Original Article Title: "Dr. Xiao Feng Interview (Part 1): The Stablecoin Legislation Victory is a Technological Innovation, But the Impact Will Be Very Complex"

Original Article Author: Meng Yan

Introduction:

With the U.S. Senate voting on the Dollar Stablecoin Act and the Hong Kong Legislative Council passing the Hong Kong Dollar Stablecoin Bill, stablecoins have quickly become the hottest industry topic, attracting wider attention. It is widely anticipated that with the implementation of the Dollar Stablecoin Act, the blockchain digital economy will usher in a very exciting boom. A new entrepreneurial window period is expected to emerge around this 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 RWA. In order to fully grasp the opportunities of this era, I had the privilege of having a deep discussion with Dr. Xiao Feng through video conferences and text, which I have compiled into an article for publication to explore together with colleagues. Due to the length of the original article, it is divided into two parts for publication. The first part mainly interprets the significance of the Dollar Stablecoin, while the second part focuses on the outlook for the stablecoin economy and the opportunities it brings to Chinese entrepreneurs in the RWA. The views expressed in the article are only those of the author, and readers are welcome to engage in discussions.

1. The Transparency Motive Behind Stablecoin Legislation

Meng Yan: Dr. Xiao, recently, several of your speeches have caused a great resonance in the entire Chinese blockchain community, especially the speech directed at blockchain entrepreneurs, titled "Returning to the Origin." In this speech, you not only reiterated the value proposition of blockchain but also clearly pointed out that the industry is facing a new boom period, and entrepreneurs need to return to their original intentions and set off again on the right path. This is my understanding of your speech.

Your speech was indeed very timely. The U.S. Senate passed the GENIUS Stablecoin Act vote on May 19, followed by the Hong Kong Legislative Council passing the "Stablecoin Bill" on May 21. A legislative competition regarding stablecoins has quietly begun. A new consensus is currently forming; the blockchain field is about to usher in a golden window of entrepreneurship and innovation. For a period of time, its energy intensity may even surpass AI. Now, many outsiders who have never participated in blockchain and Web3 may have looked down on this just last month, but they have now adjusted their views and begun to pay attention to opportunities in this field.

This situation has not come easily. I have been involved in this industry for ten years, and I still have deep feelings about it. Over the past few years, major countries around the world have taken a very cautious or even negative stance toward this whole set of new technologies, such as blockchain, crypto assets, Tokens, DeFi, and Web3. The mainstream media almost unanimously stigmatized them. In the over two hundred years since the Industrial Revolution, I cannot recall another example of treating an emerging technology like this. But the mountain cannot be concealed by a little grass; the flowing water will eventually follow its course. It seems that the day has finally arrived.

However, the sudden U-turn by the Trump administration in the United States still requires an explanation from the public. I have seen some self-media outlets interpret this matter from a conspiracy theory perspective, such as seeing it as a money-making tool for the Trump family or as part of a currency war launched in conjunction with a trade war. So, what do you think is the motivation behind the United States pushing for stablecoin legislation?

Xiao Feng: The U.S. presidential team and Congress have been quite candid and transparent about the motivation behind stablecoin legislation. They openly state that the first goal is to modernize the U.S. payment and financial system, and the second is to strengthen and enhance the status of the U.S. dollar, creating a demand for trillions of dollars in U.S. debt over the next few years. I believe that is the answer, and there isn't much room for conspiracy theories here. Not long ago, I had a discussion with a U.S. presidential crypto policy advisor, and he was very straightforward in telling me that Bitcoin as a national reserve is secondary for the U.S., and a USD stablecoin is the top priority, representing a core interest of the United States. As far as I know, the goal of the Trump administration is to ensure the passage of the GENIUS Act in Congress before their August recess, and it now appears it may happen even sooner. In this context, the legislative authorities in Hong Kong have shown flexibility and efficiency by passing the stablecoin ordinance on the third reading, which is commendable.

Meng Yan: Some have already compared this bill to the 1944 Bretton Woods Conference and the 1971 Nixon Shock, suggesting that it is building a "Bretton Woods system for the digital economic era." The rough logic behind this argument is that as the U.S. moves towards deglobalization, it is very concerned about the weakening of the U.S. dollar's position. Therefore, using digital currency as this "nuclear weapon" to launch a dimensional impact on the existing international monetary and financial system, counteracting the impact on the U.S. dollar, and consolidating the dominance of the U.S. dollar. What do you think of this viewpoint?

Xiao Feng: As I mentioned earlier, the United States openly admits that one of the key purposes of pushing for stablecoin legislation is to strengthen and enhance the U.S. dollar's position, and from the Senate vote, it is clear this is a bipartisan consensus as they are aware they are making history. The U.S. has come to this understanding through a process and has paid a price for it. The previous U.S. government, especially expert bureaucrats like former SEC Chairman Jay Clayton, had an understanding of blockchain technology, yet why did they still hesitate for so many years? It all boils down to being unwilling 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, in recent years, the progress of blockchain technology itself, especially the financial sanctions on Russia following the Russo-Ukrainian war, has demonstrated the undeniable and indisputable technological advantages of blockchain. Therefore, the move of the entire financial infrastructure towards blockchain, akin to transitioning from the steam engine to the electrification era, is unquestionable, and no force can stop it. Burying one's head in the sand is no longer meaningful; the situation is stronger than individuals.

The Trump administration, compared to the previous administration, has shown a more pragmatic attitude in all aspects, which can be seen as lacking principles at worst or proactive at best. Therefore, the current U.S. attitude is that if bypassing SWIFT for payment settlement is inevitable, at least don't let it bypass the U.S. dollar; if U.S. dollar tokenization is inevitable, then at least ensure that every U.S. dollar token is backed by U.S. assets. Since it can't be stopped, then guide it properly, ensuring that in the digital economy, in the Web3 world, and in the AI era, the dollar remains a major payment and settlement tool, which is a core national interest of the United States. From the U.S. perspective, this is a positive strategy, an open secret.

Can a USD stablecoin create a new "Bretton Woods system"? This remains to be seen. The status of the U.S. dollar globally has declined in recent years, and if the U.S. hopes to consolidate the dollar's position through stablecoins, that is undeniable. However, whether this measure alone can achieve the goal, especially whether it can be said to have created a new system, may need to be observed through the subsequent process of practice and legislative interaction. But I have an assessment that while the Trump team and the U.S. Congress have a deep understanding of USD stablecoins, they may not fully imagine the long-term impact of this matter. In this sense, pushing the GENIUS Act has taken some risks. Will the future repeat itself like his trade war policy? It remains to be seen.

2. Two USD Stablecoin Systems and Their Complex Consequences

Meng Yan: When it comes to long-term impact, the conspiracy theory narrative of "currency wars" is now popular on the Chinese internet, suggesting that the U.S. is initiating stablecoin legislation with the aim of "weaponizing" stablecoins. Do you agree with this view?

Xiao Feng: "Currency wars" have been a popular narrative over the past decade. From the standpoint of other countries, a full estimation of the impact of USD stablecoins is indeed necessary. Legislatively promoting fiat currency tokenization is a historic event in world monetary history that is unprecedented, and it will inevitably trigger a series of complex economic and financial reactions that no one can fully foresee, not even the U.S. President and Congress. However, with regard to the revealed content of the GENIUS Act, at least two issues need special attention.

The first issue is that sovereign monetary boundaries are becoming more fragile. Currency use is now based on national administrative boundaries, with sovereign nations monopolizing their internal currency and controlling foreign exchange at the borders. This governance mechanism has existed for over a century. Once USD stablecoins are extensively used, 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, but able to penetrate another economy's micro-level like capillaries, covering daily consumption, labor payments, cross-border e-commerce, freelancer settlements, and even payments between AIs, machine-to-machine. At this stage, stablecoins are no longer just a payment tool, but become a financial infrastructure that can embed a part of another country's economy into its own economic map, essentially forming a new currency network expansion mechanism. This poses a structural challenge to existing sovereign currencies, financial regulatory frameworks, and even macro policy control measures, as they become increasingly vulnerable in the face of blockchain and stablecoin technologies.

Meng Yan: The situation you mentioned has already occurred. In some countries in Africa, Southeast Asia, and Latin America, the domestic fiat currency has been depreciating year after year, prompting a large number of young people to use USD-pegged stablecoins such as USDT, causing great headaches for the monetary authorities of these countries. When I was on a business trip to Ghana last year, a local central bank official told me that USD-pegged stablecoins had spread like wildfire among the youth in Ghana and Nigeria, undermining the position of their domestic fiat currency. They asked me how to resist the invasion of USD-pegged stablecoins through technological means, and I couldn't answer. Because your domestic currency depreciates by 20-30% every year, it would be strange if the common people did not use the US dollar.

Xiao Feng: This is just the beginning. With the development of USD-pegged stablecoins, a second issue will arise, which is the complex ecosystem that may emerge from the offshore USD-pegged stablecoin system. According to the GENIUS Act, institutions outside the United States can also issue USD-pegged stablecoins, but they must be based on USD fiat assets, registered in the United States, subject to regulation by US authorities, comply with US laws, and be ready to respond to orders from US law enforcement agencies at any time. These requirements are very stringent, but it should be understood that these requirements are the conditions for "legal circulation in the US market." If they do not enter the US market, do not engage with US individuals and entities, then even these conditions can be relaxed. In fact, this is akin to opening up a gray area, conditionally allowing foreign institutions to mint US dollars. As a result, in the future, there will be two systems of onshore USD-pegged stablecoins and offshore USD-pegged stablecoins, similar to today's USD and Eurodollar systems. The onshore USD system is relatively strict and consistent, while the offshore USD ecosystem will be more complex, with dozens or even hundreds of so-called "USD-pegged stablecoins" circulating, interacting, mapping, exchanging, and interacting in dozens of public chains and hundreds of private chains in the two systems, creating complex effects that no one has seen before and no one can predict.

Meng Yan: Can we think of it this way, that the United States has actually delegated some coinage rights to foreign non-bank institutions, decentralizing the minting rights of USD-pegged stablecoins. This reminds me of the early Western Han Dynasty in China, when coinage rights were devolved, allowing private mints to mint currency, but there is no detailed record in the literature about how these currencies interacted and what kind of economic issues they led to. Since the advent of industrial civilization, no country has ever attempted to decentralize coinage rights to foreign entities, and today we are about to witness a new stage in the world's monetary development history. I will make a somewhat inappropriate comparison; in the future, USD-pegged stablecoins will be like the copper coins of the Wenjing period, with many different "brands," some high-quality, some low-quality, some minted by Deng Tong, some minted by Liu Bi, circulating and competing in the global market. On the surface, the US government has delegated some of the USD coinage rights, but in reality, by means of regulation and enforcement, turned US Treasury bonds into the "copper mines" for minting coins, taking a step back to move forward, turning stablecoin issuers worldwide into "franchisees" of the US dollar, significantly increasing global demand for US Treasury bonds, enhancing the penetration of the US dollar, amplifying the long arm of US financial regulation.

Xiao Feng: Yes, but the actual situation will be even more complex. During the trade friction leading to a "deglobalization" period, there has been a trend of "dollarization" in the global digital economy. At a time when AI is advancing rapidly, the "Value Internet" has suddenly accelerated. The complex reactions of these economic and technological trends surpass the predictive ability of everyone.

In particular, the offshore dollar stablecoin system will have multiple levels, attracting many financial institutions, internet companies, and even sovereign nations to participate, giving rise to a diverse and rich ecosystem. From high-grade offshore dollar stablecoins issued abroad but fully compliant with U.S. regulatory rules and can circulate within the U.S., to local dollar stablecoins following the regulations of other sovereign nations but not entering the U.S. or touching U.S. persons, to "wild" non-compliant dollar stablecoins, as well as inevitable issues such as counterfeiting, over-issuance, and money laundering. On one hand, this will lead to a sharp amplification of the "dollar brand effect," the global spread of the psychological anchoring effect of the dollar as a "unit of account," and the expansion of U.S. financial regulatory enforcement jurisdiction. On the other hand, an extremely complex monetary system will inevitably bring unprecedented challenges to the regulatory and financial stability of all countries globally and the U.S. Initially, the U.S.'s regulatory capabilities are very likely to fall behind and may even lead to policy reversals. In any case, the real world will be very exciting and very chaotic. I can confidently say that we will enter a period of ecological outbreak in the digital economy and soon see many new digital economic phenomena and business species.

At this stage, discussions on this issue are still very inadequate. Particularly on the Chinese Internet, the discussion is severely lacking. However, I still believe that the main purpose of the U.S. issuing a dollar stablecoin is to adapt to the trend of technological development, take the initiative, consolidate the status of the dollar, rather than to target the current international monetary system. The so-called "weaponization" is a "collateral" effect of the disruptive advantage of blockchain technology. Emotional discussions of this issue can easily lead to misinformation. In the current Chinese Internet public opinion, conspiracy theories and narratives of struggle are very fashionable and exhilarating. We must be especially careful not to be emotionally misled and stand against the tide of history. To put it simply, if this is a currency war, should we defend rigorously? Should we continue to block blockchain, tokenization, and encrypted finance as a whole set of technologies? If you think about the problem this way, you will make a big mistake.

We need to understand that the "aggressiveness" of blockchain stablecoins is to naturally absorb and bind more real economic activities within a framework of higher efficiency, lower costs, and fewer intermediaries. Its expansion is based on technological advantages and is impossible to resist in the long run. We acknowledge its disruptive innovation characteristics, which are aggressive and disruptive to the existing technological system, even bordering on leveling strikes. But what attitude should we take towards it? Hasn't the history seen firearms as a leveling strike against cold weapons? Hasn't the steam engine been a leveling strike against human and animal power? Hasn't the internet been a leveling strike against postal and telephone networks? So which side are you on?

My attitude has been consistent, unchanged for ten years. Facing technologies like blockchain, one should seize the opportunity, develop their stablecoin ecosystem in an open, compliant, and trustworthy manner, and secure a place in the next-generation financial network. Some talk about monetary sovereignty, financial sovereignty, but I would say, in the face of disruptive technological innovation, taking proactive measures is the truly responsible attitude towards sovereignty.

3. The Breakthrough of Stablecoins Ultimately Lies in the Victory of Technological Innovation

Meng Yan: The United States took the lead in promoting stablecoin legislation, which is indeed unique. The uniqueness lies in the fact that the first to take the plunge turns out to be the world's largest and most advanced economy, pushing forward the transformation of the world's most important reserve currency. For many countries, they may prefer to conduct some trials in less important economies using less significant currencies as a first step to gradually advance this matter, which would be a more cautious approach. However, the current U.S. stance is akin to directly presenting everyone with a hurricane-like transformation, creating a situation of compulsion that poses a Sphinx-like riddle to everyone: answer me, or I will devour you.

So faced with this challenge, many people, out of a knee-jerk reaction, exhibit a defensive mentality. Especially with the media constantly propagating how blockchain is used for money laundering, illegal financing, and illicit transactions, reporting speculative stories every day, and now all of a sudden the U.S. is using this technology for stablecoins and RWAs, many people naturally think that the U.S. is waging a currency war, wield blockchain as a weapon. This mindset can be understood.

Xiao Feng: The mindset can be understood, but we still need to go back to first principles, to the basics to reflect. Now, when we discuss blockchain and stablecoin topics, there is too much macro discussion, as soon as we start talking, it involves the monetary system, U.S. dollar hegemony, financial wars, but micro-level discussions are severely lacking. Many of us have forgotten that the primary driver behind the development of stablecoins has always been technological innovation, creating value for ordinary users and consumers. The reason stablecoins have such a major impact ultimately goes back to the series of technological advantages endowed by blockchain. I have been talking about these aspects for ten years, but it's still not enough. At this moment, it is necessary to reiterate repeatedly and ensure that everyone understands that blockchain technology indeed possesses immense superiority and it will inevitably succeed, unstoppable by anyone.

Meng Yan: Indeed, it is crucial to clarify this principle. I saw in one of your speeches, you mentioned that you have been fascinated by blockchain for ten years, and your original intention remains unchanged. Could you briefly 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 custody accounts to record all our financial activities. However, in blockchain, there are no bank accounts; instead, digital asset wallets take their place, known as crypto accounts. The creation of a crypto account is done by the user themselves through cryptographic tools, self-created, and self-custodied assets. In terms of the ledger, a public chain is a global public ledger with global liquidity that is not restricted by administrative boundaries, geographical space, or time constraints. In terms of accounting methods, distributed ledger and double-entry bookkeeping differ, and the settlement models also vary. Traditional finance involves net settlement, whereas blockchain involves real-time gross settlement; this is known as payment-on-settlement, where payment, clearing, and settlement occur simultaneously. In terms of the unit of account, the accounting unit on the blockchain is the native cryptocurrency. If you want to use fiat currency as the unit of account, simply giving orders will not work; you would first need to tokenize the fiat currency and create a digital twin of the fiat currency on-chain.

While these technological advantages may sound abstract, when applied, they bring tangible benefits to users. One simple way to determine if a new technology has overwhelming advantages is to assess how much efficiency has increased and costs have decreased. A tenfold advantage signifies an upgrade, while an advantage of hundreds or thousands of times indicates an unstoppable force. For example, a car is roughly ten times faster than a horse carriage, leading to the inevitable obsolescence of the entire horse carriage system. The internet is a hundred times cheaper than telegrams, telephones, and television networks, so when the internet first emerged, many people vehemently tried to prevent internet telephony and video applications. However, what was the result? These networks are now all replaced by the internet. Faced with such significant technological advantages, any conservative or resistive reasons become untenable.

I have always said that users' financial needs have remained unchanged through the ages: to easily borrow money and quickly receive money. Let's compare the efficiency of remittances. Currently, it may take several days to several weeks to remit from Shanghai to the US; however, with blockchain stablecoins, the transaction can be completed in seconds. How many times has the efficiency increased? There are even more extreme cases. Recently, when I tried to remit from Hong Kong to Shanghai, it took a month for the transaction to fail. In contrast, using stablecoins, the transaction could be completed in ten seconds. How many times has the efficiency increased in this case? It could be tens of thousands or even hundreds of thousands of times. Faced with such tremendous technological advantages, what force can stop it?

Here's another example: it is challenging to achieve 24/7 uninterrupted operation in traditional trading systems. Some leading stock trading systems are now seeking to extend their trading hours, with some planning for 5x23—trading five days a week for 23 hours each day. However, there is still a one-hour break each day because traditional clearing and settlement systems require a pause to reconcile and conduct net settlement. Yet, when we look at conducting payments and transactions on the blockchain, they operate seamlessly around the clock. How is this possible? It is because, as mentioned earlier, transactions are settled in real-time on a global ledger, enabling uninterrupted clearing and settlement. I've heard that NASDAQ is developing a 24/7 trading system, and I suspect it involves blockchain technology internally. Once implemented, investors worldwide will be able to continuously trade U.S. assets using a USD stablecoin. The significance for investors and U.S. companies is self-evident. Therefore, these discussions at the macro strategic level ultimately rest on technological innovation.

There are many other advantages as well, such as disintermediation, peer-to-peer, borderless, near-instant global settlement, nearly zero fees, automation on smart contracts, and irreversible transactions. When users compare, the answer is obvious. Who else needs to be convinced? It's like comparing an electric motor to a steam engine, an electric light to a gas lamp, an integrated circuit to a vacuum tube. As an ordinary user, without needing any specialized knowledge or other conditions, you can see immediately which one is superior, which one will be eliminated. This is a plain fact. If we understand these basic technological facts, we will come to a simpler conclusion—the fundamental motive behind the U.S.'s promotion of stablecoins is to align with the trend of technological development and drive the modernization of payment and financial infrastructure.

Of course, such a strategy surely involves multiple considerations. There must be the perspective of maintaining the dominance of the U.S. dollar, the angle of competition in the monetary and financial systems, and even the Trump family's profit angle. However, all considerations are ultimately based on the fundamental fact that blockchain, as a new generation of financial infrastructure, possesses overwhelming technological advantages. Many people regard blockchain as a ferocious beast, and an important reason is the lack of a profound understanding of the inherent advancement and inevitability of blockchain technology itself. I often say, "The situation is stronger than individuals." If you can withstand it, you can certainly discuss whether to resist. But if you can't resist at all, what's the point of discussing how to resist? Acting against what is known to be inevitable will only waste time and cause you to fall behind in the new round of competition in financial infrastructure and monetary systems.

Therefore, I am very excited about the proactive passage of the Hong Kong Stablecoin Bill, which is the right response posture.

Second part: "Dr. Xiao Feng Dialogue (Part 2): Chinese Will Certainly Become the Protagonist of RWA Innovation, But Cannot Walk the Old Path in New Shoes"

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