Dialogue with Dr. Xiao Feng (Part 1): US dollar stablecoin legislation is a victory of technological innovation, but the impact will be very complex

Author: Meng Yan’s Blockchain Thoughts

With the US Senate's voting motion for the US dollar stablecoin bill and the Hong Kong Legislative Council passed the Hong Kong dollar stablecoin bill, stablecoins quickly became the hottest industry topic and attracted wider attention. It is generally expected that with the implementation of the US dollar stablecoin bill, the blockchain digital economy will usher in a very exciting explosion, and a new entrepreneurial window will appear around this US dollar stablecoin and real-world assets ( RWA ). Dr. Xiao Feng is a leader in Chinese blockchain research and practice, and has a very in-depth understanding of blockchain, stablecoins and RWA. In order to fully understand the opportunities of this era, I had the honor to have an in-depth exchange with Dr. Xiao Feng through video conferences and texts, and I compiled it into a document and published it for discussion with my colleagues. Because the original text is large in size, it is divided into two parts and published. The first half mainly interprets the significance of the US dollar stablecoin, while the second half focuses on the opportunities brought by the stablecoin economy and RWA to Chinese entrepreneurs. The views in the article are only one person's opinion, and readers are welcome to communicate.

1. The motivation for stablecoin legislation is transparent

Meng Yan: Dr. Xiao, your recent speeches have caused a great response in the entire Chinese blockchain community, especially the speech "Back to the Origin" for blockchain entrepreneurs, which has a very wide impact. In this speech, you are not just reiterating the value logic of blockchain again, but also pointing out clearly that this industry is facing a new explosion cycle, and entrepreneurs need to return to their original intentions and set out again and take the right path. This is my understanding of your speech.

The timing of your speech is indeed very accurate. The U.S. Senate passed a voting motion for the GENIUS stablecoin bill on May 19, followed by the Hong Kong Legislative Council on May 21. A legislative competition about stablecoins has quietly begun. A new consensus is forming at present, that is, the blockchain field is about to usher in a golden window for entrepreneurship and innovation. In a period of time, its energy intensity may exceed that of AI. Many outsiders who have never participated in blockchain and Web3 may have disdained this last month, and now they have adjusted their concepts and started to pay attention to opportunities in this field.

This situation is hard-won. I have been involved in this industry for ten years and am quite moved by it. In the past few years, major countries around the world have basically adopted a very cautious and even negative attitude towards the entire new technology of blockchain, crypto assets, Token, DeFi, Web3, and the supervision is tight, while mainstream media have almost stigmatized them at the same time. In the past two hundred years of the Industrial Revolution, there is no second example in my impression of treating an emerging technology like this. But the green mountains cannot cover it. After all, it will be the day when it flows eastward.

However, the public still needs an explanation for the Trump administration in the United States. I have seen some self-media understand this from the perspective of conspiracy theories, such as the money-making tool used by the Trump family to fill their pockets, or the currency war launched in cooperation with the trade war.

So what do you think is the motivation for the United States to promote stablecoin legislation?

Xiao Feng: The US presidential team and Congress are relatively frank and transparent about the motives for stablecoin legislation. They publicly said that the first is to modernize the US payment and financial system, and the second is to consolidate and enhance the status of the US dollar and create trillions of dollars in demand for US Treasury bonds within a few years. I think that's the answer, there aren't so many conspiracy theories here.

Not long ago, I talked with a policy adviser for the crypto US president. He told me very bluntly that Bitcoin national reserves are second for the United States, and US dollar stablecoins are first and are the core interests of the United States . As far as I understand, the goal of the Trump presidential team is to ensure that the GENIUS bill is passed before the U.S. Congress takes a leave of absence in August, which now seems likely to be faster.

In this case, the Hong Kong legislative authorities have demonstrated flexibility and high efficiency, and the third reading of the stablecoin regulations is worthy of appreciation.

Meng Yan: Some people have compared this bill with the 1944 Bretton Woods Conference and the 1971 Nixon Shock, saying that it is building a "Bretton System in the digital economy era." The general logic of this statement is this: the United States is worried that the status of the US dollar will be weakened during the process of deglobalization. Therefore, using digital currency as a "nuclear weapon" will have a dimensional impact on the existing international monetary and financial system, hedging the impact of the US dollar and consolidating the hegemony of the US dollar. What do you think of this view?

Xiao Feng: I mentioned just now that the United States publicly admits that one of the important purposes of promoting stablecoin legislation is to consolidate and enhance the status of the US dollar. Judging from the Senate vote, this is a bipartisan consensus, and they also know that they are making history.

The United States has gone through a process and has paid some price. Expert bureaucrats like the previous US government, especially former SEC chairman Jensler, who knows blockchain, but why have they been struggling for so many years? It is nothing more than being reluctant to let go of the existing payment network, including SWIFT , and the financial governance, supervision, and anti-money laundering mechanisms established on this network.

However, the progress of blockchain technology itself in recent years, especially the practice of financial sanctions against Russia after the Russian-Ukraine war, shows that the technological advantages of blockchain are conclusive and indescribable. Therefore, there is no doubt that the entire financial infrastructure will move towards blockchain, and it will follow the steam engine to the era of electrification, and there is no force to stop it. It's no longer meaningful to bury your head in the sand, the situation is better than that of others.

Compared with the previous administration, the Trump administration has shown a more realistic attitude in all aspects. At worst, it means not being principled, and at best, it means being proactive. So the current attitude of the United States is that if payment clearance settlement is inevitable, then at least don’t let it bypass the US dollar; if dollar tokenization is inevitable, then at least every dollar token is guaranteed to be created based on US assets. Since it cannot be blocked, it is better to guide it to ensure that in the digital economy, the Web3 world, and the AI ​​era, the US dollar still becomes the main payment and settlement tool, which is the core national interest of the United States. From the perspective of the United States, this is an open conspiracy and a clear card.

Can the US dollar stablecoin create a new "Breton system"? Need to observe. Over the past few years, the US dollar's global position has declined. If the United States hopes to consolidate its position with stablecoins, there is no doubt. However, whether the goal can be achieved through such a measure alone, especially whether it has created a new system, may still depend on the process of interaction between subsequent practice and legislation. However, I have a judgment that although the Trump team and the US Congress have a deep understanding of the US dollar stablecoin, the long-term impact on this matter may not be fully imagined. In this sense, pushing the GENIUS Act takes some risks. Will the future be as repeated as his trade war policies? Need to observe.

2. Two US dollar stablecoin systems and their complex consequences

Meng Yan: Speaking of long-term impact, the conspiracy theory narrative of "currency war" is now very popular on the Chinese Internet, believing that the United States initiated stablecoin legislation aims to "weaponize" stablecoins. Do you agree with this statement?

Xiao Feng: "Currency War" has been a popular narrative in the past decade. From the standpoint of other countries, it is indeed necessary to make a full estimate of the impact of the US dollar stablecoin. Legislation promotes tokenization of fiat currencies, an unprecedented event in the history of world currency, will inevitably trigger a series of complex economic and financial reactions. No one can fully foresee the consequences, nor can the US President and Congress. However, there are at least two issues that need special attention to the content disclosed by the GENIUS Act.

The first is that the boundaries of sovereign currency have become more fragile . The current currency use is bounded by the national administrative divisions. Sovereign states monopolize internal currency and control foreign exchange on the border. This governance mechanism has been around for hundreds of years. Once the US dollar stablecoin is applied on a large scale, this mechanism is broken. Blockchain transforms the Internet into a payment network and financial infrastructure, so that currency no longer depends on the traditional banking system and clearing network. Instead, through smart contracts, encrypted accounts and point-to-point transmission mechanisms, it can penetrate to the micro level of another economy like capillaries , covering daily consumption, labor payments, cross-border e-commerce, freelancer settlement, and even AI-to-AI, machine-to-machine payment behavior. At this stage, stablecoins are no longer just payment tools, but become a financial infrastructure that can be embedded in other countries' economic systems . It can "incorporate" some of the economic activities of other countries into its own economic territory, and essentially form a new monetary network expansion mechanism . This poses a structural challenge to the existing sovereign currency, financial regulatory framework and even macro-policy regulatory measures. Because you were originally built on banking systems, foreign exchange controls, payment and settlement rules, it is becoming increasingly fragile in the face of blockchain and stablecoin technologies.

Meng Yan: What you mentioned has happened. In some countries in Africa, Southeast Asia and Latin America, their fiat currencies have depreciated year by year, and young people use USDT and other US dollar stablecoins, which has caused headaches in the monetary authorities in these countries. When I went on a business trip to Ghana last year, local central bank officials told me that the dollar stablecoins spread like wildfire among young people in Ghana and Nigeria, weakening their status as fiat currencies in their country. They asked me how I could use technical means to resist the invasion of the dollar stablecoin, and I couldn't answer. Because your own currency depreciates by 20-30% every year, it would be strange if the people don’t use the US dollar.

Xiao Feng: This is just the beginning. With the development of the US dollar stablecoin, the second problem will arise, that is, the complex ecosystem that may emerge in the offshore US dollar stablecoin system. According to the GENIUS Act, institutions outside the United States can also issue US dollar stablecoins, but they must be based on US dollar fiat currency assets, register in the United States, accept supervision from relevant US agencies, comply with relevant US laws, and respond to orders from US law enforcement authorities at any time. These requirements are very high, but it must be clear that these requirements are the conditions for "legal circulation in the US market." If you do not enter the US market and do not contact Americans and American entities, then even these conditions can be relaxed. This is actually equivalent to opening up a grayscale space that allows foreign institutions to mint US dollars. In this way, two systems of onshore dollar stablecoins and offshore dollar stablecoins will appear in the future , similar to today's US dollar and Euro dollar systems. Among them, the onshore dollar is relatively strict and consistent, while the offshore dollar ecology will be more complex. Dozens or even hundreds of digital currencies called "dollar stablecoins" will flow, cycle, map, exchange, and interact in dozens of public and hundreds of private chains in the two systems, and will produce complex effects that no one has seen before and no one can foresee.

Meng Yan: Can you think so? This is actually because the United States has transferred part of the minting rights to foreign non-bank institutions and decentralized the minting rights of the US dollar stablecoin . This reminds me of the early years of the Western Han Dynasty in China, when the right to mint coins was delegated and private minting of currencies was allowed by the private minting of currencies, but the literature does not record in detail how these currencies interact and what economic problems they lead to. Since entering industrial civilization, no country has tried to disperse the right to mint coins to foreign entities, and today we are about to witness a new stage in the history of world currency development. I make a comparison that may not be appropriate. The future US dollar stablecoins are like copper coins during the Wenjing period. They have many "brands", including high-quality ones, inferior ones, minted by Deng Tong, and minted by Liu Bian, and circulated and competed in the global market. The US government has made some of the US dollar minting rights on the surface, but in fact, through supervision and law enforcement, US bonds have turned into "copper mines" for minting copper coins. Taking retreat to advance, the world's stablecoin issuers have become "chain stores" of the US dollar, greatly increasing the global economy's demand for US bonds, increasing the penetration of the US dollar, and amplifying the long arm of US financial supervision.

Xiao Feng: Yes, but the actual situation will be more complicated. While trade frictions lead to "anti-globalization", the global digital economy has shown a trend of "dollarization". As AI is leaping into a long way, the "value Internet" suddenly accelerates, and the complex reactions of these economic and technological trends exceed everyone's prediction capabilities.

Especially the offshore dollar stablecoin system will have multiple levels, attracting many financial institutions, Internet companies and even sovereign states to participate, and a particularly rich ecosystem will emerge. From high-grade offshore dollar stablecoins issued abroad but fully comply with US regulatory rules and can be circulated in the United States, to local dollar stablecoins that follow the supervision of other sovereign countries but do not enter the United States and do not touch Americans, to "wild" non-compliant dollar stablecoins, and various counterfeit coins, over-issuance, dirty money and other problems that will inevitably arise, on the one hand, it will lead to a sharp amplification of the "brand effect" of the US dollar, the global spread of the psychological anchoring effect of the US dollar as a "counter unit", and the expansion of the scope of US financial regulatory enforcement. On the other hand, the super complex currency system will inevitably bring unprecedented challenges to the supervision and financial stability of countries around the world and the United States. In the early stages, the United States' regulatory capacity is likely to be unable to keep up and cannot reach, and it may even lead to policy recurrence. In short, the real world will be very exciting and very messy. I can say with certainty that we will enter a period of ecological outbreak of the digital economy and soon see many new digital economy phenomena and commercial species .

At this stage, everyone's discussion on this issue is still insufficient. Especially on the Chinese Internet, discussions are seriously insufficient.

However, I still believe that the main purpose of the United States' introduction of the US dollar stablecoin is to adapt to technological development trends, take preemptive measures, and consolidate the US dollar's status, rather than targeting the crackdown on the current international monetary system. The so-called "weaponization" is the "company" effect of the disruptive technological advantages of blockchain. If you have an emotional discussion on this issue, it is easy to be misled. In Chinese Internet public opinion now, conspiracy theories and struggle narratives are very fashionable and enjoyable. We must pay special attention to prevent being misled by emotions and standing on the opposite side of historical trends. It's very simple. If this is a currency war, then should we be cautious? Should we continue to block the entire set of technologies of blockchain, tokenization and crypto finance? If you think about the problem this way, it will lead to a big mistake.

We must understand that the "aggressiveness" of blockchain stablecoins is to naturally absorb and bind more real economic activities under a structure of higher efficiency, lower cost and fewer links. Its expansion is based on technological advantages and depends on efficiency. Its institutional design, technological advantages and network effects are irresistible for a long time. We admit that it has the characteristics of disruptive innovation and is aggressive and destructive to the existing technology system. It is not an exaggeration to say that it is a dimensional reduction blow. But what attitude should we use to treat it? Could it be that hot weapons have not been a dimensional reduction blow to cold weapons in history? Isn’t a dimensional reduction blow to human and animal power? Is the Internet not a dimensionality reduction blow to postal and telephone networks? So which side are you on?

My attitude is consistent and has not changed in ten years. In the face of technologies like blockchain, we should follow the trend and develop our own stablecoin ecosystem in an open, compliant and credible way, and have a place in the new generation of financial networks . Some people talk about monetary sovereignty and financial sovereignty. I want to say that in the face of disruptive technological innovation, active response is a truly responsible attitude towards sovereignty.

3. The breakthrough of stablecoins is ultimately a victory of

technological innovation

Meng Yan: The United States is the first to promote stablecoin legislation, but it is of particularity. This particularity is that the first one to come out to try is the world's largest and most advanced economy, which will promote the world's most important reserve currency to take the lead in reform. For many countries, they may hope to do some pilot projects in less important economies with less important currencies and slowly advance this matter, which will be more secure. But the current attitude of the United States is equivalent to pushing a storm and storm directly to everyone, which has indeed formed a situation of overcoming force, giving everyone a Sphinx-style question: answer me, or I will eat you.

So in the face of this challenge, many people have a guarded mentality out of stress response. In particular, the media promotes how blockchain is used to launder money, illegal financing and illegal transactions every day, and reports various speculative stories every day. Now, suddenly the United States uses this technology to promote stablecoins and RWA. Many people naturally think that this is the United States' currency war and treats blockchain as a weapon. This mentality is understandable.

Xiao Feng: The mentality is understandable, but we still need to use the first principle and return to the original point to think. Now we are discussing the topic of blockchain and stablecoins. There are too many macro discussions. As soon as we open our mouths, there are monetary systems, dollar hegemony, and financial wars, but micro discussions are very insufficient. Many of us have forgotten that the first driving force for the development of stablecoins is always technological innovation and creating value for ordinary users and consumers. The reason why stablecoins have such great impact is the series of technological advantages given by blockchain. I have been talking about these contents for ten years, but it is not enough. It is necessary to talk about them repeatedly at this moment. We must make everyone understand that blockchain technology is really great superiority, and it will definitely succeed and no one can stop it.

Meng Yan: It is indeed very important to explain this principle clearly. I saw you mentioned in a speech that you have been obsessed with blockchain for ten years and your original intention remains unchanged. So can you summarize again, what are the technological advantages of blockchain fascinating you?

Xiao Feng: Its most fundamental technical advantages are reflected in four aspects: accounts, books, accounting methods and accounting units .

In terms of accounts , traditional finance relies on bank escrow accounts to record all our economic activities, but in the blockchain, there is no bank account, and digital asset wallets are replaced by them, which is called encrypted accounts. The creation of an encrypted account is completed by the user through the password learning tool, and the assets are self-created.

In terms of ledgers , public chains are global public ledgers, with global liquidity, no administrative divisions to limit, and no boundaries between geographical space and time.

In terms of accounting methods , distributed accounting and duplex accounting methods are different, and the clearing and settlement modes are also different. Traditional finance is net payment, blockchain is transactions, and both silver and goods are paid, which is the so-called payment is settlement, and payment, liquidation and settlement are completed in one transaction.

In terms of accounting units , the accounting units on the blockchain are native crypto digital currencies. If you want to use fiat currency as an accounting unit, it is useless to issue orders. You have to tokenize the fiat currency first and create a digital twin of fiat currency on the chain.

These technological advantages are relatively abstract, but reflected in the application, they will provide users with real benefits. When we judge whether a new technology has overwhelming advantages, there is actually a simple way to judge whether the efficiency has increased and the cost has decreased. The advantage of ten times is the renewal. If it is a advantage of hundreds and thousands of times, then no force can stop it. For example, if a car is about ten times faster than a carriage, then the entire system of carriage will inevitably be eliminated. The Internet is a hundred times less expensive than telegraph, telephone and television networks, so when the Internet first appeared, many people spared no effort to block Internet phone and network video applications, but what was the result? These networks are now replaced by the Internet. In the face of such a huge technological advantage, any reason for conservatism or resistance is invalid.

I have always said that users’ demand for finance has remained unchanged forever. It is easy to borrow money and receive money as soon as possible . Let’s compare the remittance efficiency. Now it may take several days or even weeks to send money from Shanghai to the United States; and through blockchain stablecoins, it can be received in seconds. How many times the efficiency improvement is this? There is also a more extreme situation. I recently remitted money from Hong Kong to Shanghai, but it was confirmed that it failed in one month. If I use stablecoins, it may be completed in ten seconds. How many times the efficiency improvement is this? Maybe tens of thousands or hundreds of thousands of times. With such a huge technological advantage, is there any force that can stop it?

Let me give you another example. It is difficult to achieve 7x24 hours of uninterrupted operation in traditional trading systems. Now some leading stock trading systems are seeking to extend trading hours, and some are already planning 5x23, trading 23 hours a day, five days a week, but it still needs to be stopped for one hour a day, because in the traditional clearing and settlement system, there is a time point to pause, roll, and make net payment. But you see, we do payments and transactions on the blockchain, and they run 24/7. Why can it be done? It is because we just mentioned that it is a transaction transaction between silver and goods on the global account books, so it can achieve uninterrupted clearance and settlement. I heard that NASDAQ is working on a 7x24-hour trading system, and I guess it needs to use blockchain technology internally. Once done, investors around the world can trade U.S. assets in US dollar stablecoins, which is self-evident for investors and American companies. So you see, these macro-strategic discussions ultimately need to be built on technological innovation.

There are many other advantages, such as no intermediary, point-to-point, borderless, global payments, near zero fees, automation on smart contracts and irrevocable transactions, etc. Users will come out as soon as they compare. Do you still need to convince anyone? It's like comparing electric motors with steam engines, electric lights with gas lamps, and integrated circuits with electronic tubes. As an ordinary user, you don't need any professional knowledge or use other conditions. You can tell which one is better and which one will be eliminated at a glance. This is an obvious fact.

If we understand the basic technical facts above, we will come to a simpler conclusion: the fundamental starting point for the United States to promote stablecoins should still follow the trend of technological development and promote the modernization of payment and financial infrastructure.

Of course, such a strategy must have multiple considerations, including the perspective of maintaining the hegemony of the US dollar, the perspective of competition in the monetary and financial system, and even the perspective of the Trump family making money. However, all considerations are based on the basic fact that blockchain has overwhelming technological advantages as a new generation of financial infrastructure . Many people regard blockchain as a disaster. One important reason is that they do not have a deep understanding of the inherent advancedness and inevitability of blockchain technology itself. I often say that the situation is better than that of others. If you can stop it, of course you can discuss whether to stop it. If you can’t stop it at all, then what’s the point of discussing how to stop it? Doing things without knowing that they are impossible will only miss the opportunity and lag behind in the new round of competition in financial infrastructure and monetary and financial systems.

So I am very excited about the first pass of the Hong Kong stablecoin bill, which is the correct response posture.