Eliza Wong
Understanding Stablecoins: The Digital Equivalent of Cash
At the recent 25th CIFIT · Phoenix Network Wutong Night Talk exchange dinner in Xiamen, Li Ming (李鸣), Executive President of the Hong Kong Web3.0 Standardization Association, clarified the core nature of stablecoins. He emphasized that stablecoins function as a “general equivalent” in the digital world, much like traditional currencies such as the yuan in physical transactions. Their primary role is to serve as a medium of exchange and payment tool within blockchain-based environments, enabling seamless and efficient transactions.
Why are they called “stable” coins? Unlike volatile cryptocurrencies like Bitcoin or Ethereum, stablecoins are pegged to fiat currencies such as the US dollar or Hong Kong dollar, ensuring their value remains consistent. This stability makes them ideal for everyday use in digital economies, from online purchases to cross-border remittances.
Stablecoin Is a Payment Tool, Not an Investment Product
Li Ming stressed that stablecoins are not designed for investment or speculative purposes. They lack the profit-generating mechanisms of traditional financial products like bonds or stocks. Instead, their value is backed 1:1 by fiat currency reserves held in trusted third-party institutions. For example, issuing one million yuan in stablecoins requires one million yuan in cash or highly liquid assets held in reserve, ensuring full redemption capabilities.
This structure aligns with regulatory frameworks in regions like the United States, Hong Kong, and the European Union, where stablecoin issuers must obtain licenses and comply with strict oversight. By design, stablecoins prioritize security and reliability over returns, making them a practical tool for transactions rather than a vehicle for wealth accumulation.
Key Characteristics of Stablecoins
– Value Stability: Pegged to fiat currencies to minimize volatility.
– Regulatory Compliance: Licensed issuers must maintain transparent reserves.
– Utility-Focused: Optimized for payment efficiency, not interest generation.
Applications and Use Cases for Stablecoins
Stablecoins excel in scenarios requiring cross-border transactions, low-trust environments, and multi-party collaborations. For instance, in international trade, a steel company purchasing ore from Australia can use stablecoins to streamline payments, reduce intermediaries, and settle transactions in hours instead of days. This efficiency stems from blockchain’s inherent transparency and the stability of the currency used.
However, Li Ming noted that stablecoins are unnecessary for domestic transactions within trusted banking systems, where traditional methods suffice. Their real value emerges in cross-jurisdictional contexts, such as remittances for overseas workers or B2B settlements between financial institutions.
Real-World Example: Cross-Border Remittances
Consider a domestic helper in Hong Kong sending earnings to family in the Philippines. Using a licensed stablecoin like a USD-pegged token, they can avoid high fees and slow processing times associated with conventional banks. This practicality underscores why stablecoins are gaining traction as a payment tool in global finance.
Regulatory Landscape and Future Outlook
Globally, regulators are refining frameworks for stablecoins to ensure security and interoperability. Differences in national policies, cross-border coordination, and technical standards pose challenges, but Li Ming predicts resolution within 5–8 years as technology matures. He envisions stablecoins becoming integral to Web3.0 infrastructure, supporting decentralized finance (DeFi) and digital economies.
Despite their potential, risks remain, especially from unlicensed issuers or fraudulent schemes. Users must verify compliance and avoid promises of high returns, as stablecoins are not investment products.
Key Takeaways and Next Steps
Stablecoins represent a transformative shift in digital payments, offering speed, cost savings, and accessibility. However, their utility hinges on responsible adoption: choose licensed providers, understand their payment-focused design, and stay informed about regulatory developments. As the industry evolves, engaging with educational resources and trusted platforms will help navigate this emerging landscape safely and effectively.
