The Triple Dilemma of Stablecoins and Future Development Directions

Stablecoins, as an important innovation in the field of digital assets in recent years, provide a relatively stable value anchor for the cryptocurrency world by being pegged to fiat currencies. They have not only become the infrastructure of decentralized finance ( DeFi ) but also play an increasingly important role in the global payment sector. However, with the surge in their market value, the potential risks that stablecoins face have increasingly attracted the attention of regulatory agencies.

The Bank for International Settlements ( (BIS) issued a stern warning about stablecoins in its latest economic report, stating that they are not true currencies and may pose systemic risks to the financial system. The BIS proposed the "triple gate" theory of currency, which includes uniqueness, elasticity, and completeness, as standards for evaluating a reliable currency system. This article will delve into the challenges stablecoins face in these three areas and contemplate their future development direction.

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The Dilemma of Uniqueness: The Fragile Foundation of Stability

The singularity of currency requires its value to remain consistent at any time and place. However, the value anchoring mechanism of stablecoins has inherent flaws, making it difficult to guarantee a constant exchange ratio with fiat currency. Its credit foundation is based on the commercial reputation of private issuers and the quality of reserve assets, rather than national credit, which exposes stablecoins to a persistent "decoupling" risk.

The "Free Banking Era" in history serves as a warning: at that time, banknotes issued by privately chartered banks in the United States varied in value due to differences in the issuing banks' reputations, severely hindering economic development. Today's situation with stablecoins is similar, with each issuer acting like an independent "private bank," and the actual value of their "digital dollars" being uncertain.

The recent collapse of the algorithmic stablecoin UST vividly demonstrates the fragility of the stablecoin system. Even asset-backed stablecoins often face scrutiny regarding the composition and transparency of their reserve assets. Therefore, stablecoins face severe challenges under the key criterion of "uniqueness."

The Tragedy of Elasticity: The Limitations of 100% Reserves

The elasticity of currency refers to the ability of the financial system to dynamically adjust the supply of credit according to economic demand. This is key to the self-regulation and sustained growth of modern market economies. However, stablecoins that claim to have 100% high liquidity asset reserves actually adopt a "narrow banking" model, completely sacrificing the elasticity of currency.

The traditional banking system achieves credit creation through a fractional reserve system, while the stablecoin system "locks" funds in reserve assets, making it impossible to create credit based on endogenous economic demand. This "inelastic" characteristic not only restricts the development of stablecoins themselves but may also impact the existing financial system. If a large amount of funds flows from the banking system to stablecoins, it will directly reduce the bank's lendable funds, affecting its credit creation capacity.

Although stablecoin banks may provide loan services in the future, this credit creation model is fundamentally different from the traditional banking system.

Lack of Integrity: The Contradiction between Anonymity and Regulation

The integrity of the currency system requires that payment systems be secure and efficient, and effectively prevent illegal financial activities. However, stablecoins built on public chains pose a severe challenge to traditional financial regulation due to their anonymity and decentralized characteristics.

Large anonymous transactions on public chains make it difficult to implement core regulatory requirements such as "Know Your Customer" ) KYC ( and "Anti-Money Laundering" ) AML (. In contrast, traditional international bank transfers, although less efficient, are subject to a strict regulatory network for each transaction. The technological characteristics of stablecoins fundamentally challenge the regulatory model based on intermediary institutions.

However, with the advancement of on-chain data analysis tools and the improvement of global regulatory frameworks, the ability to track and conduct compliance reviews of stablecoin transactions is increasing. In the future, "regulatory-friendly" stablecoins that are compliant, transparent, and undergo regular audits may become mainstream in the market, alleviating integrity issues to some extent.

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Technical Vulnerabilities: Dependence on Infrastructure

In addition to challenges at the economic level, stablecoins are also not flawless at the technical level. Their operation is highly dependent on the internet and the underlying blockchain network, facing risks such as network interruptions, power failures, or cyber attacks. This absolute reliance on external infrastructure is a significant weakness compared to the relatively traditional financial system.

In the long run, the development of cutting-edge technologies such as quantum computing may pose a threat to existing encryption algorithms. Once the encryption system that protects the private keys of blockchain accounts is cracked, the foundational security of the entire digital asset world will be lost. This is a fundamental security risk that must be acknowledged for a monetary system aimed at carrying global value flows.

Impact on the Financial System and Development Bottlenecks

The rise of stablecoins is competing with traditional banks for the core resource of deposits, which may weaken commercial banks' ability to serve the real economy. In addition, the process by which stablecoin issuers support their value by purchasing U.S. Treasury bonds is actually constrained by the reserves of the banking system.

As the scale of stablecoins continues to expand, large purchases of U.S. Treasury bonds may lead to excessive consumption of bank reserves, triggering liquidity and regulatory pressures. Therefore, the demand for stablecoins for U.S. Treasury bonds is actually constrained by the abundance of bank reserves and regulatory policies, and cannot grow indefinitely.

Future Development Path: Between "Siege" and "Pacification"

In the face of the challenges posed by stablecoins, regulatory agencies are confronted with the pressure of "encirclement" while also seeing the possibility of integrating them into the mainstream financial system. The "unified ledger" proposal put forward by the Bank for International Settlements aims to absorb the advantages of tokenization technology while placing it on a trust foundation led by central banks.

The evolution of the market may show a differentiated trend: some stablecoin issuers will actively embrace regulation, achieve transparency of reserve assets, and integrate AML/KYC tools, with the hope of being integrated into the existing financial system. Others may choose to operate in regions with relaxed regulations, continuing to serve specific areas such as DeFi, but their scale and influence will be limited.

The "triple gate" dilemma of stablecoins reveals both its inherent flaws and the deficiencies of the existing global financial system. The future development path may lie in prudently integrating top-level design with market innovation, finding a balance between "encirclement" and "reconciliation," in order to build a more efficient, secure, and inclusive financial future.

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