Zhu Jiaming: The Deep Logic and Future Landscape of Stablecoins

Zhu Jiaming Discusses the Deep Logic and Future Landscape of Stablecoins

On June 29, at the closed-door seminar "The Future of Stablecoins" organized by the New Economist Think Tank, Zhu Jiaming, Chairman of the Academic and Technical Committee of the Hengqin Digital Finance Research Institute, presented an analysis on the historical origins, development dynamics of stablecoins, and their profound impact on modern monetary systems. He outlined the evolution of stablecoins from classical forms to modern innovations from a dual perspective of historical development and financial evolution, revealing the market forces and inclusive ideals inherent in them.

Stablecoins are by no means a**“new frontier”: they have existed since ancient times and have evolved with the times**

Regarding the development of stablecoins, Zhu Jiaming proposed a unique historical analysis framework that clearly divides the development of stablecoins into two essentially different stages.

Zhu Jiaming defines the long period from the formation of the modern monetary system to the birth of Bitcoin as the "classical stablecoin" phase. He points out that the essence of the monetary system during this period is a pegging system based on some form of wealth.

The gold standard is a form of currency and wealth based on the gold standard, where all currencies based on it are essentially stablecoins of gold. Before the establishment of the Federal Reserve in 1913, the monetary system in the United States, like many other countries in the world, issued currency based on precious metals, implementing a bimetallic standard of gold and silver, with gold and silver as core assets becoming the anchor of value. The US dollar is essentially a "stablecoin" relative to gold and silver. The Bretton Woods system established in 1944 marked a new progression of the "classical stablecoin." The core content of the Bretton Woods system is the establishment of a "dual peg" mechanism, linking the dollar to gold (1 ounce of gold exchanged for 35 dollars) and maintaining fixed exchange rates between other currencies and the dollar. Since then, the dollar has become a stablecoin anchored to gold, and the currencies of countries around the world have become stablecoins anchored to the dollar.

In short, the history of classical stablecoins is long and its scope of use is quite broad.

In 2008, the emergence of Bitcoin stimulated the appearance of stablecoins. The ideas and practices of stablecoins that emerged from 2013 to 2014 marked the entry of stablecoins into a brand new "modern stablecoin" phase. The wave of stablecoins over the past decade has been directly triggered by the revolution in cryptographic digital currencies, showing characteristics that are completely different from those of classical stablecoins. The core feature is that the current text incorporates technological elements such as blockchain and distributed computing, with the technical content showing a trend of continuous enhancement.

There are differing opinions on the classification of stablecoins in the new phase. Zhu Jiaming divides them into two categories:

One type is low-risk collateralized, using real-world assets (mainly fiat currencies) as reserves for collateral issuance. For example, the well-known USDT (Tether) and USDC (USD Coin) that are pegged to the US dollar. This type of stablecoin has relatively low risk and is currently the mainstream in the market.

Another category is high-risk algorithmic stablecoins, which rely on algorithms and smart contract mechanisms (rather than sufficient asset collateral) to maintain coin value stability. For example, the algorithmic stablecoin TerraUSD (UST). However, this type of stablecoin carries significantly higher risks, as evidenced by the collapse in May 2022, where this stablecoin experienced a "near $50 billion market cap value going to zero in 72 hours."

"Stablecoins are by no means a new land that has appeared out of nowhere; they have existed for a long time and are evolving with the times." Zhu Jiaming emphasized that the history of modern stablecoins did not begin with the current craze; understanding the continuity and phases of stablecoin history is the key foundation for grasping its future direction.

Symbiotic Drive: The Expansion of Crypto Assets Stimulates Demand for Stablecoins

When discussing the relationship between stablecoins and cryptocurrencies, Zhu Jiaming disagrees with blurring the two into a "which came first, the chicken or the egg" relationship. He points out that the birth of stablecoins over a decade ago was not a result of government design or the needs of the traditional financial system, but rather an inevitable product derived from the expansion of the cryptocurrency ecosystem itself.

Zhu Jiaming analyzed that in 2009, Bitcoin had just entered people's sight, with the price of 1 Bitcoin being only $0.0008, while in 2024, the price of 1 Bitcoin has surged to over $90,000, an increase of more than 1.13 million times. It is expected to stabilize above $100,000 in 2025. Despite the continuous and severe fluctuations in Bitcoin prices, these fluctuations occur on a curve of high growth. History has proven that the cryptocurrency represented by Bitcoin is a new asset class with strong vitality.

The real logic is: During the significant appreciation of cryptocurrencies such as Bitcoin and the rapid expansion of the market size, holders have developed a rigid demand to convert their value into widely accepted fiat currencies, which in turn has pressured the market to create a reliable tool that can act as a bridge between the crypto world and the fiat world. Stablecoins have emerged and developed to meet the needs of exchange and value measurement within the crypto ecosystem.

The original intention of stablecoins such as USDT and USDC is to serve the cryptocurrency trading market, providing a measure of value and a medium of exchange, rather than directly serving the traditional fiat currency system. The rise of companies like BitGo and Circle between 2012 and 2014 was in response to this ecological demand, establishing a stable market structure. "Without the 'cause' of cryptocurrency, there would be no 'effect' of (stablecoins)." Zhu Jiaming pointed out that the continuous expansion of crypto assets like Bitcoin has created a trillion-dollar level new financial space, driving the demand for stablecoins and forming a self-reinforcing special supply and demand mechanism. Therefore, what current regulatory authorities (such as the United States) need to intervene in and regulate is a new financial currency ecology designed and nurtured by private enterprises over more than a decade, making the Trump administration more like 'peach pickers.'

Of course, government regulation is necessary and important, but its role is predicated on recognizing and adapting to this reality shaped by the market. Understanding this "market-nativity" is key to grasping the development logic of stablecoins and their future direction.

Innovative Space and Paradigm Shock:** "Endogeneity" and "Non-neutrality" Essentially Disrupting Mainstream Currency Theory**

When discussing the impact of stablecoins on modern monetary systems, Zhu Jiaming focuses on the vast innovative space of stablecoins and their fundamental challenge to traditional monetary theory. He points out that the expansion of stablecoins is by no means an isolated phenomenon, but is rooted in the deep demand for the transformation of the digital economy, and is dramatically reshaping financial thought and practice.

Zhu Jiaming emphasized that the innovative space for stablecoins is essentially a product created by the cryptocurrency ecosystem. This space has formed a massive market of at least $2 trillion and continues to expand. Cryptographic technology has not only spawned a new financial space but has also profoundly transformed the existence of the digital economy. As a key component within this, the development space of stablecoins forms a functional relationship with the scale of the cryptographic ecosystem— the larger the crypto space, the stronger the profitability and development potential of stablecoins.

However, the real growth pivot lies in the transformation of the era. The current world is transitioning from a post-industrial society to an information society and an artificial intelligence society. The traditional monetary system frameworks, whether the Bretton Woods system or the absolute monopoly of fiat currencies after its collapse, are no longer able to support the development needs of the new economy. This fundamental contradiction has given rise to a powerful call from civil society and the business community, creating a historical trend demanding a transformation of the financial ecosystem. From the perspective of thousands of years of monetary history, the rise of stablecoins is a key pivot that aligns with this major trend.

Zhu Jiaming believes that the far-reaching impact of stablecoins is concentrated in two disruptive challenges to mainstream currency theory.

On one hand, there is the intrinsic nature of endogenousity. Stablecoins are by no means exogenous variables of the economic system, but rather an inevitable product of the demand for economic transformation. They do not passively adapt to the environment, but actively "stimulate changes in the entire economy," becoming a driving force in shaping the future economic landscape.

On the other hand, there is the non-neutral essence. The rise of stablecoins proves that currency has a strong "non-neutral" characteristic. Its impact goes far beyond the function of a medium of exchange, deeply altering resource allocation, market structure, and the distribution of economic power. Major central banks, such as the Federal Reserve, lack decisive authority over the development direction of stablecoins. History has shown that, in the face of this new financial form driven by market and technology, most countries' central banks tend to be relatively conservative and adopt a passive mode, making it difficult to play a leading role.

Zhu Jiaming emphasized that the practice of stablecoins will fundamentally shake the cornerstone issue of the long-standing debate in monetary theory - whether money is neutral or non-neutral? Is it an endogenous variable or an exogenous variable? Stablecoins, with their endogenous and distinctly non-neutral characteristics, provide a practical answer. This reality will force the financial theoretical community to break through traditional frameworks. Importantly, the development of stablecoins may lead to a deep integration and interaction with modern monetary theory, ultimately giving rise to a new financial landscape that adapts to the digital age, blending technological innovation with economic thought. This process of integration marks a historic reconstruction of the monetary system paradigm.

The United States is creating a "trinity" parallel currency system** and its potential**

Zhu Jiaming stated that the United States is currently forming a "trinity" parallel currency system in the digital asset field.

The first is the factual legalization of Bitcoin. Although the United States has never recognized Bitcoin as currency, it has also never declared it illegal, but rather defined it as an asset, and even some Bitcoin is regarded as a national strategic reserve currency.

The second is to link stablecoins with innovation. In July, U.S. President Trump officially signed the "Guidance and Establishment of the U.S. Stablecoin National Innovation Act" (referred to as the "Genius Act") at the White House, which is the first stablecoin legislation at the federal level in the United States.

The third is to institutionalize the regulation of stablecoins. In July, the House of Representatives will review and pass the "2025 Digital Asset Market Clarity Act" (referred to as the "CLARITY Act"), which will be handed over to the Senate after approval. This act will strictly define whether cryptocurrencies are classified as securities or commodities, and will involve the delineation of regulatory authority over digital assets, aiming to promote the transformation of the entire monetary system to adapt to the new framework of the digital market.

Zhu Jiaming stated that the above three are not isolated; their deeper intention is to build a "trinity" new currency system that runs parallel to the Federal Reserve's traditional financial monetary system, which also represents the United States' strategic layout for the future in the field of monetary finance.

In response to the New Economists Think Tank's question about the relationship between the US dollar stablecoin system and the dollar system, Zhu Jiaming pointed out that the dollar system has long had branches such as "Eurodollar" and "Petrodollar", which essentially represent the classification extension of the dollar by region or industry use. Currently, stablecoins can be seen as a new variant of the dollar—"stablecoin dollar".

The current global regulatory framework prohibits stablecoins from accruing interest to avoid them having deposit-like characteristics. However, the United States allows stablecoin issuers to invest reserve funds in U.S. Treasury bonds, which indirectly transforms the stable return rates of these bonds into a "hidden interest" for stablecoins, attracting individuals and commercial institutions to hold them long-term, thereby enhancing the appeal of collaboration with crypto assets.

As long as quantum computing does not threaten the security of encryption, the price increase trend of encrypted digital currencies (such as Bitcoin) provides users holding stablecoins participating in the crypto ecosystem with a "double compensation" for asset appreciation—enjoying both US Treasury yields and the potential appreciation of encrypted assets.

Zhu Jiaming concluded that stablecoins are not a disruption of the dollar system, but rather an "upgraded version of the dollar branch" empowered by technology. Its core innovation lies in creating a "yield-generating currency" function anchored by U.S. Treasury bonds, becoming a liquidity bridge connecting traditional finance and the crypto ecosystem. This mechanism not only continues the foundation of the dollar but also expands its application scenarios and competitiveness in the digital age.

The application path in China coexists with central bank digital currency

In responding to the New Economist think tank's question about how China should cope with the wave of stablecoins, Zhu Jiaming believes that it is necessary to explore three aspects.

First, further build a balanced strategy based on financial security stability and financial innovation. In recent years, our regulatory authorities have continuously adjusted the legal system and regulatory framework to cope with the drastic changes of the times. Under the new historical conditions, especially in the face of the pressure from the United States to accelerate the dollar stablecoin, it is essential to strengthen research on relevant development strategies and adjust policies.

Second, it is necessary to comprehensively summarize the experience of central bank digital currencies (CBDC) and initiate research and sandbox experiments on the possibility and feasibility of a Renminbi stablecoin. Generally, the digital Renminbi is backed by national credit, focusing on the digitization of sovereign currency, and strengthening financial regulation and monetary policy transmission; while stablecoins are driven by the market, serving flexible scenarios such as cross-border payments and cryptocurrency ecosystem exchanges. How the two can collaborate and divide their roles needs to be carefully designed by the relevant decision-making departments.

Third, attention should be paid to and understanding gained about the policy changes regarding cryptocurrency and stablecoins in the United States and the Eurozone. For example, the two major parties in the U.S. (Democrats and Republicans) have a fundamentally similar understanding of crypto assets, with differences only in the pace of policy advancement. For instance, during the Democratic administration, there was an attempt to strictly regulate stablecoins through legislation, but it was shelved due to significant controversy. It is noteworthy that approximately 50 million people in the U.S. already hold crypto assets, coupled with the ongoing expansion of Bitcoin, ultimately forcing authorities to accept its existence. This supports the logic of "market forcing regulation."

Zhu Jiaming specifically mentioned that modern monetary and financial history has repeatedly proven: the technical route is easy to understand, but institutional design is difficult. The Hong Kong region has announced and will implement the "Stablecoin Ordinance" starting in August, which has significant international implications. Zhu Jiaming stated that he personally has great attention and hope for it.

Stablecoins and Inclusive Finance

Zhu Jiaming specifically pointed out that most of the leading figures in promoting the development of cryptocurrencies are from the post-80s generation, and even some from the post-90s generation. These promoters hope to solve problems for the poor and promote inclusive finance. When understanding the development of cryptocurrencies such as stablecoins, it is important to consider not only aspects like national interests, geopolitical factors, and international financial competition, but also their positive significance in inclusive finance, which is to help those without bank accounts gain access to financial opportunities.

According to Tether CEO Paolo Ardoino, Tether has established "the largest dollar distribution network in human history," with millions of physical touchpoints worldwide. In Africa, Tether has completed a pilot project of 500 self-service kiosks equipped with solar panels and built-in rechargeable batteries. There are 400 million to 600 million people in Africa without access to electricity. These self-service kiosks with solar panels and batteries allow Tether to sell a subscription service for 3 USDT per month to village residents, and currently, there are about 500,000 users and 10 million battery replacements. Tether expects to have 10,000 self-service kiosks by 2026 and reach 100,000 by the end of 2030. This means that by 2030, Tether will reach about 30 million households, which translates to about 120 million people in Africa relying daily on dollars existing in the form of USDT.

Zhu Jiaming stated that as stablecoin operators provide basic payment, transfer, and even energy services, those who have been excluded by traditional finance have gained the opportunity to participate in the economy. The transformation brought about by stablecoins will be a long process, with businesses, governments, and the public having different needs, but all will become important participants in this long-term, irreversible historical process and find their own positioning.

Finally, Zhu Jiaming depicted the grand panorama of the evolution of stablecoins: it is rooted in the long history of currency, emerging from the flood of market expansion of crypto assets, impacting established monetary theories and systems, and carrying the era's mission of connecting tradition with the future and serving inclusive finance. This transformation, which originates from the market, is driven by technology, and involves multiple parties in competition, aims ultimately to seek a new balance among liquidity, security, and efficiency, paving the way for the construction of a more inclusive global financial ecosystem.

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