The On-Chain Extension of the Dollar: Stablecoins, Shadow Banking, and the Reshaping of Global Payment Power
Overview
This report explores the role of stablecoins as “on-chain dollars” and analyzes how they are emerging as a key component of the global financial system’s payment infrastructure. As the current dollar-dominated cross-border payment system is characterized by inefficiencies, high costs, and strict oversight, stablecoins are gradually building a more efficient and inclusive parallel dollar network by leveraging their advantages such as low costs, real-time fund arrival, and no account thresholds. The report further highlights that stablecoins not only threaten to replace traditional clearing systems like SWIFT and CHIPS but also present profound challenges to central banks’ monetary sovereignty and financial stability. At the same time, their role as “on-chain shadow banks” is accelerating the adjustments in global regulatory frameworks. In the future, stablecoins are expected to operate alongside CBDCs and the traditional financial system to shape a new, multi-rail global payment architecture, becoming a vital extension of the dollar’s influence.
Chapter 1 Introduction: Why Does the Dollar Dominate Cross-Border Payments?
The dollar has long dominated the global cross-border payment system. Whether in clearing transactions between multinational corporations, allocating reserve assets among central banks, or enabling international remittances by ordinary users, the dollar is nearly ubiquitous. This dominance is not accidental but is shaped by history, the underlying institutional infrastructure, legal frameworks, geopolitical power, market structure, and financial network effects.
1.1 The Dollar is the “Common Language” of Global Payments
The dollar’s global dominance primarily relies on the following three payment and clearing infrastructures:
● SWIFT (Society for Worldwide Interbank Financial Telecommunication): As the communication infrastructure for global cross-border payments, SWIFT does not move money itself but defines the messaging formats for interbank communications worldwide. Banks around the world send information related to payments, clearing, and securities transactions using standardized formats in the SWIFT network. As of January 2025, the dollar accounted for 50.2% of all transactions in the SWIFT system, topping the list.
● CHIPS (Clearing House Interbank Payments System): This is the U.S. domestic dollar clearing system, responsible for clearing nearly $2.63 trillion every day. It serves as the core system for settling large-value dollar transactions. While CHIPS is not the only choice for foreign institutions to settle dollar transactions, it remains the most prevalent and widely accepted clearing channel for most international dollar transactions.
● Visa/Mastercard: These two global acquiring networks facilitate dollar payments at the retail level worldwide, providing consumers with a universally accepted payment solution. In Q1 2025, Visa’s transaction volume rose 15% year-on-year, while Mastercard’s surged by 34%.
In addition, U.S.-led clearing mechanisms, control over foreign bank accounts’ access to dollars, and the Federal Reserve’s ability to coordinate monetary policy further reinforces the dollar’s status as a “financial empire”.
1.2 The Institutional Moat of Dollar Clearing
The dollar is more than just a medium of exchange; it is the institutional foundation of the global financial order. Against the backdrop where most countries worldwide have yet to achieve full monetary and financial independence, the dollar has built a robust institutional moat in three key areas:
● Currency Pegs: More than 65% of global central bank foreign exchange reserves are held in dollar-denominated assets, and many local currencies are pegged to the dollar.
● Dollar-Denominated International Trade: Global commodities (such as oil, metals, and agricultural products) are settled in dollars.
● Dollar-Denominated Credit: Over 60% of cross-border debt instruments and trade credit contracts are denominated in dollars.
These mechanisms reinforce the dollar’s “network effects”, making it economically and institutionally costly for any country to transition to a different monetary system even if they want to.
1.3 Global Issues Brought by Dollar Dominance
While the dollar dominance has brought the benefits of uniformity and liquidity to global payments, it has also given rise to the following structural problems:
● High Settlement Costs: Traditional cross-border dollar transfers rely on a chain of correspondent banks, with fees typically ranging from $15 to $40 and settlement times of 3–5 business days.
● Risk of Censorship and Blocks: Any payment involving dollars at any point along its route can be frozen through the U.S. Treasury’s OFAC mechanism, effectively turning the dollar into a “financial weapon” against specific countries or enterprises.
● Financial Exclusion: Roughly 1.3 billion unbanked people worldwide have no access to the dollar-based financial system, with the majority located in Africa and South Asia.
Summary: The Opportunity Ahead for Stablecoins
It is precisely because of this paradox between the dollar’s “efficiency and hegemony” in cross-border payments that emerging tools like stablecoins have gained attention as “on-chain dollars”. By bypassing traditional financial intermediaries and relying on wallets and smart contracts as nodes, stablecoins are gradually building a parallel dollar system that is more convenient, inclusive, and censorship-resistant. This sets the stage for their roles in real-world, cross-border payments, which will be explored in the chapters that follow.
Chapter 2 The Evolution of Digital Payment Systems
The development of digital payment systems has not followed a single trajectory. Especially in the Web3 context, payment tools have evolved through a progressive integration from crypto-native assets to on-chain stablecoins and then to real-world payment infrastructure. According to a research framework proposed by Web3Caff, the evolution of Web3-based crypto payments can be divided into three key phases: the stage of electronic cash exploration, the stablecoin-dominated phase, and the integrated adoption in the PayFi era.
2.1 Phase One: The Dawn of Tech Idealism and Anonymous Payments (2009–2014)
In 2009, Satoshi Nakamoto published the white paper Bitcoin: A Peer-to-Peer Electronic Cash System, marking a historical moment for crypto payments. The core idea behind Bitcoin was to eliminate intermediaries and create a truly peer-to-peer payment system through cryptography and a distributed ledger mechanism. Its innovation lay in embedding transaction records into proof-of-work mechanisms through hash chains, resulting in an immutable transaction history.
On May 22, 2010, Bitcoin was used to purchase a real-world product for the first time. A programmer bought two pizzas for 10,000 BTC. This ignited people’s imagination about the application of cryptocurrency for payments.
However, Bitcoin failed to become a mainstream payment tool during this period, primarily due to three limitations:
● Transactions were processed slowly, with an average block time of 10 minutes and extremely low TPS.
● It was poorly suited to merchants who were unable to support high-frequency, low-friction settlements with customers.
● Its price fluctuated drastically, making it impractical as a medium of exchange for daily use.
Nonetheless, Bitcoin’s long-term influence on payment systems has been profound:
● It pioneered a “key-based sovereignty” payment paradigm without the need for an account system.
● It laid the conceptual foundation for asset ownership confirmation, wallet interactions, and token logic in subsequent blockchain systems.
● It fostered global awareness of decentralized payment networks.
Although it failed to establish a commercially viable payment system, Bitcoin nurtured the technological and ideological soil for stablecoins and smart contracts.
2.2 Phase Two: Compliance-Oriented Exploration of Protocol-Based Cross-Border Networks (2014–2020)
Bitcoin’s technical framework catalyzed the expansion of the entire blockchain system. In the realm of payments, multiple projects began exploring how to reconstruct cross-border payment routes using decentralized protocols. Notable examples include Ripple, Stellar, and Libra.
● Ripple: As one of the earliest blockchain-based cross-border payment solutions implemented, Ripple built a network structure based on trust chains. It employed gateway access mechanisms and used XRP as the native settlement asset, creating a hybrid model of on-chain accounting and off-chain payments. In 2016, Ripple rolled out the InterLedger Protocol, enabling payment interoperability across heterogeneous chains. While XRP was never fully circulated, Ripple built a blockchain clearing system with enterprise-grade functions, leaving a lasting impact.
● Libra: The Libra project, launched by Meta (formerly Facebook) in 2019, sought to create a global digital currency stably backed by a basket of fiat currencies. Although it was later rebranded as Diem and ultimately shelved due to regulatory pressure, the initiative spurred central banks worldwide to accelerate their research into CBDCs and reinforced the consensus that “stablecoins + on-chain settlement” represents the future of cross-border payments.
● Other Initiatives: Projects such as Stellar, IBM World Wire, and Visa B2B Connect also contributed to the development of compliant blockchain-based clearing networks, offering institutional users alternatives to the SWIFT system.
Although stablecoins (e.g., USDT and USDC) gradually entered the mainstream during this period, the above-mentioned protocol-level explorations provided critical technical pathways and institutional insights that paved the way for their adoption in cross-border settlement.
2.3 Phase Three: New Global Clearing Systems Driven by Stablecoins (2021–Present)
The extreme volatility of cryptocurrencies has limited their viability as mainstream payment media. However, stablecoins have emerged as the closest form to “global digital cash” due to their pegging mechanisms and on-chain settlement capabilities. At the same time, central bank digital currencies (CBDCs) and stablecoins are exploring the future of cross-border payments in their own way.
According to BlockResearch, as of August 2024, the total global circulation of stablecoins reached $174.1 billion, with USDT accounting for over $120 billion, demonstrating clear market dominance. Meanwhile, payment giants such as Visa and PayPal have also begun formally integrating stablecoins into their settlement networks.
Key milestones:
● Visa announced support for USDC settlements in 2021 and began enabling end-to-end USDC-based settlements for Circle and Nuvei merchants in 2023.
● In August 2023, PayPal launched PYUSD, a dollar-pegged stablecoin designed to bridge traditional finance with the on-chain crypto payment ecosystem.
Main stablecoin types and controversies:
● USDT: Issued by Tether, it holds the largest market share but has long been questioned regarding the transparency of its reserves.
● USDC: Launched by Circle & Coinbase, it emphasizes auditability and regulatory compliance.
● PYUSD: Issued under custody by Paxos, it is compatible with Ethereum and Solana and is intended for PayPal and Venmo payments.
Stablecoin development is unfolding along two main trajectories: gradual integration into global commercial payment systems and scrutiny over reserves and regulatory compliance challenges. Stablecoins are both on-chain dollars and foundational liquidity carriers for next-generation financial networks.
Summary
The digital payment system is transitioning from an account-centric banking network to a new structure built around private keys, smart contracts, APIs, and wallets. As the core asset of this transformation, stablecoins provide global users with a trustless, low-friction, and highly efficient payment tool while also introducing a new financial grammar for the future of cross-border payments.
Chapter 3 How Are Stablecoins Playing Their Role in Cross-Border Payments?
Stablecoins are reshaping the global cross-border payments system. In today’s dollar-dominated financial system, cross-border payments still rely heavily on bank account networks (such as SWIFT and CHIPS) and correspondent banks for clearing, thus suffering from low efficiency, high fees, poor financial inclusion, and other pain points. By leveraging on-chain technology and dollar-pegged mechanisms, stablecoins offer a permissionless, highly liquid, and near-instant payment solution.
3.1 Payment-Level Value Advantages
Stablecoins offer the following distinct advantages in cross-border payments:
● Real-time Arrival with Immediate Settlement upon Clearing: Blockchain’s structure inherently aligns payment and clearing, avoiding the T+1 or T+2 cycles typical of traditional payments.
● Borderless Circulation Capacity: As long as users have a digital wallet and internet access, they can participate in the dollar-based payment network.
● Integration with Multi-Chain Ecosystems and Payment APIs: USDT and USDC now support deployments across multiple blockchains, including Ethereum, Tron, and Solana, and allow direct integration with Web3 merchant systems and financial APIs.
● Dual Functionality as Settlement and Store-of-Value Assets: Acting simultaneously as a unit of account, a payment method, and a store of value, stablecoins are well-suited to replace local currencies in high-inflation regions.
3.2 Use Case Analysis
The core use cases for stablecoins in cross-border payments fall into three categories:
● C2C Remittances: Typical examples include overseas workers sending money home to regions like the Philippines, Nigeria, and Argentina. Compared to Western Union, which is characterized by high costs and slow arrival, USDT remittances take just a few minutes and cost as little as one dollar.
● B2B Settlements: Stablecoins are used for trade settlements among global SMEs, particularly in countries with restricted access to dollar foreign exchange (such as Turkey and Lebanon).
● Web3-Native Payments: These include airdrops, GameFi payments, on-chain tipping, and ad traffic settlements, which are the earliest and most active use cases for stablecoins.
3.3 Case Study: USDT Remittance Networks in Latin American Markets
In Latin American countries like Argentina and Venezuela, residents rely heavily on USDT for daily transactions because local currencies have severely depreciated. Platforms such as Bitso and Buenbit have already integrated stablecoin transfers with deposits and withdrawals of fiat currencies, forming a closed-loop exchange system between “on-chain dollars and local currencies”.
For instance, a Mexican worker in the U.S. can use Strike to send USDT to family members back home, who then convert it into pesos through Buenbit. The entire process does not involve a bank account and is significantly faster than SWIFT transfers.
3.4 Comparison with Traditional Systems
Compared to the conventional SWIFT route, stablecoins have made the following breakthroughs:
● Eliminating correspondent banks helps lower intermediary and exchange costs.
● Programmable payment features enable more complex settlement logic, such as multi-party reconciliation and automated revenue splitting.
● Enhanced transparency and traceability improve risk control.
● Real-time fund arrival supports micropayments and remote economies.
3.5 Limitations and Challenges
While stablecoins outperform traditional systems in terms of efficiency and financial inclusion, they still face several challenges:
● Compliance for Foreign Exchange: Most countries are cautious about “dollarization” or unauthorized remittance channels.
● Uneven Liquidity Distribution: Conversion liquidity remains limited on non-mainstream blockchains or in less active markets.
● Privacy and Censorship Risks: On-chain transfers are fully transparent, raising concerns about user privacy and potential misuse by regulators.
Summary
Stablecoins, as a form of “on-chain dollars”, represent a disruptive alternative to traditional cross-border payments by improving efficiency, inclusiveness, and technological compatibility. If regulatory and compliance challenges can be effectively overcome in the future, stablecoins are poised to evolve from a “supplemental option” into a “core infrastructure” in the global payment network.
Chapter 4 Whose Market Share Are Stablecoins Threatening?
As stablecoins gain traction in global payments, their disintermediating nature increasingly threatens the business models and structure of vested interests of established players. This chapter analyzes the potential impacts and power dynamics from the perspectives of international clearing systems, cross-border payment service providers, and central banking regulatory authorities.
4.1 Risk of Substitution for International Clearing Networks
Stablecoins enable intermediary-free dollar settlement, directly challenging traditional international clearing infrastructure such as SWIFT, CHIPS, and Fedwire.
● SWIFT (Society for Worldwide Interbank Financial Telecommunication): Stablecoin transactions do not require bank codes or the SWIFT messaging system, which may weaken SWIFT’s role as an “information relay layer”.
● Correspondent Banking: Cross-border payments have traditionally depended on correspondent banks at multiple levels. By bypassing this route, stablecoins free small and medium-sized banks from their reliance on traditional dollar settlement methods.
● Disruption of Dollar Liquidity Flows: U.S. commercial banks have long controlled traditional dollar clearing channels. On-chain stablecoin clearing breaks this monopoly over dollar liquidity.
4.2 Profit Erosion Among Cross-Border Payment Giants
Traditional cross-border payment companies represented by Western Union, MoneyGram, Wise, and PayPal adopt business models that are heavily reliant on regulatory arbitrage, exchange rate spreads, and service fees.
● Collapse of the Fee Model: Cross-border transfers using USDT or USDC have fees lower than 0.1%, drastically eroding profit margins for intermediaries.
● Smaller Exchange Rate Margins: Stablecoins are typically pegged 1:1 to fiat currencies, leaving little room for currency conversion gains.
● Superior User Experience: With no need for bank accounts and no business hour restrictions, stablecoin payments are gradually becoming the preferred choice for overseas workers and Web3 practitioners.
4.3 Central Banks on Alert Over Currency Sovereignty
By bypassing local banking systems and circulating directly as “on-chain dollars”, stablecoins are placing pressure on central banks in three areas:
● Weakened Monetary Policy Transmission: A country’s central bank struggles to influence the supply and flow of stablecoins in circulation.
● Substitution Risk for Local Currencies: In countries with severe inflation or strict financial controls, stablecoins are often seen as a form of “underground dollar”, gradually displacing fiat currencies.
● Capital Flight Risk: On-chain stablecoins can be transferred without approval, challenging the effectiveness of capital controls and the limits of KYC reviews.
In 2022, the Central Bank of Nigeria issued a warning about stablecoin transactions on Binance, stating that such activity was undermining its control over the Naira.
4.4 The Strategic Logic Behind Stablecoins’ Interplay with Existing Systems
Stablecoins do not stand in outright opposition to traditional financial systems. Instead, they are building a “parallel structure” that balances technological efficiency with institutional constraints:
● Circle has partnered with Visa and Mastercard on system integration, using stablecoins as a backend clearing layer.
● Countries like Singapore and the UAE are experimenting with the use of regulatory sandboxes to introduce compliant stablecoin enterprises.
● Europe’s MiCA sets access thresholds for stablecoin issuance, reflecting a strategy of “regulated inclusion rather than complete prohibition”.
Summary
Stablecoins not only challenge the technical framework but also question the financial order. Their future trajectory will depend on how well they manage to reconcile with regulation, cooperate with payment institutions, and coexist with the dollar-dominated system. Ultimately, the question of “whose market share they are threatening” is essentially about the redistribution of global power in payment governance.
Chapter 5 Are Stablecoins Becoming the “Dollar’s Shadow Banks”?
Stablecoin users may think they are simply exchanging some “digital dollars” on-chain, but in reality, they could be footing the bill for the U.S. Treasury, planting seeds of potential risk within the global financial system. This chapter explores the origins of shadow banks, analyzes how stablecoins operate, and uncovers their true role in the global financial system.
5.1 What Are Shadow Banks?
The term “shadow banks” may sound mysterious, but it simply refers to institutions that perform banking functions without being actual banks. The concept was coined by Paul McCulley in 2007 to describe financial institutions that accept funds, issue loans, and participate in credit expansion without banking licenses, such as money market funds and structured note issuers.
Their operating logic typically involves using short-term funds to invest in long-term assets and earn the spread. However, without backing from central banks, they become vulnerable to crises when liquidity tightens. This was the exact path taken by companies like Lehman Brothers during the 2008 financial crisis.
5.2 Are Stablecoins “On-Chain Shadow Banks”?
Let’s take a look at a simplified process:
1. You exchange 1 dollar for 1 USDT.
2. Tether uses that dollar to purchase short-term U.S. Treasury bills.
3. Your USDT continues to circulate on-chain, being traded, lent, or used as collateral.
What is the result?
● The U.S. Treasury gets 1 dollar and happily issues more debt.
● Meanwhile, there is an extra “dollar” circulating in the on-chain market.
That single dollar has split into two “shadows”: one sitting dormant in a U.S. Treasury account, and another actively circulating in the crypto world. Isn’t that, in a sense, a form of “shadow money multiplier”? And not a single step of this process takes place in a bank.
Doesn’t that sound like shadow banks? Furthermore, while stablecoin issuers do not issue loans, they use real money you deposit to buy yield-bearing assets and then “mint” a spendable token in return. It is tantamount to creating “credit money”. Only this time, the vehicle is an on-chain token.
5.3 A Real-World Example: Tether as an “On-Chain” Money Market Fund
Issuers like Tether and Circle function much like “on-chain money market funds”: You hand them your money, and they promise you can redeem it at any time, but actually, they invest your money in short-term U.S. Treasury bills or monetary funds.
This model is nothing new in traditional finance. For instance, U.S. money market funds typically collect cash from the public, invest it in short-term Treasury bills or repo agreements, maintain high liquidity and low risk, and then return fund shares to users. This is strikingly similar to the “1:1 peg + reserve asset” structure of stablecoins.
However, there are notable differences:
● Strictly regulated by the SEC, traditional money market funds disclose reserves, set up redemption mechanisms, and impose temporary restrictions.
● Stablecoin issuers have gradually come under some form of compliance regulation, but global regulation remains uncoordinated and lacks consistent standards.
For example:
● Circle (issuer of USDC) is registered in the U.S. as a money services business (MSB), holds digital currency licenses in multiple states, and regularly publishes reserve reports.
● Tether (issuer of USDT) also discloses its reserve composition and holds a large amount of U.S. Treasury bills, but its parent company is not fully subject to U.S. federal regulation. As a result, there are market concerns over its transparency and risk control system.
● The EU, Hong Kong, Singapore, and other regions are pushing forward regulatory legislation for stablecoins, such as MiCA and Singapore’s MAS regulatory framework, aiming to establish consistent standards. However, these are still in the early stages of implementation.
In other words, stablecoins are not entirely unregulated, but are currently in a “transitional phase of regulation”, with the depth and scope of oversight varying significantly across regions.
This means that when users are moving USDT or USDC around, the underlying funds are already in the U.S. Treasury market. What appears to be a harmless, highly liquid crypto asset is, in reality, another channel for the U.S. Treasury to raise funds without involving banks, just one that users are often unaware of.
5.4 The Shadow of Risk is Growing Longer
What do shadow banks fear most? It is the scenario where “you show up for your money, but it is still locked up”. This issue also troubles stablecoins:
● Tether may invest in short-term U.S. Treasury bills, but in the event of mass redemptions, its liquidity could still fall short.
● Circle emphasizes compliance, yet it remains exposed to systemic risks from concentrated redemptions.
● All the more so when you factor in additional variables like cross-chain bridges, smart contract bugs, and black swan events.
The bigger “vulnerability” of stablecoins lies in the fact that:
● They have no deposit insurance;
● They are not endorsed by central banks;
● They hold no legal clearing authority.
If trust collapses, on-chain USDT and USDC could suffer a double blow, facing mass sell-offs and being unable to meet redemptions.
5.5 Stablecoins: A “Borderless” Extension of the Dollar
If SWIFT is viewed as the nervous system of the dollar, then stablecoins are like an unofficial, steadily maturing “replica network of the dollar”.
From a strategic perspective of the dollar, stablecoins are undoubtedly becoming a new outer layer of the dollar’s influence:
● Extending the Dollar’s Reach: In places where local banking systems are weak or restricted, such as Lebanon, Venezuela, and Nigeria, on-chain USDT has effectively supplanted paper dollar bills as the more commonly used “form of dollar” among merchants and residents.
● Bypassing Geopolitical Barriers: In countries under sanctions, facing capital controls, or trapped in hyperinflation, stablecoins offer new exit routes for capital flow.
● Dollar Proxy in the Digital Financial Cold War: USDT and USDC have already gained a clear advantage across multiple blockchain ecosystems, positioning themselves at the frontier of battle against non-dollar systems.
By combining the dollar’s role as an anchor with the high liquidity of blockchains, stablecoins transplant the logic of “the dollar as global sovereign currency” from real-life banking systems into the DeFi world. They are more than just payment tools; they also enable the cross-platform transfer of monetary value systems.
Indeed, stablecoins may not look like banks, but they perform the function of issuing money. Nor are they the same as the dollar, yet they are used globally for payments and as safe-haven assets. They are the purest prototype of a 21st-century “privately owned bank”.
They funnel dollars into the global market but do not route them back to banks. They assist in U.S. debt financing without falling under regulation. They transcend monetary borders while creating new financial asymmetries.
Stablecoins are not imitators of shadow banks. Rather, they may well represent the next stage: on-chain Shadow Bank 2.0. On the one hand, they extend the dollar’s global reach. On the other hand, they challenge central banks’ monopoly over currency issuance and credit creation. Their shadow banking nature presents a new regulatory paradox between financial efficiency and systemic risk.
The on-chain circulation system of stablecoins is gradually evolving into a kind of “quasi-dollar system”. While stablecoins differ from the dollar in legal status, regulatory mechanisms, and technical pathways, they establish a credit link through being pegged to reserves. They extend the dollar’s reach, enabling it to circulate freely in an on-chain world without banks or accounts. Meanwhile, they challenge the traditional financial system. Stablecoins’ issuance mechanisms, asset structures, and clearing pathways are independent of the central banking system, thus forming a privately-led replica network of the dollar.
In this sense, stablecoins are both a miniature model of “dollar shadow banks” and a structural reconfiguration of the “on-chain dollar”. In the future, the relationship between the on-chain dollar and the traditional dollar may not be a zero-sum game where one’s gain comes at the other’s expense. Instead, they may coexist within a “dual-track system”, jointly participating in global payment competition and the reshaping of financial infrastructure.
Summary
Stablecoins are emerging as an extension of the dollar in the blockchain world. By absorbing global dollar reserves through “non-bank channels” and converting them into assets that circulate on-chain, stablecoins have formed a kind of “private replica system of the dollar”. While most stablecoin issuers do not yet engage in lending, they have already assumed part of the credit creation function traditionally associated with shadow banks through their asset-pegging and “redeem-on-demand” mechanisms. Whether stablecoins will evolve into more mature financial instruments in the future hinges on how effectively they progress in three key areas, namely, regulation, liquidity, and risk control.
Chapter 6 Regulatory Trends and Global Policy Developments
The extensive use of stablecoins in cross-border payments has drawn significant attention from governments and regulators around the world. Stablecoins share some characteristics with currencies, but they are not the same as traditional fiat money; they function as financial instruments, yet are primarily managed by private enterprises. This ambiguous identity places stablecoins in a regulatory gray area and gives rise to two fundamental concerns: first, how to ensure they do not threaten existing financial stability; and second, how to integrate them into sovereign regulatory frameworks to enable their orderly development under manageable risk.
6.1 The U.S. Regulatory Approach: Compliance as the Gateway, Risk as the Limit
● USDC Case Study: Circle has proactively registered as a money services business (MSB) under FinCEN and has obtained digital asset licenses in multiple U.S. states.
● SEC and NYAG Investigations into Tether: Tether was fined $18.5 million for lacking transparency in its reserves and pledged to conduct regular audits and disclosures, highlighting regulators’ heightened sensitivity to systemic risk.
● Stablecoin Legislative Proposals: The Clarity for Payment Stablecoins Act, introduced in the U.S. Congress in 2023, seeks to establish a regulatory framework for stablecoins for both bank and non-bank issuers.
6.2 Europe and Stablecoin Regulation under MiCA
The Markets in Crypto-Assets Regulation (MiCA), adopted by the EU in 2023, is the most comprehensive legislation to date governing stablecoins. It stipulates that:
● Stablecoins must set up capital buffers.
● Reserve assets must be 100% redeemable.
● Issuers must obtain an EU Electronic Money Institution (EMI) license.
● “Major stablecoins” are subject to transaction volume caps.
MiCA is regarded as a model framework for global stablecoin regulation.
6.3 Diverse Regulatory Pathways in Asia
● Singapore: The Monetary Authority of Singapore (MAS) has proposed draft regulations for single-currency stablecoins, requiring 100% reserve assets, audits, and disclosure of limits.
● Hong Kong: Stablecoins are incorporated into the licensing regime for Virtual Asset Service Providers (VASPs), and banks are encouraged to partner with stablecoin issuers in pilot settlement programs.
● Japan and South Korea: Both countries follow a regulatory dual approach of “licensing and auditing”, with an emphasis on user protection.
6.4 Future Policy Directions and Regulatory Tug-of-War
The global regulatory landscape for stablecoins is evolving rapidly and may end up in a hybrid model where three core pathways converge:
1. Global Expansion of Licensing Regimes: Frameworks like MiCA and Hong Kong’s VASP licensing regime are gradually being standardized as global regulatory frameworks.
2. Integration of Dollar Stablecoins into the Federal Reserve’s Purview: Institutions like Circle may merge with traditional finance, forming “quasi-official distribution channels for the dollar”.
3. Concerns over Currency Substitution Risks in Developing Countries: Countries such as Argentina and Nigeria may impose restrictions on stablecoin transactions to guard against dollarization eroding their monetary sovereignty.
Summary
Stablecoin regulation has progressed from an initial vacuum into a landscape characterized by “regional diversity and global convergence”. In mature markets such as the U.S. and Europe, regulatory frameworks for stablecoins have taken shape around compliance, capital requirements, and reserve transparency. Meanwhile, Asia is seeking to strike a balance between innovation and regulation. In the future, the mainstream adoption of stablecoins will increasingly rely on clear policy expectations and cross-border regulatory coordination. The depth and flexibility of regulatory approaches will also determine the legitimacy and resilience of stablecoins in the global payment system.
Chapter 7 Conclusion and Outlook
The rise of stablecoins is no passing fad; they are “system patches” that have emerged organically within the cracks of the global monetary structure. Replacing clearing officers with code and bank accounts with wallets, they embed dollar liquidity into every corner of the on-chain economy.
Over the past decade, stablecoins have started with facilitating payments and gradually expanded to enabling cross-border remittances, financial clearing, asset trading, and even functioning as financial infrastructure. In emerging markets, stablecoins fill the gap between dysfunctional local currencies and the limited accessibility of the dollar. Within compliance frameworks, they are seeking to enter the official financial system under a new identity as “regulated on-chain dollars”.
This study finds:
1. Stablecoins are an “unofficial branch” of the dollar’s global expansion, extending the dollar into regions and scenarios that were previously out of reach through market-driven mechanisms.
2. The institutional nature of stablecoins is evolving rapidly, from being unregulated to semi-regulated and now to licensed payment intermediaries. Their fate will increasingly hinge on how regulatory frameworks are designed and where compromises are made.
3. In the future, stablecoins will not just be a product; they will be a “standard”, potentially forming the next-generation financial infrastructure alongside CBDCs, digital banking systems, and global payment networks.
Looking ahead, stablecoins’ regulatory clarity and technological neutrality will determine whether they can truly serve as the “dollar infrastructure in the digital age”. If the dollar’s past global dominance was built on military power, finance, and oil, then the on-chain dollar may give rise to a new generation of geopolitics-free currency systems, driven by users, developers, and code logic.
This report is published as a collaboration between HTX Research and HTX Ventures.
About HTX Ventures
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🔗 https://www.theblock.co/data/crypto-markets/stablecoins
Tether Transparency Report — Tether Transparency
🔗 https://tether.to/en/transparency
PANews: In-Depth Report on Stablecoin Payments — Reshaping the Trillion-Dollar Industry and Ushering in a New Era of Borderless Finance
🔗 https://www.panewslab.com/zh/articledetails/f08cit1n8ts1.html
