China Securities Co., Ltd.: Stablecoins are expected to continue to increase in importance in the global financial system.

China Securities Co., Ltd. released a research report stating that stablecoins, as encrypted digital currencies anchored to fiat currencies or other asset prices, are gradually evolving into a new type of financial infrastructure. They play an important role in areas such as payments, cross-border settlements, digital asset trading, and decentralized finance (DeFi), reshaping the international financial system. In general, stablecoins, as "digital cash" or "digital gold," are expected to continue to increase in status within the global financial system. Investors should thoroughly evaluate the stability mechanism and compliance risks of stablecoins and exercise caution. Under the premise of meeting individual risk tolerance levels, the reasonable use of stablecoin tools can enhance asset allocation efficiency and cross-border financial convenience. On the morning of May 20th, the U.S. Senate passed a motion to end debate (cloture) on the GENIUS Act stablecoin bill with 66 votes in favor and 32 votes against. Although the bill itself has not been passed, the next step for the GENIUS Act will be full Senate debate and amendment procedures. However, this result clears a temporary hurdle for the final legislation. Since Senator Bill Hagerty introduced the GENIUS Act on February 4th, the bill text has undergone multiple revisions, incorporating more anti-money laundering, consumer protection, and custodian provisions while limiting tech giants' issuance of stablecoins unless they implement strong financial risk controls and robust consumer data privacy protections. The progression of the bill also demonstrates the key game between the two parties on the stablecoin issue. Earlier this year, U.S. President Trump publicly stated that stablecoin and market infrastructure regulatory frameworks are expected to be enacted before the August Congressional recess. If this significant bill is ultimately passed, it will become the first federal-level stablecoin legislation in the United States. Almost simultaneously, according to Xinhua News Agency, the Hong Kong Legislative Council passed the "Stablecoin Ordinance Bill" on May 21st. Subsequently, the Hong Kong Special Administrative Region government published a notice in the Hong Kong Government Gazette on June 6th, designating August 1st, 2025, as the commencement date of the "Stablecoin Ordinance" (the "Ordinance"). Hong Kong has become the world's first jurisdiction to implement comprehensive regulation for fiat-backed stablecoins. I. Overview of Stablecoins I. Definition and Classification a. Definition A stablecoin is a special type of cryptocurrency whose value is pegged to specific assets (usually fiat currency, such as the US dollar) to overcome the volatility associated with traditional cryptocurrencies. According to Defillama's data, the total market size of stablecoins has exceeded $250 billion, with most stablecoins pegged to the US dollar and exchangeable at a 1:1 ratio. Serving as a link between traditional finance and the crypto economy, stablecoins offer the convenience of digital assets and the stability of fiat currency. Stablecoins are named as such because their value is fixedly pegged to fiat currency, ensuring stability of value. b. Classification Based on collateral asset types and design mechanisms, stablecoins can be classified into the following main categories: i. Fiat-collateralized stablecoins: Reserves backed by fiat currencies such as the US dollar, Euro, or Hong Kong dollar, issued at a 1:1 ratio. Typical examples include Tether (USDT) and USD Coin (USDC). These stablecoins are usually issued by centralized institutions, and holders can redeem corresponding fiat currencies at any time. ii. Crypto-collateralized stablecoins: Excess collateral assets backed by other cryptocurrencies (such as ETH, WBTC) through smart contracts to achieve price stability, such as MakerDAO's DAI. These stablecoins rely on decentralized protocol governance mechanisms to manage collateral rates and liquidation rules. iii. Algorithmic stablecoins: Not relying on any physical collateral but adjusting token issuance automatically through algorithms to maintain price stability, such as the collapsed TerraUSD (UST). Algorithmic stablecoins pose a higher risk and are prone to breaking away or collapsing if market confidence is shaken. II. Nature and Characteristics Stablecoins combine the characteristics of cryptocurrencies and traditional currencies: on the one hand, they are issued on the blockchain, maintaining the programmability and decentralization of crypto assets; on the other hand, they achieve the goal of small price fluctuations and stable transaction settlement values by anchoring to stable assets. Their main features include: a. Anchoring Mechanism: The value of stablecoins is pegged to fiat currencies or other assets, and their value is maintained by holding corresponding reserve assets or adjusting mechanisms. Fiat-collateralized stablecoins typically require a 1:1 reserve and periodic audits to ensure each coin has corresponding asset backing, while crypto-collateralized and algorithmic stablecoins respectively rely on smart contracts and algorithm rules to maintain stability. b. Price Stability: Anchored to fiat currencies or other stable assets, stablecoins maintain relatively constant values, providing users with low volatility digital payment and value storage tools. c. Liquidity and Convertibility: As the primary trading medium and unit of account in the cryptocurrency market, stablecoins have high liquidity. Due to their high liquidity, stablecoins can be freely exchanged for fiat currencies or other cryptocurrencies on major exchanges, taking on roles similar to "on-chain cash" or "on-chain money market funds" in the crypto market. d. Openness and Cross-Border Properties: Stablecoins based on blockchain technology facilitate global circulation through peer-to-peer transactions, eliminating the need for traditional intermediaries. This openness significantly reduces the cost of cross-border payments, greatly enhances transaction efficiency, and becomes a key tool for promoting decentralized finance (DeFi) and global trade settlement. e. Security and Risks: The security of stablecoins depends on the quality of reserve assets and transparency of management institutions. Fiat reserves should be held in banks or licensed institutions and undergo audits to prevent risks of asset misappropriation or insufficient reserves leading to breaking away. For algorithmic and crypto-collateralized stablecoins, attention should also be paid to the security of smart contract code and risks of liquidation arising from market volatility. f. Diversified Endorsement Mechanisms: Including fiat-collateralized (such as USDC, USDT), crypto-collateralized (such as DAI), algorithmic stablecoins, and hybrid models, each with its own characteristics.pros and constaken together, stablecoins have achieved price stability to a certain extent through anchoring mechanisms. While improving efficiency in the crypto market and increasing trading convenience, they also expose risks in terms of collateral assets, algorithm mechanisms, and regulatory compliance. (III) Development Status 1. Current Situation of the Global Stablecoin Market Since 2019, the global stablecoin market has experienced explosive growth. As of May 2025, the total market value of stablecoins has reached about $245 billion, nearly 50 times the value in 2019. According to the latest data from Artemis, the market value of stablecoins has increased by nearly $200 billion from 2020 to 2025. Stablecoins currently account for over two-thirds of the trading volume in the cryptocurrency market, far exceeding other mainstream cryptocurrencies. From 2020 to 2022, the rapid development of the DeFi ecosystem and the increasing demand for cross-border payments have driven a significant increase in the market value of stablecoins, from $50 billion to $167.9 billion, with a high compound annual growth rate. For example, in 2021, the global market value of stablecoins increased by 470%, with the total market value of the top ten stablecoins growing from $28 billion at the end of 2020 to $160 billion at the end of 2021. In May 2022, the UST (TerraUSD) collapse event caused market volatility, temporarily leading to a 17.6% decrease in the market value of stablecoins. However, with market recovery and restored trust, the stablecoin market re-entered a phase of rapid growth in the second half of 2023. By the end of 2024, the total market value of global stablecoins was close to $200 billion, surpassing the $240 billion mark again in 2025, with a growth rate of about 78% from 2024 to 2025. In terms of currency structure, stablecoins pegged to the US dollar dominate the market. As of May 2025, the market value of the US dollar stablecoin USDT issued by Tether is approximately $150.3 billion, accounting for 61.3%; the market value of the US dollar stablecoin USDC issued by Circle is approximately $60.8 billion, accounting for 24.8%; together, they account for about 85% of the market share. Among other major stablecoins, according to the latest data from the blockchain data analysis platform DefiLlama, the market value of the synthetic US dollar stablecoin USDe issued by Ethena Labs has risen to around $3.343 billion, accounting for 1.9% of the total stablecoin market value. At the same time, the market value of MakerDAO's DAI is about $4.887 billion, accounting for 1.5% of the total market value. The market size of other emerging stablecoins (such as USD1, FDUSD, PYUSD, etc.) is relatively small. Overall, USDT and USDC collectively account for over 90% of the share in the long run, with their trends basically representing changes in the entire stablecoin market. In terms of market share changes, USDT continues to lead the stablecoin market in recent years; although USDC was affected by regulation and banking risks in 2023, with its market value falling to around $25 billion, its transparency and compliance have been recognized by the market, maintaining its competitiveness in compliant markets. At the same time, the new stablecoin USDe has grown over 30 times since early 2024, becoming one of the fastest-growing stablecoins, a trend that was further confirmed in May 2024 when its market value increased by 17.5% in just two weeks. The global stablecoin market is highly concentrated, but the trend towards diversification is intensifying, reflecting market participants' demand for greater efficiency and higher returns. 2. Development Trends and Evolution Paths (1) Promotion by Decentralization and DeFi: With the maturity of decentralized financial applications, the demand for autonomous collateral-based and synthetic stablecoins is increasing. Stablecoins issued by blockchain protocols such as DAI and USDE provide users with a way to obtain the value of the US dollar without relying on centralized institutions. Stablecoins have become the "gateway" to the DeFi ecosystem, accounting for more than two-thirds of on-chain trading volume and widely used in scenarios such as lending, DEX liquidity mining, etc. For example, according to a report by Pantera Capital, adjusted stablecoin trading volume exceeded $5 trillion in 2024, involving nearly 200 million accounts, demonstrating its wide application in the DeFi ecosystem. In 2024, the locked value of several leading DeFi projects (such as Uniswap, Aave) significantly increased, with USDC, DAI, and other stablecoins becoming dominant trading pairs. At the same time, events like the collapse of TerraUSD have further pushed algorithmic stablecoins onto a path of cautious development, with a growing market preference for transparent reserve-based stablecoins becoming increasingly evident. (2) Adoption by Mainstream Financial Institutions: Stablecoins are being incorporated into the service systems of traditional financial giants and payment platforms. Since 2020, payment behemoths such as PayPal have started supporting cryptocurrency transactions and launched the stablecoin PayPal USD; in 2024, payment company Stripe acquired the stablecoin platform Bridge for $1.1 billion, resuming the provision of USDC payment settlement services to American businesses. In 2024, the globally renowned investment firm BlackRock launched the BUIDL tokenized fund based on USDC settlement, aiming to efficiently connect with assets such as bonds, real estate, etc. These initiatives indicate a significant increase in institutional interest in stablecoin settlement and asset on-chain. With regulatory frameworks becoming clearer in the future, it is predicted that the global supply of stablecoins could reach the trillion-dollar level by 2030. (3) Central Bank Digital Currencies and Cross-Border Payments: There is both competition and complementarity between stablecoins and Central Bank Digital Currencies (CBDC). As central banks of various countries promote pilot projects for digital currencies, stablecoins provide them with supplementary options to existing payment systems. In the field of cross-border payments, stablecoins significantly enhance settlement timeliness and efficiency by reducing traditional intermediary steps. The "Project Pax" project launched by Japan's three major banks (MUFG, SMBC, Mizuho) uses stablecoins to replace traditional intermediary settlements in cross-border payments, speeding up cross-border trade and capital flows. In addition, the EU's MiCA regulation, as well as the markets in Southeast Asia and Latin America, show a growing interest in stablecoins.The demand for stablecoins is also increasing, with their share in global cross-border transactions rising from 7% in 2023 to 10% in 2024. It is evident that stablecoins have become the foundational infrastructure for transaction settlement, liquidity provision, and asset pricing in the cryptographic ecosystem.Emerging currencies and innovative models: In addition to USDT and USDC, emerging stablecoins are constantly emerging. For example, there are emerging stablecoins supported by institutions such as the 1:1 reserve coin USD1 supported by the Federal Reserve and the USD0 collaboration coin with the University of Alabama. These emerging stablecoins, backed by institutional endorsements and DeFi incentive mechanisms, have rapidly expanded their market share. At the same time, stablecoins are actively expanding towards multi-chain ecosystems. Apart from Ethereum, the usage of stablecoins on efficient public chains like Tron and Solana has significantly increased, especially Tron's USDT due to its advantage of almost zero transaction fees, attracting a large number of users. In the future, we will see more new types of stablecoins based on synthetic assets or algorithmic hedging strategies (such as USDe using Ethereum as collateral), as well as a trend towards the integration of stablecoins with traditional financial instruments (such as tokenization of money market funds). Key points of recent developments in stablecoins 1) Recent regulatory highlights in the United States and Hong Kong 1) Regulatory trends in the United States On May 19, 2025, the US Senate passed the "Guidance and Establishment of the US Stablecoin National Innovation Act" (referred to as the "GENIUS Act") with a procedural vote of 66 in favor and 32 against, signaling the imminent arrival of the first federal-level stablecoin regulatory framework in the United States. The "GENIUS Act" shows the intention to consolidate the influence of the US dollar and maintain its dominance in the global payment and settlement system. The key points include: - The act defines payment stablecoins as digital assets used for payments or settlements. These assets are anchored to a fixed currency value and fully supported by reserves consisting of 1:1 ratio of the US dollar or other approved high-quality liquid assets. - Licensing and regulation: The act establishes a clear application process for issuing licenses, providing guidance to institutions seeking to issue stablecoins. It introduces a "dual regulatory framework" allowing issuers to choose between state or federal registration. Issuers with a market capitalization exceeding $100 billion will be subject to federal regulation. Issuers with a market capitalization below $100 billion can choose to continue operating under state regulatory frameworks as long as their state regulations are generally consistent with federal requirements. - Reserve requirements: Stablecoin issuers must maintain a 1:1 reserve ratio, using high liquidity assets such as cash, short-term US government bonds, or government money market funds as reserve assets. Reserve funds must be kept separate from operational funds and undergo monthly certification. - Transparency: Issuers must publicly disclose their reserve assets and redemption policies. - Anti-money laundering (AML) compliance: The act classifies stablecoin issuers as financial institutions under the Bank Secrecy Act, requiring them to fulfill comprehensive AML obligations, including consumer identity verification, due diligence, and reporting of suspicious activities. - Consumer protection: If the issuer goes bankrupt, holders of stablecoins will have priority in repayment over other creditors. - Regulatory jurisdiction: The act explicitly states that payment stablecoins will not be considered securities, commodities, or investment companies under existing federal laws. Against the backdrop of increasing de-dollarization trends globally, stablecoins have become a strategic tool for the United States to maintain the dominance of the US dollar. On one hand, stablecoins pegged to the US dollar purchase a large amount of short-term US government bonds, providing new buyers for US bonds, alleviating market selling pressure, and embedding the US dollar in the global digital infrastructure. On the other hand, due to the significantly lower global scale of stablecoins compared to circulating US dollar cash and the massive US bond stock, the scale is not enough to truly support the overall exchange rate of the US dollar or long-term demand for US bonds. In addition, as the competition in the stablecoin market intensifies and the underlying problems of the US dollar have not been fundamentally improved, the short-term boost of stablecoins to the US dollar exchange rate and US bonds is relatively limited. 2) Regulatory trends in Hong Kong On May 30, 2025, the Hong Kong government published the "Stablecoin Ordinance" draft in the official gazette, followed by the publication of the "Stablecoin Ordinance (Effective Date) Notice" on June 6, specifying August 1, 2025, as the implementation date of the ordinance. According to the upcoming "Stablecoin Ordinance" in Hong Kong, all stablecoins claiming to be anchored to the value of the Hong Kong dollar will be classified as "payment instruments" and regulated under a licensing management system. The draft establishes a licensing system for issuers of stablecoins anchored to any asset in Hong Kong and stablecoins anchored to the Hong Kong dollar worldwide, marking a milestone in the virtual asset field in Hong Kong. The key points include: - Stablecoins anchored to any asset in Hong Kong and stablecoins anchored to the Hong Kong dollar worldwide will be regulated by the Hong Kong government. - Issuers must obtain a license issued by the Hong Kong Monetary Authority in advance. - Issuers must hold sufficient or excess reserves. Reserve assets must be invested in the assets to which the stablecoin is anchored. - Issuers are not allowed to pay interest on stablecoins to holders. - Licensed issuers must also meet a series of operational control requirements, including AML/CTF, risk management, disclosure of information, regular audits, and appropriate selection of senior executives. 2) Potential risk analysis 1) Credit and de-pegging risk: Stablecoins rely on the credit quality of collateral assets. If reserve management is poor or asset values fluctuate significantly, the coin price may decouple. In March 2023, when Silicon Valley Bank (SVB) went bankrupt, regulatory data revealed that Circle issued USDC had $3.3 billion in cash with SVB, causing USDC to drop by 13% in the over-the-counter market. Similarly, in May 2022, TerraUSD algorithmic stablecoin lost its peg, with its market value dropping from $1 to $0.04 within just five days, causing nearly $60 billion to evaporate instantly. These events reveal that stablecoins are not invulnerable safe havens; if the issuing institution or collateral encounters difficulties, holders may face redemption difficulties and suffer value depreciation. 2) Regulatory and legal risks: The uncertainty of regulatory policies in various countries may impact stablecoins. In recent years, some stablecoins and related platforms have faced scrutiny due to changes in the regulatory environment. For example, US regulatory agencies have raised serious questions about BUSD in recent years and ordered it to suspend operations.New issuance; at the same time, Hong Kong, the European Union and other regions have also imposed strict regulatory measures on stablecoin activities without licenses. The prosperity of the stablecoin market is like a building built on sand, heavily relying on a transparent regulatory framework. Once the regulatory environment becomes stricter, some stablecoins may find it difficult to avoid being cleared out or having to transform their operations, and investors will also face the dual challenge of rising compliance costs and the changing market dynamics.(3) Technology and Security Risks: The implementation of stablecoins on blockchain and smart contracts brings potential technological risks. Vulnerabilities in smart contract code, security flaws in cross-chain bridge technology, or hacker attacks can all lead to financial losses. For example, stablecoin projects using cross-chain bridges for asset transfers may face the risk of user assets being frozen or stolen if the bridge protocol has security vulnerabilities. For instance, the Ronin Network and Wormhole cross-chain bridges have been targeted by hacker attacks, resulting in substantial asset losses. In addition, the smart contracts of algorithmic stablecoins may struggle to maintain their peg due to design flaws, as demonstrated by the UST collapse incident. It is important to note that the stablecoin market is not without risks, as technical failures can also trigger systemic risks. (4) Market Liquidity Risk: During extreme market fluctuations, stablecoins may face the risk of liquidity depletion and redemption runs. If a large number of holders simultaneously request redemptions, or if stablecoins encounter a crisis of confidence in the secondary market, their liquidity may rapidly diminish, making it difficult to redeem them on time and at face value. Historical cases, such as the collapse of a US bank leading to USDC becoming unanchored, demonstrate how market liquidity can deteriorate rapidly. It should be noted that stablecoin prices and market capitalization are not set in stone; fluctuations can lead to losses for investors and have an impact on the overall market's clearance and payment functions. In summary, while stablecoins are designed to be stable, their credit foundation, regulatory environment, and technological implementation can all be potential risk factors. Investors need to be fully aware of these risks and closely monitor the compliance dynamics and technical audit reports of the projects to prevent potential risks and avoid significant economic losses. (Potential Impact on Investors) Cryptocurrencies pegged to fiat currencies or other stable assets - stablecoins - provide investors with a means of hedging and capital flow in the volatile digital asset market. During severe market fluctuations, investors can quickly convert risky assets into stablecoins to ensure returns and reduce losses caused by volatility. Stablecoins also support low-cost, borderless instant payments, widely used for overseas shopping, cross-border education, etc., greatly enhancing the efficiency and convenience of cross-border fund flows. From an investment perspective, stablecoins have low value fluctuations, closer to "digital cash" or an "e-wallet," suitable for asset preservation and liquidity management, but their appreciation potential is not significant. With the deepening integration of stablecoins with traditional financial systems and the decentralized finance (DeFi) ecosystem, financial services around stablecoins (such as deposit lending, collateral mining, liquidity provision, etc.) are expanding, creating new revenue opportunities for investors. However, investors must closely monitor the compliance, fund security, and platform credit risks of these products to avoid asset losses due to opaque project information or technical issues. Additionally, stablecoins are not entirely stable; their price and liquidity may also fluctuate. In conclusion, as "digital cash" or "digital gold," stablecoins are expected to continue to gain prominence in the global financial system. Investors should comprehensively evaluate the stability mechanism and compliance risks of stablecoins and exercise caution. By judiciously utilizing stablecoin tools within their risk tolerance, investors can enhance the efficiency of asset allocation and the convenience of cross-border finance.