Liu Yiru: The Global Game of Stablecoins

Compiled by: Bai Yao | Edited by: Wang Xianqing

Prologue: On October 15, 2025, the 197th issue of "Langrun·Ge Zheng" from the National School of Development at Peking University was held at Chengze Garden. This article is based on the keynote speech by Liu Yiru, an adjunct professor in the Department of Finance and Banking at National Taiwan University.

I am very pleased to be at the National School of Development at Peking University to discuss the highly relevant topic of stablecoins. This topic does not yet have a standard answer, and I hope everyone can think about future possibilities from different perspectives.

The Origin of Digital Currency

The famous economist Hayek once posed the question: "Can money only be issued by central banks?" In his book "Denationalisation of Money," he pointed out that money was not initially dominated by the state, such as the earliest shell money. As long as an item can gain public trust, it can serve as money. He believed that the issuance of money should not be monopolized by a country's central bank.

Stablecoins are a type of digital currency, so their origin naturally traces back to digital currencies like Bitcoin. I have personally believed for a long time that Bitcoin's creator, Satoshi Nakamoto, was likely inspired by Hayek's ideas when designing Bitcoin. Nakamoto expressed distrust in banks, believing that their accounts often contained errors, and that what was more reliable was mathematics and cryptography. He stated, "What is really needed is a payment system based on cryptographic proof, rather than trust."

Bitcoin was born during the 2008 financial crisis, with Lehman Brothers collapsing on September 15, 2008, and Nakamoto publishing the Bitcoin white paper in October of the same year. This timing is quite significant, as if it were a response to the financial system at that time. Nakamoto's white paper, formatted like a rigorous academic paper, systematically elaborated on the operational mechanism of Bitcoin, including an abstract, introduction, graphical explanations of blockchain principles, and even mathematical equations and references. This rigorous structure makes it difficult for people to dismiss it as a joke.

The Design Philosophy and Characteristics of Bitcoin

1. Fixed Supply

When Bitcoin was launched, it was right after Lehman's collapse, and banks were reluctant to lend due to mutual distrust, leading to extreme liquidity shortages. On October 10, 2008, the International Monetary Fund (IMF) and the World Bank held a meeting to establish the principle of "extraordinary times require extraordinary measures," led by then-Federal Reserve Chairman Ben Bernanke. Bernanke pointed out in his academic papers that the fundamental measure to address the Great Depression of the 1930s should have been to print a large amount of money, which was not done at that time. Therefore, he promoted quantitative easing (QE) in 2008. Quantitative easing is not ordinary monetary easing. When the Treasury is short of funds and issues bonds that no one buys during a crisis, the central bank prints money to purchase these bonds. This behavior essentially violates the principle of central bank independence.

In response to this monetary over-issuance and loss of trust, Nakamoto designed Bitcoin, one of its core characteristics being a fixed supply. The total amount of Bitcoin is permanently capped at 21 million coins; not only is the total amount fixed, but the annual output is also predetermined, with all being produced according to cryptographic equations before 2140. As of 1:20 PM on October 15, 2025 (the date of the speech), approximately 919,000 blocks had been generated, producing about 19.93 million Bitcoins, accounting for about 95% of the total supply. The remaining portion will still take about 115 years to be fully produced.

2. Decentralization

The block structure of Bitcoin is also quite distinctive. Transactions worldwide are not chaotic but form a single, chronologically extending chain. For example, block 919140 clearly records its formation time as October 15, 2025, at 1:52:08 PM, containing 3,700 transactions.

From a technical perspective, blockchain can be seen as a process that requires solving complex mathematical problems. When a certain number of transactions accumulate in the network (for example, a block contains 4,000 transactions), so-called "miners" compete to find a mathematical solution that can verify all these transactions. Whoever first finds the correct solution through extensive calculations (simulations) that can be synchronized and verified by the entire network gains the right to package this block and receives Bitcoin as a system reward. The initial block reward was 50 Bitcoins, which is halved approximately every four years, changing to 25, 12.5, 6.25, and currently 3.125.

3. Blockchain as the Computational Foundation

Blockchain is a distributed ledger, and its operation can be likened to a WeChat group: if A publicly declares in the group that he owes B 10,000 yuan, and B publicly confirms it, then if A publicly declares that he has repaid the debt and receives B's public confirmation, all members of the group become witnesses to this transaction, making it irreversible, immutable, and verifiable.

4. Low Transaction Fees

Through modern internet technology, Bitcoin transfers between buyers and sellers are characterized by speed and clarity; for cross-border fund transfers, it saves considerable time and costs.

Bitcoin's Price Volatility and Market Acceptance

Looking back at Bitcoin's price history, it seems chaotic but actually has its patterns.

In 2012, as the European debt crisis deepened and market confidence in the euro wavered, some funds began to view Bitcoin as a safe haven, causing Bitcoin's price to astonishingly rise 91 times from the low at the beginning of the year to the highest point in 2013; in 2017, the Japanese government announced that stores could accept Bitcoin payments, and the Chicago Mercantile Exchange (CME) and the Chicago Board Options Exchange (CBOE) launched Bitcoin futures, marking Bitcoin's entry into the mainstream world. That year, Bitcoin surged from about $1,000 at the beginning of the year to nearly $20,000 by the end of the year, an increase of 19 times.

In 2021, in response to the COVID-19 pandemic, the Federal Reserve's balance sheet surged from $4.2 trillion to nearly $9 trillion, reigniting concerns about the value of the dollar, and Bitcoin's price subsequently soared above $70,000, followed by a sharp correction. Since 2025, Bitcoin's price volatility has remained significant, having experienced a sharp decline after the Trump administration announced that Bitcoin would be included in the U.S. strategic reserves.

From a global market capitalization perspective, the total market value of cryptocurrencies has become quite substantial. For example, as of September 2025, gold ranked first with a market value of $24.2 trillion, NVIDIA ranked first among companies with $4.2 trillion, and the total market value of all cryptocurrencies was $3.85 trillion, with Bitcoin itself valued at $2.2 trillion.

A notable change is that since 2023, the amount of Bitcoin held by institutional investors has surpassed that held by retail investors. This is due to the introduction of Bitcoin ETFs, which has changed its perception as a purely speculative tool.

At the same time, publicly traded companies have begun to purchase cryptocurrencies in large quantities to boost their stock prices, with Bitcoin accounting for nearly 70%. For example, MicroStrategy's market value grew by 3000% over five years after it began purchasing Bitcoin in 2020. By 2025, 154 publicly traded companies in the U.S. held Bitcoin, although many of these companies had no connection to cryptocurrency businesses. This phenomenon hides risks.

The Essence of Stablecoins and the Impact of the "Genius Act"

Now let’s talk about stablecoins.

First, it is essential to clarify that stablecoins are fundamentally different from Bitcoin. Bitcoin's price is highly volatile, while the "stability" of stablecoins lies in their value being pegged to a certain asset (such as the U.S. dollar). USDT, for example, maintains a 1:1 exchange ratio with the dollar. Therefore, investing in stablecoins is essentially equivalent to investing in the currency they are pegged to (such as the U.S. dollar).

The largest stablecoin, USDT (Tether), has existed since 2014. Stablecoins were initially designed to serve the internal ecosystem of cryptocurrencies. When users receive highly volatile assets like Bitcoin, they can exchange them for stablecoins (equivalent to converting to dollars) to avoid price volatility risks, and then convert back to other cryptocurrencies when the timing is right. For many years, stablecoins primarily circulated within the closed system of cryptocurrencies.

So why did stablecoins become a global focus in 2025? The root cause lies in the "Genius Act" passed in the U.S. on July 17, 2025. The core of this act is to provide government backing for compliant stablecoin issuance.

The operational model of stablecoins is as follows: issuing institutions (such as Tether) claim to deposit a certain amount of cash or highly liquid assets (such as U.S. Treasury bonds) into commercial banks as reserves, and then issue tokens (representing digital dollars) on a 1:1 basis. However, for a long time, the public has harbored doubts about whether they genuinely hold sufficient reserves, and there have indeed been instances in history where stablecoin institutions lacked sufficient reserves.

The "Genius Act" attempts to address this trust issue. It stipulates that the U.S. government will regularly verify and certify the reserves of stablecoin issuing institutions every month. Although the commitment to "monthly verification" may still have regulatory loopholes, government involvement undoubtedly greatly enhances its credibility. Meanwhile, after the Trump administration took office, it quickly halted the Federal Reserve's plan to issue central bank digital currency (CBDC) and instead encouraged private institutions to issue stablecoins under government regulation.

This policy is equivalent to the U.S. government providing a "guarantee" for stablecoins, allowing them to begin entering the traditional financial sector in a significant way, which were previously limited to the cryptocurrency world. For example, when Japanese companies trade with African countries, if they remit through banks and complete settlements using the SWIFT system, the process is often cumbersome, time-consuming, and costly. However, if they directly convert yen into dollar stablecoins via mobile phones and instantly transfer them to their African partners, the recipients can quickly receive the funds. This method is not only fast but also significantly reduces costs. Due to its speed and low cost, the potential of stablecoins in trade payments and other scenarios has garnered widespread attention, leading to global recognition since July 2025.

Global Game: Multi-Country Layout and U.S. Debt Dilemma

The current situation is a "global game." There are over a hundred types of stablecoins, some pegged to the dollar, others to the euro or gold, but the two largest dollar stablecoins, USDT and USDC, account for over 90% of the market share. Currently, the total scale of all stablecoins has exceeded $300 billion.

In the past, stablecoins operated in the virtual world of cryptocurrencies without much regulation. However, if stablecoins gain widespread trust and global trade and payments shift to using dollar stablecoins, it will undoubtedly greatly strengthen the dollar's position. This is clearly not something other countries would like to see.

As a result, many countries have begun to lay out their own local stablecoins: Japan announced it would launch a yen stablecoin by the end of the year; seven banks in Europe are jointly preparing a euro stablecoin; Hong Kong has passed relevant laws in August to plan for the launch of stablecoins in Hong Kong dollars, U.S. dollars, and renminbi; South Korea is also advancing a won stablecoin.

This competitive landscape means that the future international payment system will see various stablecoins competing with each other, and many smaller coins may also have development opportunities. Currently, there is no definitive conclusion about this development trend, which is also why there is no clear answer to this issue. However, it is clear that we foresee fierce competition in the field of stablecoins.

The U.S. is strongly promoting the "Genius Act" at this time, and its deeper strategic intentions are thought-provoking. A common analysis is that the U.S. may hope to use stablecoins to find "buyers" for its ever-expanding national debt.

Analysis of the continuous rise in U.S. national debt and its underlying causes shows that this issue is rooted in its long-term structural fiscal deficit. Since the 1960s, the U.S. federal government has only achieved a fiscal surplus during President Clinton's term; at other times, it has been running deficits year after year, having to issue new debt to cover the shortfall.

For example, in the fiscal year 2023, the federal deficit reached $1.83 trillion, even exceeding the deficit level of $1.75 trillion in 2009 after the global financial crisis. Additionally, the so-called "Big and Beautiful Act" passed in 2025 is expected to add trillions of dollars in spending, further exacerbating fiscal pressure. The accumulated deficits over the years have been filled by issuing government bonds, causing the total U.S. federal debt to rise to about $37 trillion.

The impact of the massive debt scale is directly reflected in interest expenditures. In 2020, interest expenditures accounted for about 5% of the U.S. federal government's total expenditures. According to data for the fiscal year 2024 (ending September 30, 2024), this proportion has sharply risen to about 14%. This means that for every $100 the government spends, $14 goes to pay debt interest. Such a heavy interest burden severely squeezes fiscal resources that could be used for infrastructure construction, public services, and other areas, partially explaining the phenomenon of aging and dilapidated infrastructure in the U.S.

In the face of enormous debt, the U.S. government's conventional operation is to "borrow new to pay old," meaning that when bonds mature, it raises funds by issuing new bonds to repay old debt principal. However, this is predicated on the market always having buyers willing to purchase new debt. For a long time, many economies, including those in Asia, have accumulated large amounts of U.S. dollar foreign exchange reserves through trade surpluses and have purchased a significant amount of U.S. Treasury bonds, forming a cycle: the U.S. buys goods with dollars, exporting countries use the dollars earned to buy U.S. Treasury bonds, which flow back to the U.S., allowing it to maintain imports and expenditures. However, this model is facing challenges.

Recently, the total amount of U.S. Treasury bonds held by global central banks has fallen below the total amount of gold reserves for the first time in decades. Countries like China have been continuously reducing their holdings of U.S. debt, reflecting a reconsideration of excessive reliance on dollar assets. Currently, the holding structure of U.S. Treasury bonds has shifted to about 75% held domestically (including insurance institutions, pension funds, the Federal Reserve, etc.), with foreign holders accounting for about 25%.

Against this backdrop, dollar stablecoins have unexpectedly become an important new "buyer" for U.S. Treasury bonds. According to regulatory requirements, major dollar stablecoins (such as USDT and USDC) must hold a high proportion of U.S. Treasury bonds and other products as high-quality collateral. Currently, the total market value of global stablecoins has exceeded $300 billion, and the scale of U.S. Treasury bonds held by their issuing institutions is estimated to have surpassed $200 billion, a scale sufficient to rank among the major holders of U.S. Treasury bonds globally. If stablecoins are more widely applied in global trade and payments in the future, their scale may significantly grow, continuously creating new demand for U.S. Treasury bonds.

The U.S. Treasury Secretary has cited Standard Chartered Bank's prediction that the market value of stablecoins could reach $2 trillion by 2028. Citibank also estimates that by 2030, the market value of stablecoins could reach between $1.6 trillion and $3.7 trillion. Although the specific calculations behind these predictions require further examination, they reveal a possibility: the growing demand for dollar stablecoins in global commercial activities may indirectly translate into stable purchasing power for U.S. Treasury bonds.

In summary, the root of the U.S. debt problem lies in long-term fiscal deficits, and the high interest has become a heavy burden. Traditional overseas official investors' willingness to increase their holdings of U.S. debt has declined, but the emerging dollar stablecoin system, which heavily anchors U.S. debt, is becoming a new source of demand that cannot be ignored.

This raises deeper reflections: if dollar stablecoins dominate global digital payments in the future, does it mean that the global commercial system will passively and on a larger scale finance U.S. debt? This is clearly not a situation that other major economies would welcome, and it suggests that the global monetary and financial landscape may enter a more complex and diverse competitive era.

It is foreseeable that in the future, if a Japanese company trades with a German company, both sides will naturally tend to choose their respective local stablecoins for settlement— the Japanese side may propose using a yen stablecoin, while the German side may prefer using a euro stablecoin. The final outcome will depend on the negotiation positions of both parties, and it is likely that one will be chosen between yen or euro, rather than opting for the dollar. Therefore, the prediction that the market value of dollar stablecoins will surge from the current approximately $300 billion to $2 trillion is questionable.

Another crucial issue is liquidity risk. The case of Silicon Valley Bank in 2023 serves as a significant warning. This bank had absorbed a large amount of deposits from technology companies and primarily allocated funds to what were considered the safest and most liquid U.S. Treasury bonds. However, when interest rates rose and depositors rushed to withdraw funds, the bank was forced to sell a large amount of Treasury bonds in a short period, leading to losses and triggering market panic about its solvency, ultimately collapsing overnight in a digital bank run. This case illustrates that safe collateral assets (such as U.S. Treasury bonds) do not equate to a safe system.

Applying this reasoning to the field of dollar stablecoins: if their issuance is concentrated on U.S. Treasury bonds as collateral, once global market confidence in the dollar wavers, a large number of users simultaneously request to redeem stablecoins for other assets, the issuing institutions will have to sell off large amounts of U.S. Treasury bonds to respond to the redemption wave. Such concentrated selling could likely trigger a sharp drop in Treasury bond prices, leading to an invisible and potentially massive "U.S. Treasury bond crisis." The current $300 billion worth of stablecoins anchored to U.S. Treasury bonds is already nearly half of China's holdings (around $700 billion); if their scale truly expands to $2 trillion in the future, the hidden systemic financial risks are immeasurable.

Thus, the future of dollar stablecoins is fundamentally tied to the credit and prospects of the dollar itself. Although no single currency can currently completely replace the dollar, if the market reaches a consensus on the long-term depreciation of the dollar, the path of expansion for dollar stablecoins will also be fraught with uncertainty.

Additionally, observing the historical prices of gold and the dollar can provide us with a broader perspective. Since 2025, gold prices have risen significantly, often interpreted as a safe-haven response to challenges to dollar hegemony, rooted in concerns over dollar over-issuance and failure to uphold credit. Subsequently, the U.S. redefined the demand basis for the dollar by binding oil transactions to the dollar through agreements with countries like Saudi Arabia. Now, attempts to conduct commodity transactions in non-dollar currencies (such as the renminbi) internationally are shaking this foundation.

It is noteworthy that the U.S. Treasury still values its massive gold reserves at the official price from the early 1970s (at $42 per ounce), far below the market price. Some market opinions even suggest that the U.S. may alleviate fiscal pressure in the future by revaluing and selling part of its gold reserves. This indicates that the current rise in gold prices is not solely driven by safe-haven sentiment; there may be more complex macro games and potential policy intentions behind it.

Based on long-term observations of the dollar index, since the collapse of the Bretton Woods system in 1972, the dollar has experienced three significant upward cycles, but the peak and sustainability of its increases seem to show a decreasing trend. The dollar's dominant position appears to be facing fundamental challenges, and whether it can maintain its hegemony in the future is a huge question mark.

Currently, although no other single currency can immediately replace the dollar, even if the U.S. vigorously promotes dollar stablecoins through measures like the "Genius Act," maintaining dollar hegemony still faces unprecedented challenges. These challenges arise from competition from multipolar digital currencies, hidden systemic liquidity risks, and the growth model driven by U.S. debt and historical credit erosion.

The future of the global monetary system is likely to move toward a more diversified, competitive, and uncertain landscape.