existing sovereign currencies, financial regulatory frameworks, and macroeconomic policy tools because what used to be built on banking systems, exchange controls, and payment settlement rules is becoming increasingly fragile in the face of blockchain and stablecoin technology.
Meng Yan: The situation you mentioned has already occurred. In some countries in Africa, Southeast Asia, and Latin America, the local fiat currency has been depreciating year after year. A large number of young people in these countries are using USD-pegged stablecoins like USDT, causing a headache for the monetary authorities of these countries. When I traveled to Ghana for business last year, a local central bank official told me that USD-pegged stablecoins have spread like wildfire among the youth in Ghana and Nigeria, undermining the status of their local fiat currency. They asked me how to resist the invasion of USD-pegged stablecoins through technological means, but I couldn't answer. It's strange for the common people not to use the US dollar, considering that your local currency depreciates by 20-30% every year.
Xiao Feng: This is just the beginning. With the development of USD-pegged stablecoins, a second issue will arise, which is the complex ecosystem that may emerge from the offshore USD stablecoin system. According to the GENIUS Act, institutions outside the United States can also issue USD-pegged stablecoins, but they must be backed by US dollar fiat assets, registered in the United States, subject to regulation by US authorities, comply with US laws, and be ready to respond to orders from US law enforcement agencies at any time. These requirements are very stringent, but it is important to understand that these requirements are the conditions for "legal circulation in the US market." If they do not enter the US market or interact with US individuals and entities, even these conditions can be relaxed. In fact, this effectively opens up a gray area, conditionally allowing foreign institutions to mint USD. Consequently, there will be two systems in the future: onshore USD stablecoins and offshore USD stablecoins, similar to today's US dollar and Eurodollar systems. The onshore USD system is relatively strict and consistent, while the offshore USD ecosystem will be more complex, with dozens or even hundreds of digital currencies all called "USD stablecoin" circulating, transacting, mapping, exchanging, and interacting across dozens of public chains and hundreds of private chains, leading to complex effects that no one has seen before and no one can foresee.
Meng Yan: Can we think of it this way: the United States is actually delegating some of the coinage rights to foreign non-bank institutions, decentralizing the minting right of USD stablecoins. This reminds me of the early Western Han Dynasty in China, when coinage rights were devolved, allowing private minting of currency. However, the details of how these currencies interacted and what economic problems they caused are not extensively recorded in historical documents. Since the advent of the industrial civilization, no country has tried to decentralize coinage rights to foreign entities, and today we are about to witness a new stage in the development history of the world's currency. To draw an imprecise analogy, the future USD stablecoin will be like the bronze coins during the reign of Emperor Wen of Han, with many "brands”—some high-quality, some low-quality, some minted by Deng Tong, some minted by Liu Bi—circulating and competing in the global market. On the surface, the US government is delegating some of the USD coinage rights, but in reality, by means of regulation and law enforcement, it has turned US debt into the "copper mine" for minting coins, taking a step back to leap forward, turning stablecoin issuers worldwide into the "franchise" of the US dollar, significantly increasing global demand for US debt, enhancing the penetration of the US dollar, magnifying the long arm of US financial regulation.
Xiao Feng: Yes, but the actual situation will be even more complex. In a time when trade tensions have led to "de-globalization," a trend of global digital economy "dollarization" has emerged. In the era of rapid advancements in AI, the "Value Internet" has suddenly accelerated. The complex reactions of these economic and technological trends surpass the predictive ability of everyone.
In particular, the offshore US dollar stablecoin system will have multiple levels and will attract many financial institutions, internet companies, and even sovereign nations to participate, giving rise to a particularly rich and diverse ecosystem. From foreign-issued, but fully compliant with US regulatory rules, high-grade offshore US dollar stablecoins that can circulate within the US, to stablecoins following the regulations of other sovereign nations but not entering the US or interacting with US persons, to "wild" non-compliant US dollar stablecoins, as well as the inevitable emergence of various counterfeit coins, overissuance, and money laundering issues. On the one hand, this will lead to a dramatic amplification of the US dollar's "brand effect," the global spread of the psychological anchoring effect of the US dollar as a "unit of account," and the expansion of US financial regulatory enforcement scope. On the other hand, the super-complex monetary system will inevitably pose unprecedented challenges to the regulation and financial stability of countries worldwide and the US. In the early stages, the US regulatory capabilities are very likely to fall behind and may even lead to policy reversals. In short, the real world will be very exciting and very chaotic. I can confidently say that we are entering a period of explosive growth in the digital economy, and we will soon see many new digital economic phenomena and business species.
At this stage, discussions on this issue are still very inadequate, especially in the Chinese Internet space where the discussion is severely lacking. However, I still believe that the main purpose of the US issuing a stablecoin is to follow the trend of technological development, take preemptive action, consolidate the US dollar's status, rather than to target the current international monetary system. The so-called "weaponization" is a "companion" effect of the disruptive technological advantage of blockchain. Emotional discussions on this issue can easily lead to misinterpretations. In the current Chinese Internet public opinion, conspiracy theories and narratives of struggle are fashionable and exciting. We must be especially careful not to be emotionally misled and stand against the tide of history. It's simple – if this is a currency war, should we defend it vigorously? Should we continue to block blockchain, tokenization, and encrypted finance as a whole? Thinking in this way would be a grave mistake.
We need to understand that the "aggressiveness" of blockchain stablecoins is to naturally attract and bind more real economic activities in a more efficient, lower-cost, and fewer-step architecture. Its expansion is based on technological advantages, efficiency, institutional design, technological advantages, and network effects, and it is impossible to resist in the long term. We acknowledge its disruptive innovation characteristics, rendering it aggressive and disruptive to the existing technological system, even bordering on a step-down strike. But what attitude should we adopt towards it? Hasn't history seen firearms as a step-down strike against cold weapons? Hasn't the steam engine been a step-down strike against human and animal power? Hasn't the Internet been a step-down strike against postal and telephone networks? So, on which side do you stand?
My attitude has been consistent, unchanged for ten years. Faced with technologies like blockchain, we should seize the opportunity and develop our stablecoin ecosystem in an open, compliant, and trustworthy manner, securing a place in the new generation financial network. Some talk about monetary sovereignty, financial sovereignty, but I must say, in the face of disruptive technological innovation, actively responding is the truly responsible attitude towards sovereignty.
Meng Yan: The U.S. is taking the lead in promoting stablecoin legislation, which is indeed unique. The uniqueness lies in the fact that the first to take the plunge is the world's largest and most advanced economy, driving the initial reform of the globe's most important reserve currency. For many countries, they may prefer to conduct trials in less significant economies using less prominent currencies to gradually advance this matter, which would be a more prudent approach. However, the current attitude of the U.S. is akin to thrusting a storm of reforms directly in front of everyone, creating a coercive situation that poses a Sphinx-like riddle to all: answer me, or I will devour you.
So faced with this challenge, many people react defensively out of impulse. Especially with media constantly propagating how blockchain is used for money laundering, illicit financing, and illegal transactions, reporting speculative stories every day. Now suddenly the U.S. is using this technology for stablecoins and RWAs. Many people naturally think that the U.S. is initiating a currency war, wielding blockchain as a weapon. This mindset is understandable.
Xiao Feng: While the mindset is understandable, we still need to apply first principles and return to the basics to reflect. When we discuss blockchain and stablecoin topics now, there is too much macro-level discourse, delving straight into currency systems, USD hegemony, financial warfare, but micro-level discussions are severely lacking. Many of us have forgotten that the primary impetus behind advancing stablecoin development has always been technological innovation, creating value for ordinary users and consumers. The reason stablecoins have such a huge impact ultimately stems from the series of technological advantages bestowed upon them by blockchain. I have been talking about these aspects for ten years, but it's still insufficient. At this moment, it is necessary to reiterate and ensure everyone understands that blockchain technology truly holds massive superiority and is bound to succeed, impervious to anyone's opposition.
Meng Yan: Indeed, it is crucial to clearly convey this principle. I saw in one of your speeches that you mentioned you have been enamored with blockchain for ten years, with an unchanged original intention. Could you briefly summarize again what technological advantages of blockchain have captivated you?
Xiao Feng: Its fundamental technological advantages are manifested in four aspects: accounts, ledgers, accounting methods, and accounting units.
From the perspective of accounts, traditional finance relies on bank custody accounts to record all our economic activities. However, in blockchain, there is no bank account. Instead, a digital asset wallet takes its place, known as a crypto account. The creation of a crypto account is completed by the user themselves using cryptographic tools, self-created, and self-custodied assets. In terms of the ledger, a public blockchain is a global public ledger with global liquidity, not restricted by administrative boundaries, geographical space, or temporal constraints. In terms of accounting methods, distributed ledger technology differs from double-entry accounting, and the settlement model is also distinct. Traditional finance involves net settlement, whereas blockchain involves real-time gross settlement, known as payment-on-settlement, where payment, clearing, and settlement occur simultaneously. In terms of the unit of account, the accounting unit on a blockchain is the native cryptocurrency. If you wish to use fiat currency as the unit of account, simply issuing commands is insufficient; fiat currency needs to be tokenized first, creating a digital twin of the fiat currency on-chain.
Although these technological advantages may sound abstract, when applied, they provide tangible benefits to users. A simple way to determine whether a new technology has overwhelming advantages is to assess how much efficiency has increased and costs have decreased. A tenfold advantage signifies an upgrade, whereas advantages of hundreds or thousands of times indicate an unstoppable force. For example, if a car is roughly ten times faster than a horse-drawn carriage, the entire horse-drawn carriage system is inevitably phased out. The internet's costs are approximately one hundred times lower than telegraph, telephone, and television networks. Thus, when the internet initially emerged, many people vehemently opposed internet applications such as internet telephony and online video. The result? These networks are all now replaced by the internet. Faced with such substantial technological advantages, any conservative or resistance-related reasons are untenable.
I have always said that users' financial needs have remained constant throughout history: easy access to loans and prompt receipt of funds. Let's compare the efficiency of remittances. Currently, it may take several days to several weeks to remit funds from Shanghai to the United States. In contrast, using a blockchain stablecoin, the funds can arrive in seconds. How many times has efficiency increased? In more extreme cases, I recently attempted a remittance from Hong Kong to Shanghai, only to have it confirmed as failed a month later. If using a stablecoin, the transaction could be completed in ten seconds. How many times has efficiency increased? Perhaps tens of thousands or hundreds of thousands of times. With such significant technological advantages, what force can impede progress?
Allow me to provide another example. It is challenging in traditional trading systems to achieve 24/7 uninterrupted operations. Some leading stock trading systems are now striving to extend trading hours, with some planning for 5x23 trading - five days a week, 23 hours a day. However, there is still a one-hour daily break required because in traditional clearing and settlement systems, there needs to be a point to pause, reconcile, and perform netting. Yet, when we conduct payments and transactions on a blockchain, they operate uninterruptedly round the clock. Why is this possible? As mentioned earlier, these transactions occur on a global ledger with real-time gross settlement, allowing for uninterrupted clearing and settlement. I heard that NASDAQ is developing a 24/7 trading system, and I speculate that it will incorporate blockchain technology internally. Once implemented, investors worldwide can trade U.S. assets continuously using a USD stablecoin, which is immensely meaningful for investors and U.S. companies. Therefore, discussions at the macro-strategy level ultimately rest on technological innovation.
There are many other advantages as well, such as disintermediation, peer-to-peer transactions, borderlessness, near-instant global settlement, nearly zero fees, automation on smart contracts, and irreversible transactions. When users compare, the difference becomes apparent. Who else needs to be persuaded? It's like comparing an electric motor to a steam engine, an electric light to a gas lamp, an integrated circuit to a vacuum tube. As an ordinary user, without needing any specialized knowledge or additional conditions, you can easily determine which one is superior and which one will be phased out. It's a self-evident fact. If we understand these basic technological facts, we will come to a simpler conclusion—the fundamental motivation behind the U.S. promotion of stablecoins is to align with the trend of technological advancement and drive the modernization of payment and financial infrastructure.
Of course, such a strategy undoubtedly involves various considerations, including maintaining the dominance of the U.S. dollar, competing in the monetary and financial system, and even the Trump family's financial gains. However, all these considerations are fundamentally based on the overwhelming technological advantages of blockchain as the next-generation financial infrastructure. Many people view blockchain as a formidable force, with a crucial reason being the lack of a profound understanding of the inherent advancements and inevitability of blockchain technology itself. I often say that the situation is stronger than individuals. If you can resist, you can certainly discuss whether to resist; but if you cannot resist at all, what is the point of discussing how to resist? Doing something you know will not work will only delay progress and cause you to fall behind in the competition of the new round of financial infrastructure and monetary system.
Therefore, I am very excited about the pioneering passage of the Hong Kong Stablecoin Bill; this is the right posture to adopt.
Original Article Link
Welcome to join the official BlockBeats community:
Telegram Subscription Group: https://t.me/theblockbeats
Telegram Discussion Group: https://t.me/BlockBeats_App
Official Twitter Account: https://twitter.com/BlockBeatsAsia
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.