Traditional finance is gradually accepting stablecoins, and its market size is continuously expanding. Stablecoins have become the optimal solution for building global fintech due to their three core advantages: high speed, nearly zero cost, and high programmability. The transition between old and new technological paradigms means that the logic of business operations will undergo fundamental restructuring; this process will also give rise to new types of risks. After all, the "self-custody model" priced in digital bearer assets (rather than recorded deposits) is fundamentally different from the banking system that has existed for hundreds of years.
So, what macro monetary structural and policy issues do entrepreneurs, regulators, and traditional financial institutions need to address for a smooth transition? We will conduct an in-depth discussion around three major challenges to provide builders (whether startups or traditional institutions) with current focus solutions: the singularity of currency, the practice of dollar stablecoins in non-dollar economies, and the reinforcing effect of government bond backing on currency value.
The Challenge of Currency Monism and the Construction of a Unified Currency System
Monetary unity means that all forms of money in an economy, regardless of issuer or deposit, are freely convertible at face value (1:1) and used for payment, pricing, and contracts. The essence of this is that even if there are multiple institutions or technologies to issue monetary instruments, a unified monetary system can still be formed. In practice, Chase Bank's U.S. dollar, Wells Fargo's U.S. dollar, Venmo account balances, and stablecoins should theoretically always maintain a strict 1:1 exchange relationship – despite the differences in the asset management methods of each institution and the importance of regulatory status is often overlooked. In a sense, the history of U.S. banking is a history of continuous optimization of the system to ensure the fungibility of the dollar.
The reason why the World Bank, central banks, economists, and regulatory agencies advocate for monetary singularity is that it greatly simplifies transactions, contracts, governance, planning, pricing, accounting, security, and daily payment processes. Today, businesses and individuals have come to take monetary singularity for granted.
However, the current stablecoins have not yet achieved this feature due to their insufficient integration with traditional financial infrastructure. If Microsoft, banks, construction companies, or homebuyers attempt to exchange 5 million dollars worth of stablecoins through an automated market maker (AMM), the actual exchange amount will be less than 1:1 due to slippage limited by liquidity depth; large transactions may even trigger market fluctuations, resulting in users ultimately receiving less than 5 million dollars. If stablecoins are to realize a financial revolution, this situation must change.
A unified face value exchange system is key. If stablecoins cannot function as part of a unified currency system, their utility will be greatly diminished.
The operating mechanism of stablecoins is as follows: issuers (such as Circle and Tether) primarily provide direct redemption services to institutional clients or users who go through a verification process (e.g., Circle's Circle Mint (formerly Circle Account) supports enterprises in minting and redeeming USDC; Tether allows verified users (usually with a threshold of over 100,000 USD) to redeem directly); decentralized protocols (such as MakerDAO) achieve fixed exchange rates between DAI and other stablecoins (such as USDC) through the peg stability module (PSM), essentially acting as a verifiable redemption/conversion tool.
These solutions are effective but have limited coverage, and require developers to cumbersome connect with each issuer. If direct connection is not possible, users can only exchange between different stablecoins or exit through market execution (rather than face value settlement).
Even if a company or application promises a very narrow price spread, such as strictly maintaining 1 USDC to 1 DAI (with a spread of only 1 basis point), this commitment is still subject to liquidity, balance sheet capacity, and operational capabilities.
Central Bank Digital Currency (CBDC) theoretically could unify the monetary system, but issues such as privacy leakage, financial monitoring, limited currency supply, and slowed innovation make it more likely that models optimizing existing financial systems will prevail.
Therefore, the core challenge for builders compared to traditional institutions is: how to make stablecoins (alongside bank deposits, fintech balances, and cash) truly become a form of currency. Achieving this goal will create the following opportunities for entrepreneurs:
Universal Minting and Redemption: The issuer collaborates deeply with banks, fintech companies, and other existing infrastructures to achieve seamless deposits and withdrawals, injecting interchangeability into stablecoins through existing systems, making them indistinguishable from traditional currencies;
Stablecoin Clearinghouse: Establish a decentralized collaboration mechanism (similar to a stablecoin version of ACH or Visa) to ensure instant, frictionless, and transparent exchanges. The current PSM is a viable model, but expanding its functionality to achieve a 1:1 settlement between participating issuers and fiat currency would be more optimal;
Trustworthy and Neutral Collateral Layer: Migrate convertibility to widely adopted collateral layers (such as tokenized bank deposits or U.S. Treasury wrapped assets), allowing issuers to flexibly explore brand, market, and incentive strategies, while users can redeem as needed.
Better exchanges, intent execution, cross-chain bridges, and account abstraction: Upgrade versions of existing mature technologies that automatically match the best deposit and withdrawal paths or execute optimal exchange rates; build multi-currency exchanges with minimal slippage. At the same time, hide complexity and ensure users enjoy predictable rates (even with large-scale use).
Dollar Stablecoins, Monetary Policy, and Capital Regulation
There is a huge structural demand for the US dollar in many countries: for residents of countries with high inflation or strict capital controls, US dollar stablecoins are a "savings umbrella" and a "global trade gateway"; For businesses, the U.S. dollar is the international unit of account that simplifies cross-border transactions. People need a fast, widely accepted, and stable currency to make ends meet, but the current cost of cross-border remittances is as high as 13%, 900 million people live in high-inflation economies without stable currencies, and 1.4 billion people are inadequately banked. The success of the USD stablecoin not only confirms the demand for the US dollar, but also reflects the market desire for a better currency.
Apart from political and nationalist factors, one of the core reasons for countries to maintain their local currencies is to respond to local economic shocks (such as production disruptions, export declines, and fluctuations in confidence) through monetary policy tools (interest rate adjustments and currency issuance).
The proliferation of US dollar stablecoins may weaken the effectiveness of other countries' policies—rooted in the economic concept of the Impossible Trinity: a country cannot simultaneously achieve three goals: free capital flow, a fixed/strictly managed exchange rate, and an independent domestic interest rate policy.
Decentralized peer-to-peer transfers will simultaneously impact these three major policies:
Bypass capital controls and force the capital flow valves to open completely;
Dollarization weakens the effectiveness of exchange rate controls or domestic interest rate policies by anchoring to an international unit of account;
Countries rely on the intermediary banking system to guide residents to use their local currency, thereby maintaining the implementation of policies.
However, USD stablecoins remain attractive to other countries: lower costs and programmable dollars can facilitate trade, investment, and remittances (the majority of global trade is priced in USD, and the circulation of USD enhances trade efficiency); governments can still tax the deposit and withdrawal processes and regulate local custodians.
However, the anti-money laundering, anti-tax evasion, and anti-fraud tools at the level of international payments that the intermediary banks face still pose challenges for stablecoins. Although stablecoins operate on publicly programmable ledgers, making it easier to develop and build security tools, these tools need to be implemented in practice - this provides entrepreneurs with the opportunity to integrate stablecoins into the existing international payment compliance systems.
Unless sovereign countries abandon valuable policy tools in pursuit of efficiency (which is extremely unlikely), or give up on combating financial crimes (which is even less likely), entrepreneurs need to build systems to optimize the integration of stablecoins with the local economy.
The core contradiction lies in how to strengthen safeguards (such as foreign exchange liquidity, anti-money laundering (AML) regulation, and macro-prudential buffers) while embracing technology, in order to achieve compatibility between stablecoins and local financial systems. Specific implementation paths include:
Localization of US Dollar Stablecoin Acceptance: Integrating US dollar stablecoins into local banks, fintech, and payment systems (supporting small, optional, potentially taxable exchanges) to enhance local liquidity without completely impacting the local currency;
Local currency as a bridge between deposits and withdrawals: Launch a local currency stablecoin with deep liquidity and deep integration into local financial infrastructure. Although a clearing house or neutral collateral layer is required to activate (see Part 1), once integrated, the local stablecoin will be the best foreign exchange instrument and the default high-performance payment track;
On-chain Forex Market: Build a matching and price aggregation system across stablecoins and fiat currencies. Market participants may need to hold interest-bearing instruments as reserves and support existing forex trading strategies through leverage;
Western Union Competitors: Build a compliant offline cash deposit and withdrawal network, incentivizing agents through stablecoin settlements. Although MoneyGram has launched similar products, other institutions with mature distribution networks still have room for growth.
Compliance Upgrade: Optimize existing compliance solutions to support stablecoin tracks. Leverage the programmability of stablecoins to provide richer, real-time insights into cash flows.
The Impact of Government Bonds as Collateral for Stablecoins
The widespread adoption of stablecoins stems from their near-instant, near-zero cost, and infinitely programmable characteristics, rather than government bond backing. Fiat-backed stablecoins were first widely adopted simply because they are easier to understand, manage, and regulate. User demand is driven by practicality (24/7 settlement, composability, global demand) and confidence, rather than collateral structures.
But fiat-backed stablecoins may find themselves in trouble due to success—if the issuance increases tenfold (from the current $262 billion to $2 trillion in a few years), and regulatory requirements mandate backing with short-term US Treasury bills (T-Bills), how will this impact the collateral market and credit creation? While this scenario is not inevitable, the effects could be profound.
The holdings of short-term government bonds have surged ###.
If $2 trillion in stablecoins were invested in short-term government bonds (one of the few assets currently explicitly supported by regulators), the issuers would hold about one-third of the $7.6 trillion stock of short-term government bonds. This role is similar to that of current money market funds (concentrated holders of low-risk liquid assets), but the impact on the government bond market would be more significant.
Short-term government bonds are high-quality collateral: globally recognized low-risk, high-liquidity assets, and priced in dollars, simplifying exchange rate risk management. However, the issuance of $2 trillion in stablecoins may lead to a decline in government bond yields and a contraction of liquidity in the repo market—each additional $1 of stablecoin investment is an extra bid for government bonds, allowing the U.S. Treasury to refinance at a lower cost, or making it harder for other financial institutions to obtain the collateral needed for liquidity (raising their costs).
A potential solution is for the Treasury to expand short-term debt issuance (such as increasing the short-term Treasury stock from $7 trillion to $14 trillion), but the continued growth of the stablecoin industry will still reshape the supply and demand landscape.
The Hidden Concerns of the Narrow Banking Model
The deeper contradiction lies in the fact that fiat-backed stablecoins are highly similar to "narrow banks": 100% reserve (cash equivalents) and no lending. This model is inherently low-risk (which is also the reason it was early recognized by regulators), but a tenfold increase in the scale of stablecoins (2 trillion USD in full reserves) will impact credit creation.
Traditional banks (fractional reserve banks) keep only a small portion of deposits as cash reserves, while the rest is used to lend to businesses, home buyers, and entrepreneurs. Under regulation, banks manage credit risk and loan terms to ensure that depositors can withdraw cash at any time.
The core reason for regulatory opposition to narrow banks accepting deposits is their lower money multiplier, which means a smaller scale of credit supported by a single dollar.
The economy relies on credit to operate—regulators, businesses, and individuals all benefit from a more active and interconnected economic ecosystem. If a small portion of the $17 trillion deposit base in the U.S. were to migrate to fiat-backed stablecoins, the low-cost funding sources for banks would shrink. Banks face a dilemma: either shrink credit (reduce mortgages, auto loans, and small business lending limits) or replace lost deposits through wholesale financing (such as advances from Federal Home Loan Banks), which is more expensive and has shorter terms.
However, stablecoins are superior currencies, with a circulation velocity far higher than traditional currencies—each stablecoin can be sent, spent, and borrowed by humans or software around the clock, enabling high-frequency usage.
Stablecoins also don't need to rely on Treasury backings: tokenized deposits are another path – stablecoin claims remain on bank balance sheets but circulate through the economy at the speed of modern blockchains. Under this model, deposits remain partially in the reserve banking system, and each stable-value token continues to support the issuer's lending business. The currency multiplier effect will return through traditional credit creation (rather than velocity of circulation), while users will still enjoy 7 × 24 settlement, composability, and on-chain programmability.
When designing stablecoins, achieving the following three points will be more beneficial for economic vitality:
By using a tokenized deposit model, deposits are retained within a fractional reserve system;
Diversified collateral (excluding short-term government bonds, including municipal bonds, high-rated corporate notes, mortgage-backed securities (MBS), and real-world assets (RWAs));
Built-in automatic liquidity pipeline (on-chain buyback, third-party facilities, CDP pool) to reinject idle reserves into the credit market.
This is not a compromise to the banks, but an option to maintain economic vitality.
Remember: our goal is to build an interdependent and sustainably growing economic system that makes loans for reasonable business needs more accessible. Innovative stablecoin designs can achieve this by supporting traditional credit creation, enhancing circulation speed, and developing collateralized decentralized lending and direct private lending.
Although the current regulatory environment restricts tokenized deposits, the clarification of the regulatory framework for fiat-backed stablecoins has opened the door for stablecoins that are collateralized with bank deposits.
Deposit-backed stablecoins allow banks to enhance capital efficiency while maintaining existing customer credit. They also enjoy the programmability, cost, and speed advantages of stablecoins. The operation model can be simplified as follows: when users choose to mint deposit-backed stablecoins, the bank deducts the balance from the user's deposit account and transfers the liability to the total stablecoin account; the stablecoins, representing non-negotiable debt denominated in US dollars, can be sent to the address specified by the user.
In addition to deposit-backed stablecoins, other solutions can also enhance capital efficiency, reduce friction in the government bond market, and increase circulation speed:
Facilitating Banks to Accept Stablecoins: Banks can retain the underlying asset yield and customer relationships by issuing or accepting stablecoins when users withdraw deposits, while also expanding payment services (without intermediaries);
Promote individual and enterprise participation in DeFi: As more users directly custody stablecoins and tokenized assets, entrepreneurs need to help them secure and quickly access funding;
Expand Collateral Types and Tokenize: Broaden the range of acceptable collateral (municipal bonds, high-rated corporate notes, MBS, real-world assets), reduce reliance on a single market, provide credit to borrowers outside of the U.S. government, while ensuring the quality and liquidity of the collateral;
Collateralization on Chain Enhances Liquidity: Tokenizing real estate, commodities, stocks, government bonds, and other collateral to build a richer collateral ecosystem;
Collateralized Debt Position (CDP): Utilizes the DAI model of MakerDAO (collateralized by diversified on-chain assets), replicating the bank's monetary expansion on-chain while diversifying risks. Such stablecoins must undergo rigorous third-party audits and transparent disclosures to verify the stability of the collateral model.
Conclusion
The challenges are great, but the opportunities are even greater. Entrepreneurs and policymakers who understand the nuances of stablecoins will shape a smarter, safer, and better financial future.
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The content is for reference only, not a solicitation or offer. No investment, tax, or legal advice provided. See Disclaimer for more risks disclosure.
Three Steps of Chess: How Far Are Stablecoins from Becoming Currency?
Original author: Sam Broner
Compiled | Odaily Planet Daily (@OdailyChina)
Translator | Ethan (@ethanzhang_web3)
Traditional finance is gradually accepting stablecoins, and its market size is continuously expanding. Stablecoins have become the optimal solution for building global fintech due to their three core advantages: high speed, nearly zero cost, and high programmability. The transition between old and new technological paradigms means that the logic of business operations will undergo fundamental restructuring; this process will also give rise to new types of risks. After all, the "self-custody model" priced in digital bearer assets (rather than recorded deposits) is fundamentally different from the banking system that has existed for hundreds of years.
So, what macro monetary structural and policy issues do entrepreneurs, regulators, and traditional financial institutions need to address for a smooth transition? We will conduct an in-depth discussion around three major challenges to provide builders (whether startups or traditional institutions) with current focus solutions: the singularity of currency, the practice of dollar stablecoins in non-dollar economies, and the reinforcing effect of government bond backing on currency value.
The Challenge of Currency Monism and the Construction of a Unified Currency System
Monetary unity means that all forms of money in an economy, regardless of issuer or deposit, are freely convertible at face value (1:1) and used for payment, pricing, and contracts. The essence of this is that even if there are multiple institutions or technologies to issue monetary instruments, a unified monetary system can still be formed. In practice, Chase Bank's U.S. dollar, Wells Fargo's U.S. dollar, Venmo account balances, and stablecoins should theoretically always maintain a strict 1:1 exchange relationship – despite the differences in the asset management methods of each institution and the importance of regulatory status is often overlooked. In a sense, the history of U.S. banking is a history of continuous optimization of the system to ensure the fungibility of the dollar.
The reason why the World Bank, central banks, economists, and regulatory agencies advocate for monetary singularity is that it greatly simplifies transactions, contracts, governance, planning, pricing, accounting, security, and daily payment processes. Today, businesses and individuals have come to take monetary singularity for granted.
However, the current stablecoins have not yet achieved this feature due to their insufficient integration with traditional financial infrastructure. If Microsoft, banks, construction companies, or homebuyers attempt to exchange 5 million dollars worth of stablecoins through an automated market maker (AMM), the actual exchange amount will be less than 1:1 due to slippage limited by liquidity depth; large transactions may even trigger market fluctuations, resulting in users ultimately receiving less than 5 million dollars. If stablecoins are to realize a financial revolution, this situation must change.
A unified face value exchange system is key. If stablecoins cannot function as part of a unified currency system, their utility will be greatly diminished.
The operating mechanism of stablecoins is as follows: issuers (such as Circle and Tether) primarily provide direct redemption services to institutional clients or users who go through a verification process (e.g., Circle's Circle Mint (formerly Circle Account) supports enterprises in minting and redeeming USDC; Tether allows verified users (usually with a threshold of over 100,000 USD) to redeem directly); decentralized protocols (such as MakerDAO) achieve fixed exchange rates between DAI and other stablecoins (such as USDC) through the peg stability module (PSM), essentially acting as a verifiable redemption/conversion tool.
These solutions are effective but have limited coverage, and require developers to cumbersome connect with each issuer. If direct connection is not possible, users can only exchange between different stablecoins or exit through market execution (rather than face value settlement).
Even if a company or application promises a very narrow price spread, such as strictly maintaining 1 USDC to 1 DAI (with a spread of only 1 basis point), this commitment is still subject to liquidity, balance sheet capacity, and operational capabilities.
Central Bank Digital Currency (CBDC) theoretically could unify the monetary system, but issues such as privacy leakage, financial monitoring, limited currency supply, and slowed innovation make it more likely that models optimizing existing financial systems will prevail.
Therefore, the core challenge for builders compared to traditional institutions is: how to make stablecoins (alongside bank deposits, fintech balances, and cash) truly become a form of currency. Achieving this goal will create the following opportunities for entrepreneurs:
Universal Minting and Redemption: The issuer collaborates deeply with banks, fintech companies, and other existing infrastructures to achieve seamless deposits and withdrawals, injecting interchangeability into stablecoins through existing systems, making them indistinguishable from traditional currencies;
Stablecoin Clearinghouse: Establish a decentralized collaboration mechanism (similar to a stablecoin version of ACH or Visa) to ensure instant, frictionless, and transparent exchanges. The current PSM is a viable model, but expanding its functionality to achieve a 1:1 settlement between participating issuers and fiat currency would be more optimal;
Trustworthy and Neutral Collateral Layer: Migrate convertibility to widely adopted collateral layers (such as tokenized bank deposits or U.S. Treasury wrapped assets), allowing issuers to flexibly explore brand, market, and incentive strategies, while users can redeem as needed.
Better exchanges, intent execution, cross-chain bridges, and account abstraction: Upgrade versions of existing mature technologies that automatically match the best deposit and withdrawal paths or execute optimal exchange rates; build multi-currency exchanges with minimal slippage. At the same time, hide complexity and ensure users enjoy predictable rates (even with large-scale use).
Dollar Stablecoins, Monetary Policy, and Capital Regulation
There is a huge structural demand for the US dollar in many countries: for residents of countries with high inflation or strict capital controls, US dollar stablecoins are a "savings umbrella" and a "global trade gateway"; For businesses, the U.S. dollar is the international unit of account that simplifies cross-border transactions. People need a fast, widely accepted, and stable currency to make ends meet, but the current cost of cross-border remittances is as high as 13%, 900 million people live in high-inflation economies without stable currencies, and 1.4 billion people are inadequately banked. The success of the USD stablecoin not only confirms the demand for the US dollar, but also reflects the market desire for a better currency.
Apart from political and nationalist factors, one of the core reasons for countries to maintain their local currencies is to respond to local economic shocks (such as production disruptions, export declines, and fluctuations in confidence) through monetary policy tools (interest rate adjustments and currency issuance).
The proliferation of US dollar stablecoins may weaken the effectiveness of other countries' policies—rooted in the economic concept of the Impossible Trinity: a country cannot simultaneously achieve three goals: free capital flow, a fixed/strictly managed exchange rate, and an independent domestic interest rate policy.
Decentralized peer-to-peer transfers will simultaneously impact these three major policies:
However, USD stablecoins remain attractive to other countries: lower costs and programmable dollars can facilitate trade, investment, and remittances (the majority of global trade is priced in USD, and the circulation of USD enhances trade efficiency); governments can still tax the deposit and withdrawal processes and regulate local custodians.
However, the anti-money laundering, anti-tax evasion, and anti-fraud tools at the level of international payments that the intermediary banks face still pose challenges for stablecoins. Although stablecoins operate on publicly programmable ledgers, making it easier to develop and build security tools, these tools need to be implemented in practice - this provides entrepreneurs with the opportunity to integrate stablecoins into the existing international payment compliance systems.
Unless sovereign countries abandon valuable policy tools in pursuit of efficiency (which is extremely unlikely), or give up on combating financial crimes (which is even less likely), entrepreneurs need to build systems to optimize the integration of stablecoins with the local economy.
The core contradiction lies in how to strengthen safeguards (such as foreign exchange liquidity, anti-money laundering (AML) regulation, and macro-prudential buffers) while embracing technology, in order to achieve compatibility between stablecoins and local financial systems. Specific implementation paths include:
The Impact of Government Bonds as Collateral for Stablecoins
The widespread adoption of stablecoins stems from their near-instant, near-zero cost, and infinitely programmable characteristics, rather than government bond backing. Fiat-backed stablecoins were first widely adopted simply because they are easier to understand, manage, and regulate. User demand is driven by practicality (24/7 settlement, composability, global demand) and confidence, rather than collateral structures.
But fiat-backed stablecoins may find themselves in trouble due to success—if the issuance increases tenfold (from the current $262 billion to $2 trillion in a few years), and regulatory requirements mandate backing with short-term US Treasury bills (T-Bills), how will this impact the collateral market and credit creation? While this scenario is not inevitable, the effects could be profound.
The holdings of short-term government bonds have surged ###.
If $2 trillion in stablecoins were invested in short-term government bonds (one of the few assets currently explicitly supported by regulators), the issuers would hold about one-third of the $7.6 trillion stock of short-term government bonds. This role is similar to that of current money market funds (concentrated holders of low-risk liquid assets), but the impact on the government bond market would be more significant.
Short-term government bonds are high-quality collateral: globally recognized low-risk, high-liquidity assets, and priced in dollars, simplifying exchange rate risk management. However, the issuance of $2 trillion in stablecoins may lead to a decline in government bond yields and a contraction of liquidity in the repo market—each additional $1 of stablecoin investment is an extra bid for government bonds, allowing the U.S. Treasury to refinance at a lower cost, or making it harder for other financial institutions to obtain the collateral needed for liquidity (raising their costs).
A potential solution is for the Treasury to expand short-term debt issuance (such as increasing the short-term Treasury stock from $7 trillion to $14 trillion), but the continued growth of the stablecoin industry will still reshape the supply and demand landscape.
The Hidden Concerns of the Narrow Banking Model
The deeper contradiction lies in the fact that fiat-backed stablecoins are highly similar to "narrow banks": 100% reserve (cash equivalents) and no lending. This model is inherently low-risk (which is also the reason it was early recognized by regulators), but a tenfold increase in the scale of stablecoins (2 trillion USD in full reserves) will impact credit creation.
Traditional banks (fractional reserve banks) keep only a small portion of deposits as cash reserves, while the rest is used to lend to businesses, home buyers, and entrepreneurs. Under regulation, banks manage credit risk and loan terms to ensure that depositors can withdraw cash at any time.
The core reason for regulatory opposition to narrow banks accepting deposits is their lower money multiplier, which means a smaller scale of credit supported by a single dollar.
The economy relies on credit to operate—regulators, businesses, and individuals all benefit from a more active and interconnected economic ecosystem. If a small portion of the $17 trillion deposit base in the U.S. were to migrate to fiat-backed stablecoins, the low-cost funding sources for banks would shrink. Banks face a dilemma: either shrink credit (reduce mortgages, auto loans, and small business lending limits) or replace lost deposits through wholesale financing (such as advances from Federal Home Loan Banks), which is more expensive and has shorter terms.
However, stablecoins are superior currencies, with a circulation velocity far higher than traditional currencies—each stablecoin can be sent, spent, and borrowed by humans or software around the clock, enabling high-frequency usage.
Stablecoins also don't need to rely on Treasury backings: tokenized deposits are another path – stablecoin claims remain on bank balance sheets but circulate through the economy at the speed of modern blockchains. Under this model, deposits remain partially in the reserve banking system, and each stable-value token continues to support the issuer's lending business. The currency multiplier effect will return through traditional credit creation (rather than velocity of circulation), while users will still enjoy 7 × 24 settlement, composability, and on-chain programmability.
When designing stablecoins, achieving the following three points will be more beneficial for economic vitality:
This is not a compromise to the banks, but an option to maintain economic vitality.
Remember: our goal is to build an interdependent and sustainably growing economic system that makes loans for reasonable business needs more accessible. Innovative stablecoin designs can achieve this by supporting traditional credit creation, enhancing circulation speed, and developing collateralized decentralized lending and direct private lending.
Although the current regulatory environment restricts tokenized deposits, the clarification of the regulatory framework for fiat-backed stablecoins has opened the door for stablecoins that are collateralized with bank deposits.
Deposit-backed stablecoins allow banks to enhance capital efficiency while maintaining existing customer credit. They also enjoy the programmability, cost, and speed advantages of stablecoins. The operation model can be simplified as follows: when users choose to mint deposit-backed stablecoins, the bank deducts the balance from the user's deposit account and transfers the liability to the total stablecoin account; the stablecoins, representing non-negotiable debt denominated in US dollars, can be sent to the address specified by the user.
In addition to deposit-backed stablecoins, other solutions can also enhance capital efficiency, reduce friction in the government bond market, and increase circulation speed:
Conclusion
The challenges are great, but the opportunities are even greater. Entrepreneurs and policymakers who understand the nuances of stablecoins will shape a smarter, safer, and better financial future.