Stablecoins have surged into the global financial spotlight, emerging as a transformative force at the intersection of traditional finance and blockchain innovation. As digital assets pegged to fiat currencies, they combine the efficiency of cryptocurrencies with the relative price stability of conventional money. According to Lian Ping, Chief Economist at Guangkai Industrial Research Institute and Chairman of the China Chief Economists Forum, stablecoins are poised for rapid growth over the coming years—driven by regulatory clarity, technological advantages, and rising adoption—but not without significant risks that demand careful oversight.
This article explores the dual nature of stablecoins, their growing role in global payments, inherent vulnerabilities, and strategic implications for international monetary systems—especially in the context of dollar dominance and the potential for a renminbi-linked stablecoin.
What Are Stablecoins? Bridging Fiat and Crypto
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Stablecoins are privately issued digital tokens built on blockchain networks, designed to maintain a stable value by being fully backed by reserve assets—typically one-to-one with fiat currencies like the U.S. dollar. They inherit key features from cryptocurrencies: decentralization, transparency, 24/7 availability, and near-instant settlement. At the same time, they avoid the extreme volatility associated with Bitcoin or Ethereum by anchoring their value to real-world assets.
Lian Ping emphasizes that stablecoins function primarily as payment instruments, not speculative virtual assets. Their core utility lies in enabling fast, low-cost cross-border transactions and serving as a bridge between traditional financial systems and the crypto economy. By tokenizing fiat currency, stablecoins allow seamless transfers across borders and platforms, with transaction speeds measured in seconds rather than days.
As of April 2025, the total market capitalization of stablecoins has surpassed $220 billion**, with annual trading volumes reaching **$6.7 trillion. Projections suggest this could expand to $2 trillion by 2028—an exponential rise signaling strong demand for efficient digital settlement tools.
The market is currently dominated by two major players: USDT (Tether) and USDC (USD Coin), which together account for over 90% of circulating supply. Collectively, stablecoins represent about 8% of the entire crypto asset market, underscoring their growing systemic importance.
Expanding Use Cases: From Niche to Mainstream
Originally used mainly within cryptocurrency exchanges for trading pairs, stablecoins are now penetrating broader economic domains. Their applications span:
- Cross-border trade settlements
- Everyday retail payments
- Remittances
- Decentralized finance (DeFi) lending and yield generation
- Investment clearing and settlement
Major corporations and fintech platforms are increasingly integrating stablecoin solutions to reduce friction and costs in global operations. This shift poses a direct challenge to legacy banking infrastructure, which often suffers from high fees, slow processing times, and limited accessibility.
However, despite their name, stablecoins are not immune to instability—a paradox rooted in both design and external market forces.
The Paradox of Stability: Why Stablecoins Can Be Unstable
👉 Learn what really backs your digital dollars—and why it matters.
Lian Ping succinctly captures the contradiction: "Stablecoins are both stable and unstable."
They are stable in structure—each unit is theoretically backed 1:1 by reserves in cash or short-term government securities like U.S. Treasury bills. Under normal conditions, this ensures minimal price deviation from the peg.
Yet they become unstable when underlying assumptions break down:
- Reserve insufficiency: If issuers fail to hold full backing—or use risky or illiquid assets—the peg can collapse. Historical examples like the 2022 depegging of UST (TerraUSD) demonstrate how quickly confidence can erode.
- Anchor currency volatility: Even if reserves are sufficient, the value of the backing currency itself may fluctuate. For instance, most dollar-pegged stablecoins rely heavily on U.S. Treasuries. When bond markets experience turbulence—as seen during periods of inflation spikes or interest rate shifts—the stability of these reserves is compromised.
- Systemic risk accumulation: With over 95% of all stablecoins tied to the U.S. dollar, and roughly 80% of those backed by Treasuries, any large-scale sell-off or loss of confidence could ripple through global financial markets.
Furthermore, because many stablecoin issuers operate outside traditional banking regulation, there’s a growing concern about unchecked money creation and credit expansion—potentially fueling inflationary pressures or destabilizing national monetary policies.
Regulatory Imperatives: Building Trust Through Oversight
To mitigate these risks, robust regulatory frameworks are essential. Lian Ping advocates for comprehensive oversight mechanisms, including:
- Full reserve requirements with independent third-party custody
- Regular public audits and real-time disclosure of reserve composition
- Prohibition on paying interest on stablecoin balances (to prevent them from becoming de facto bank deposits)
- Strict licensing and operational controls for issuers
- Real-time monitoring by financial regulators
Recent initiatives such as Hong Kong’s Draft Stablecoin Bill reflect this trend toward stricter governance. Such regulations aim to ensure that stablecoins remain reliable payment tools without undermining central bank authority or financial stability.
Impact on the Dollar System and Global Monetary Order
While dollar-based stablecoins reinforce short-term demand for U.S. dollars in digital form, their long-term impact may be more complex.
Currently, the U.S. dollar accounts for about 58% of global official foreign exchange reserves (as of late 2024), largely held in U.S. Treasury securities. As more stablecoins back themselves with Treasuries, they increase demand for these bonds—temporarily supporting dollar strength.
But Lian Ping warns of a countertrend: as foreign investors grow wary of U.S. debt sustainability and geopolitical risks, capital may exit Treasuries. To absorb this outflow, the Federal Reserve might need to expand its balance sheet—effectively monetizing more debt—which could weaken the dollar over time.
Thus, while stablecoins may initially bolster dollar usage in digital ecosystems, their structural dependence on volatile bond markets introduces a feedback loop that could eventually undermine currency stability.
Strategic Opportunity: The Case for a Renminbi Stablecoin
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In an era of accelerating “de-dollarization,” China has a strategic window to advance RMB internationalization through digital innovation. Lian Ping suggests that developing an offshore RMB-backed stablecoin could enhance China’s presence in global payments.
Key recommendations include:
- Designing a secure, regulated RMB stablecoin framework
- Leveraging Hong Kong’s financial infrastructure as a testing ground
- Integrating stablecoins into Belt and Road Initiative trade settlements
- Creating real-world use cases in cross-border e-commerce and remittances
- Collaborating with international regulators on standards and interoperability
Such a move would not only diversify global reserve assets but also position the RMB as a credible alternative in the digital age.
FAQs: Understanding Stablecoins
Q: Are stablecoins completely risk-free because they’re “stable”?
A: No. While designed to minimize price swings, stablecoins face risks related to reserve transparency, issuer solvency, regulatory changes, and macroeconomic shifts in their anchor currencies.
Q: How do stablecoins differ from central bank digital currencies (CBDCs)?
A: Stablecoins are privately issued and typically backed by commercial assets; CBDCs are direct liabilities of central banks and represent sovereign digital money with full legal tender status.
Q: Can stablecoins replace traditional banking?
A: Not fully—but they can disrupt specific functions like cross-border payments and remittances by offering faster, cheaper alternatives.
Q: Why do most stablecoins use U.S. Treasuries as reserves?
A: Because Treasuries are highly liquid, widely trusted, and generate yield—making them ideal collateral for maintaining pegs while generating returns for issuers.
Q: Is a renminbi stablecoin feasible today?
A: Technically yes—but it would require regulatory alignment, offshore liquidity pools, and international trust in RMB convertibility and stability.
Q: Will stablecoin regulation stifle innovation?
A: Well-designed regulation enhances trust and adoption. Clear rules encourage institutional participation and protect users—ultimately fostering sustainable growth.
Conclusion: The Future Is Tokenized Money
Stablecoins represent a powerful fusion of old and new financial paradigms. Their ability to deliver fast, low-cost, borderless payments makes them indispensable in an increasingly digital world. Yet their promise hinges on responsible governance.
Without strict oversight, they risk becoming sources of systemic instability. With it, they can evolve into trusted pillars of the next-generation financial system—one where efficiency meets accountability.
As nations navigate this transformation, proactive strategies—like exploring a regulated RMB stablecoin—could redefine global monetary dynamics in the decade ahead.