Dialogue with Dr. Xiao Feng (Part 1): The Legislation of Dollar Stablecoins is a Victory for Technological Innovation, but the Impact Will Be Very Complex

Author: Meng Yan's Thoughts on Blockchain

With the U.S. Senate passing the voting motion for the U.S. Dollar Stablecoin Act and the Hong Kong Legislative Council passing the Hong Kong Dollar Stablecoin Regulation Draft, stablecoins have quickly become the hottest topic in the industry, attracting broader attention. There is a general expectation that with the implementation of the U.S. Dollar Stablecoin Act, the blockchain digital economy will experience a spectacular explosion, creating new entrepreneurial opportunities around the U.S. dollar stablecoin and real-world assets (RWA). Dr. Xiao Feng is a leading figure in Chinese blockchain research and practice, with a deep understanding of blockchain, stablecoins, and RWAs. To fully grasp the opportunities of this era, I had the privilege of engaging in an in-depth exchange with Dr. Xiao through video conferencing and text, which I have organized into an article for publication and discussion with peers. Due to the length of the original text, it is published in two parts. The first part mainly interprets the significance of the U.S. dollar stablecoin, while the second part focuses on the opportunities that the stablecoin economy and RWAs bring to Chinese entrepreneurs. The views expressed in the article are solely those of the author, and readers are welcome to engage in discussion.

1. The Transparency of Stablecoin Legislation Motives

Meng Yan: Dr. Xiao, your recent speeches have sparked significant reactions throughout the Chinese blockchain community, especially your talk "Back to the Origin," which has had a profound impact on blockchain entrepreneurs. In this speech, you not only reiterated the value logic of blockchain but also pointed out that the industry is facing a new explosion cycle, and entrepreneurs need to return to their original intentions to move forward correctly. This is my understanding of your speech.

The timing of your speech was indeed very precise. On May 19, the U.S. Senate passed the voting motion for the GENIUS Stablecoin Act, followed by the Hong Kong Legislative Council passing the Stablecoin Regulation Draft on May 21. A legislative race regarding stablecoins has quietly begun. A new consensus is forming that the blockchain field is about to enter a golden window for entrepreneurial innovation, and for a period of time, its energy intensity may even surpass that of AI. Many outsiders who have never participated in blockchain and Web3, who may have looked down on it last month, are now adjusting their views and beginning to pay attention to opportunities in this field.

This situation is hard-won. I have been involved in this industry for ten years, and I feel quite emotional about it. Over the past few years, major countries around the world have generally adopted a very cautious or even negative attitude toward blockchain, crypto assets, tokens, DeFi, and Web3, with tight regulations and mainstream media almost unanimously stigmatizing it. In my impression, there has been no second example of treating an emerging technology this way since the Industrial Revolution over two hundred years ago. But the green mountains cannot hide the flowing water; after all, this day has come.

However, the sudden shift of the Trump administration in the U.S. requires an explanation from the public. I have seen some self-media interpreting this matter from a conspiracy theory perspective, suggesting that it is a tool for the Trump family to enrich themselves or a currency war launched in conjunction with the trade war.

What do you think is the motivation behind the U.S. promoting stablecoin legislation?

Xiao Feng: The U.S. presidential team and Congress are quite frank and transparent about the motives behind stablecoin legislation. They openly state that the first is to modernize the U.S. payment and financial system, and the second is to consolidate and enhance the position of the dollar, creating trillions of dollars in demand for U.S. Treasury bonds in the coming years. I believe this is the answer; there are not so many conspiracy theories involved.

Not long ago, I spoke with a crypto policy advisor to the U.S. president, who told me very directly that national reserves of Bitcoin are secondary for the U.S.; the U.S. dollar stablecoin is the primary concern and is a core interest of the United States. From what I understand, the goal of the Trump administration is to ensure the passage of the GENIUS Act before Congress goes on recess in August, and it seems it may happen even sooner.

In this context, the Hong Kong legislative authorities have demonstrated flexibility and efficiency by passing the stablecoin regulation in three readings, which is commendable.

Meng Yan: Some people are already comparing this act to the Bretton Woods Conference in 1944 and the Nixon Shock in 1971, claiming it is constructing a "Bretton System of the Digital Economy Era." The logic behind this claim is that the U.S., in the process of de-globalization, is very concerned about the weakening of the dollar's position. Therefore, using digital currency as a "nuclear weapon" to launch a dimensional attack on the existing international monetary and financial system, countering the impact on the dollar and consolidating dollar hegemony. What do you think of this view?

Xiao Feng: As I mentioned earlier, the U.S. openly acknowledges that one of the important purposes of promoting stablecoin legislation is to consolidate and enhance the position of the dollar. From the Senate's voting, this is a bipartisan consensus, and they know they are creating history.

The U.S. has come to this realization through a process and has paid some costs. The previous U.S. government, especially experts like former SEC Chairman Gary Gensler, understood blockchain, but why did they still struggle for so many years? It was simply because they were reluctant to let go of the existing payment network, including SWIFT, and the financial governance, regulation, and anti-money laundering mechanisms built on this network.

However, the progress of blockchain technology in recent years, especially the financial sanctions against Russia after the Russia-Ukraine war, has shown that the technical advantages of blockchain are undeniable and irrefutable. Therefore, the entire financial infrastructure moving towards blockchain is as certain as the transition from the steam engine to the electrification era; no force can stop it. Burying one's head in the sand is no longer meaningful; the situation is stronger than any individual.

Compared to the previous administration, the Trump government has shown a more realistic attitude in various aspects. To put it negatively, they are not principled; positively, they are proactive. Therefore, the current U.S. attitude is that if payment settlements bypass SWIFT, it is inevitable, then at least do not let it bypass the dollar. If dollar tokenization is unavoidable, then at least ensure that every dollar token is created based on U.S. assets. Since it cannot be blocked, it should be guided well to ensure that in the digital economy, in the Web3 world, and in the AI era, the dollar remains the main payment and settlement tool. From the U.S. perspective, this is an open strategy, a clear card.

Can the U.S. dollar stablecoin create a new "Bretton System"? We need to observe. Over the past few years, the dollar's position globally has declined. If the U.S. hopes to consolidate the dollar's position through stablecoins, there is no doubt about that. However, whether this single measure can achieve its goals, especially whether it can be said to have created a new system, will likely depend on the subsequent practice and legislative interaction process. However, I have a judgment that although the Trump team and the U.S. Congress have a deep understanding of the U.S. dollar stablecoin, they may not fully imagine the long-term impact of this matter. In this sense, promoting the GENIUS Act carries some risks. Whether it will be as fluctuating as its trade war policy remains to be seen.

2. Two U.S. Dollar Stablecoin Systems and Their Complex Consequences

Meng Yan: Speaking of long-term impacts, there is a popular conspiracy theory narrative in the Chinese internet about "currency wars," suggesting that the U.S. initiated stablecoin legislation to "weaponize" stablecoins. Do you agree with this view?

Xiao Feng: "Currency wars" have been a popular narrative for over a decade. From the perspective of other countries, it is indeed necessary to fully estimate the impact of U.S. dollar stablecoins. The legislative push for the tokenization of fiat currency is unprecedented in the history of world currency, and it will inevitably trigger a series of complex economic and financial reactions that no one can fully foresee, including the U.S. president and Congress. However, there are at least two issues revealed by the GENIUS Act that need special attention.

The first is that the boundaries of sovereign currencies are becoming more fragile. Current currency usage is based on national administrative divisions, with sovereign countries monopolizing currency internally and controlling foreign exchange at the borders. This governance mechanism has been in place for over a century. Once U.S. dollar stablecoins are widely adopted, this mechanism will be broken. Blockchain transforms the internet into a payment network and financial infrastructure, making currency no longer reliant on traditional banking systems and clearing networks. Instead, it can penetrate the micro-level of another economy through smart contracts, encrypted accounts, and peer-to-peer transmission mechanisms, covering daily consumption, labor payments, cross-border e-commerce, freelancer settlements, and even payments between AI and AI, machine and machine. At this stage, stablecoins will no longer just be a payment tool; they will become a financial infrastructure that can embed itself into the economic systems of other countries. It can "incorporate" a portion of other countries' economic activities into its own economic map, effectively forming a new mechanism for currency network expansion. This poses a structural challenge to existing sovereign currencies, financial regulatory frameworks, and macro policy control measures because what you originally relied on—banking systems, foreign exchange controls, and payment settlement rules—are becoming increasingly fragile in the face of blockchain and stablecoin technologies.

Meng Yan: What you mentioned is already happening. In some countries in Africa, Southeast Asia, and Latin America, where local fiat currencies have depreciated for years, young people are increasingly using USDT and other dollar stablecoins, causing headaches for their monetary authorities. When I was on a business trip to Ghana last year, local central bank officials told me that dollar stablecoins were spreading like wildfire among young people in Ghana and Nigeria, undermining the status of their local currencies. They asked me how they could use technology to resist the invasion of dollar stablecoins, and I couldn't answer. Because if your local currency depreciates by 20-30% every year, it's no surprise that people prefer to use dollars.

Xiao Feng: This is just the beginning. With the development of dollar stablecoins, a second issue will arise, namely the complex ecology that may emerge from offshore dollar stablecoin systems. According to the GENIUS Act, institutions outside the U.S. can also issue dollar stablecoins, but they must be based on U.S. dollar fiat assets, registered in the U.S., subject to U.S. regulatory oversight, comply with U.S. laws, and respond to U.S. law enforcement orders at any time. These requirements are very high, but it is important to clarify that these are the conditions for "legal circulation in the U.S. market." If they do not enter the U.S. market and do not interact with U.S. individuals and entities, then even these conditions can be relaxed. This effectively opens up a gray area, conditionally allowing foreign institutions to mint dollars. As a result, there will be two systems in the future: onshore dollar stablecoins and offshore dollar stablecoins, similar to today's dollar and eurodollar systems. The onshore dollar is relatively strict and consistent, while the offshore dollar ecology will be more complex, with dozens or even hundreds of digital currencies called "dollar stablecoins" circulating, exchanging, mapping, and interacting across dozens of public chains and hundreds of private chains, generating complex effects that no one has seen before and no one can foresee.

Meng Yan: Can we think of this as the U.S. relinquishing part of its minting rights to foreign non-bank institutions, decentralizing the minting rights of dollar stablecoins? This reminds me of the early Western Han Dynasty in China, when minting rights were decentralized, allowing private minting of currency, but there are no detailed records in the literature about how these currencies interacted and what economic problems arose. Since the advent of industrial civilization, no country has attempted to decentralize minting rights to foreign entities, and we are about to witness a new phase in the history of world currency development. I make a possibly inappropriate comparison: future dollar stablecoins may resemble the copper coins of the Wenjing era, with many "brands," some high-quality, some low-quality, some minted by Deng Tong, some by Liu Bi, circulating and competing in the global market. The U.S. government superficially relinquishes part of its dollar minting rights, but in reality, through regulation and enforcement, it turns U.S. Treasury bonds into the "copper mines" for minting copper coins, retreating to advance, making all stablecoin issuers around the world "chain stores" of the dollar, significantly increasing global economic demand for U.S. Treasury bonds, enhancing the penetration of the dollar, and amplifying the long arm of U.S. financial regulation.

Xiao Feng: Yes, but the actual situation will be more complex. As trade frictions lead to "de-globalization," a trend of "dollarization" in the global digital economy emerges. In the rapidly advancing field of AI, the "value internet" suddenly accelerates, and the complex reactions of these economic and technological trends exceed everyone's predictive capabilities.

Especially in the offshore dollar stablecoin system, multiple layers will emerge, attracting many financial institutions, internet companies, and even sovereign nations to participate, resulting in a particularly rich ecology. From high-grade offshore dollar stablecoins issued by foreign entities but fully compliant with U.S. regulatory rules, which can circulate within the U.S., to local dollar stablecoins that follow the regulations of other sovereign countries but do not enter the U.S. or interact with U.S. individuals, to "wild" non-compliant dollar stablecoins, as well as the inevitable emergence of various counterfeit currencies, over-issuance, and dirty money issues, on one hand, this will lead to a dramatic amplification of the dollar's "brand effect," the global spread of the psychological anchoring effect of the dollar as a "pricing unit," and the expansion of the scope of U.S. financial regulatory enforcement. On the other hand, the super-complex monetary system will inevitably bring unprecedented challenges to the regulatory and financial stability of countries around the world and the U.S. In the early stages, the U.S. regulatory capacity may very likely face issues of lagging behind and being unable to reach, which could even lead to policy fluctuations. In short, the real world will be very exciting and very chaotic. I can say with certainty that we are entering a period of ecological explosion in the digital economy, and we will soon see many new digital economic phenomena and business species.

At this stage, discussions on this issue are still insufficient. Especially in the Chinese internet, the discussions are severely lacking.

However, I still believe that the main purpose of the U.S. introducing dollar stablecoins is to align with technological development trends, take the initiative, and consolidate the dollar's position, rather than targeting the existing international monetary system. The so-called "weaponization" is a "byproduct" of the disruptive technological advantages of blockchain. If we engage in emotional discussions on this issue, it is easy to be misled. Currently, in the Chinese internet public opinion, conspiracy theories and struggle narratives are very fashionable and thrilling; we must be particularly cautious to avoid being misled by emotions and standing against the historical trend. It's simple: if this is a currency war, should we be on high alert? Should we continue to block the entire set of technologies related to blockchain, tokenization, and crypto finance? If we think about the problem this way, it will lead to a major mistake.

We need to understand that the "aggressiveness" of blockchain stablecoins is to naturally attract and bind more real economic activities under a framework of higher efficiency, lower costs, and fewer intermediaries. Its expansion is based on technological advantages, relying on efficiency, institutional design, technological advantages, and network effects, which cannot be resisted in the long term. We acknowledge that it has disruptive innovation characteristics and is aggressive and destructive to the existing technological system; even calling it a dimensional attack is not an exaggeration. But what attitude should we adopt towards it? Wasn't the historical use of firearms a dimensional attack on cold weapons? Wasn't the steam engine a dimensional attack on human and animal power? Wasn't the internet a dimensional attack on postal and telephone networks? So which side are you on?

My attitude has been consistent and unchanged for the past ten years. In the face of a technology like blockchain, we should follow the trend and develop our stablecoin ecosystem in an open, compliant, and trustworthy manner, securing 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, actively responding is the truly responsible attitude towards sovereignty.

3. The Breakthrough of Stablecoins is Ultimately a Victory for Technological Innovation

Meng Yan: The U.S. taking the lead in promoting stablecoin legislation has its uniqueness. This uniqueness lies in the fact that the first to take the plunge is the world's largest and most advanced economy, pushing for the transformation of the world's most important reserve currency. For many countries, they might prefer to pilot this in less significant economies with less important currencies, gradually advancing the matter, which would be more prudent. However, the current attitude of the U.S. is equivalent to directly presenting a stormy transformation to everyone, creating a situation that forces everyone to confront a Sphinx-like dilemma: answer me, or I will devour you.

Faced with this challenge, many people, out of a reactive mindset, have a sense of defensiveness. Especially with the media constantly reporting how blockchain is used for money laundering, illegal financing, and illicit trading, and daily stories of speculation, when suddenly the U.S. uses this technology to promote stablecoins and RWAs, many naturally think that this is the U.S. waging a currency war, using blockchain as a weapon. This mindset is understandable.

Xiao Feng: The mindset is understandable, but we still need to use first principles and return to the origin to think. Now, when we discuss blockchain and stablecoin topics, there is too much macro discussion, starting with the monetary system, dollar hegemony, and financial wars, but there is very little micro discussion. Many of us forget that the primary driving force behind the development of stablecoins has always been technological innovation, creating value for ordinary users and consumers. The reason stablecoins have such a significant impact lies in the series of technological advantages conferred by blockchain. I have been discussing these points for ten years, but it is still not enough; at this moment, it is necessary to reiterate that everyone must understand that blockchain technology truly possesses enormous superiority, and it is bound to succeed—no one can stop it.

Meng Yan: It is indeed important to clarify this reasoning. I saw you mention in a speech that you have been fascinated by blockchain for ten years and have not changed your original intention. Could you summarize again what technological advantages of blockchain have captivated you?

Xiao Feng: Its fundamental technological advantages are reflected in four aspects: accounts, ledgers, accounting methods, and accounting units.

From the perspective of accounts, traditional finance relies on bank custodial accounts to record all our economic activities. However, in blockchain, there are no bank accounts; digital asset wallets take their place, referred to as encrypted accounts. The creation of encrypted accounts is completed by users themselves through cryptographic tools, self-created, with assets self-custodied.

From the perspective of ledgers, public chains serve as global public ledgers, with global liquidity, unrestricted by administrative divisions, and without geographical or temporal boundaries.

From the perspective of accounting methods, distributed accounting differs from double-entry bookkeeping, and the clearing and settlement models are also different. Traditional finance uses net settlement, while blockchain uses transaction-by-transaction settlement, meaning that payment and settlement occur simultaneously.

From the perspective of accounting units, the accounting unit on the blockchain is the native encrypted digital currency. If you want to use fiat currency as the accounting unit, merely issuing orders is ineffective; you must first tokenize the fiat currency and create a digital twin of the fiat currency on the chain.

These technological advantages may sound abstract, but when reflected in applications, they provide tangible benefits to users. A simple way to judge whether a new technology has overwhelming advantages is to look at how many times efficiency has improved and how much costs have decreased. A tenfold advantage indicates an upgrade; if it is a hundredfold or thousandfold advantage, then it is something that no force can resist. For example, if cars are roughly ten times faster than horse-drawn carriages, then the entire system of horse-drawn carriages will inevitably be eliminated. The internet is a hundred times cheaper than telegraph, telephone, and television networks, so when the internet first appeared, many people tried their best to stop applications like internet telephony and video, but what was the result? These networks have now all been replaced by the internet. In the face of such enormous technological advantages, any conservative or resistant reasoning is untenable.

I have always said that users' demands for finance are ancient and unchanging: they want to borrow money easily and receive money quickly. Let's compare remittance efficiency. Now, remitting from Shanghai to the U.S. may take several days or even weeks; however, with blockchain stablecoins, it can arrive in seconds. How many times is this efficiency improvement? In an even more extreme case, I recently remitted from Hong Kong to Shanghai, and it took a month to confirm the failure, while using stablecoins could complete the transaction in ten seconds. How many times is this efficiency improvement? It could be tens of thousands or hundreds of thousands of times. With such enormous technological advantages, what force can stop it?

Let me give another example. In traditional trading systems, it is very difficult to achieve 7x24 uninterrupted operation. Some leading stock trading systems are seeking to extend trading hours; some have already planned for 5x23, trading five days a week for 23 hours a day, but they still need to pause for an hour each day because traditional clearing systems require a time point to pause, net, and settle. But look at how we conduct payments and transactions on the blockchain; they operate continuously without interruption. Why can this be achieved? It is because, as mentioned earlier, it is conducted on a global ledger with transaction-by-transaction settlement, allowing for uninterrupted clearing and settlement. I have heard that NASDAQ is working on a 7x24 trading system, and I suspect they will use blockchain technology internally. Once implemented, investors worldwide can trade U.S. assets continuously using dollar stablecoins, which is undoubtedly significant for investors and U.S. companies. Therefore, you see, these macro strategic discussions ultimately still need to be built on technological innovation.

There are many other advantages, such as no intermediaries, peer-to-peer transactions, borderless operations, near-instantaneous global transactions, nearly zero fees, automation on smart contracts, and irrevocable transactions. When users compare, the benefits become clear. Is there still a need to persuade anyone? It's like comparing electric motors to steam engines, electric lights to gas lamps, or integrated circuits to vacuum tubes. As an ordinary user, you don't need specialized knowledge or other conditions; you can see which one is superior and which one will be eliminated. This is an obvious fact.

If we understand these basic technological facts, we will arrive at a simpler conclusion: the fundamental starting point for the U.S. promoting stablecoins is still to align with technological development trends and modernize payment and financial infrastructure.

Of course, such a strategy must have multiple considerations, including maintaining dollar hegemony, competing in the monetary and financial system, and even the Trump family's profit motives. However, all these considerations are based on the fundamental fact that blockchain, as a new generation of financial infrastructure, has overwhelming technological advantages. Many people view blockchain as a formidable threat, largely because they do not deeply recognize the inherent advancement and inevitability of blockchain technology. I often say that the situation is stronger than any individual. If you can block it, then you can discuss whether to block it; if you cannot block it at all, then what is the point of discussing how to block it? Knowing it is impossible yet trying to do so will only waste opportunities and lag behind in the new round of competition for financial infrastructure and monetary financial systems.

Therefore, I am very excited about the early passage of the Hong Kong stablecoin bill; this is the correct response.