The Triple Challenge of Stablecoins: An Interpretation of the BIS Report and Future Outlook

In the field of digital assets, stablecoins are undoubtedly one of the most attention-grabbing innovations in recent years. With their promise of being pegged to fiat currencies, they have become a "safe haven" for value in the crypto world and are gradually becoming important infrastructure for decentralized finance and global payments. However, the Bank for International Settlements (BIS) issued a stern warning about stablecoins in its latest economic report, stating that they are not true currencies and that there are systemic risks lurking behind them that could shake the entire financial system.

This article will delve into the "triple gate" theory of currency proposed in the BIS report, namely singularity, elasticity, and integrity, and analyze the challenges stablecoins face in these three areas. At the same time, we will also explore other important considerations outside the BIS framework to comprehensively assess the future development direction of stablecoins.

First Gate: The Dilemma of Uniqueness

The "uniqueness" of currency is the cornerstone of the modern financial system, meaning that at any time and place, the value of one unit of currency should be precisely equal. The BIS believes that the value anchoring mechanism of stablecoins has inherent flaws and cannot fundamentally guarantee a 1:1 exchange with fiat currency.

The "Free Banking Era" in history can serve as a warning. At that time, privately chartered banks in the United States could issue their own banknotes, which were theoretically redeemable for precious metals, but the actual value varied depending on the issuing bank's credibility. This chaotic situation led to extremely high transaction costs, severely hindering economic development.

The recent collapse of the algorithmic stablecoin UST vividly illustrates how fragile "stability" can be when the trust chain is broken. Even for asset-backed stablecoins, the composition, auditing, and liquidity of their reserve assets have always been under scrutiny.

The Second Door: The Pain of Elasticity

The "elasticity" of currency refers to the ability of the financial system to dynamically create and contract credit based on economic demand, which is key to the self-regulation of a market economy. The BIS points out that particularly those stablecoins that boast 100% high-quality liquid assets as reserves are essentially a "narrow bank" model, completely sacrificing monetary elasticity.

The traditional banking system realizes credit creation through a fractional reserve system, supporting the operation of the real economy. In contrast, the stablecoin system "locks" funds, making it unable to create credit based on endogenous economic demand and lacking self-regulating ability.

If a large amount of funds flows from commercial banks to stablecoins, it will directly lead to a reduction in the bank's lending funds, potentially triggering credit tightening, raising financing costs, and ultimately harming small and medium-sized enterprises and innovation activities.

The Third Gate: The Lack of Integrity

The "integrity" of currency requires that payment systems are secure and efficient, and can effectively prevent illegal activities. The BIS believes that the anonymity and decentralization characteristics of stablecoins pose a severe challenge to financial "integrity."

Traditional international bank transfers, although less efficient, are under a strict regulatory network. In contrast, the technological characteristics of stablecoins fundamentally challenge the regulatory model based on intermediary institutions. A currency system that cannot effectively prevent financial crime is difficult to gain the ultimate trust of society and the government.

However, with the maturity of on-chain data analysis tools and the establishment of global regulatory frameworks, the ability to track and conduct compliance reviews of stablecoin transactions is improving. In the future, fully compliant, transparently reserved, and regularly audited "regulatory-friendly" stablecoins may become mainstream.

Supplementary Thoughts: Technical Vulnerabilities and Financial System Impact

In addition to the challenges at the economic level, stablecoins also have vulnerabilities at the technical level. They are highly dependent on the internet and blockchain networks, and in the event of a large-scale network interruption or attack, the entire system may come to a standstill. The development of cutting-edge technologies such as quantum computing may also pose a threat to the existing cryptocurrency system.

The rise of stablecoins is still competing with traditional banks for deposits, and this trend of "financial disintermediation" may weaken commercial banks' ability to serve the real economy. In addition, the process of stablecoins supporting their value by purchasing U.S. Treasury bonds is actually constrained by the reserves of the banking system and cannot expand indefinitely.

Future Outlook: Between "Encirclement" and "Amnesty"

The future of stablecoins is at a crossroads, facing regulatory "sieges" while also seeing the possibility of being integrated into the mainstream financial system. Essentially, it is a game between its innovative vitality and the demands of the modern financial system for stability, safety, and controllability.

The BIS proposed a "unified ledger" scheme based on central bank currencies, commercial bank deposits, and government bonds "tokenization", aiming to leverage the advantages of tokenization technology while placing it on a trust foundation led by central banks.

The market evolution may show differentiation: some stablecoin issuers will actively embrace regulation and achieve full transparency; others may choose to operate in regions with lax regulation, continuing to serve specific niche markets.

The dilemma of stablecoins reveals both their inherent flaws and the shortcomings of the existing financial system. Future progress may lie in prudently integrating top-level design with market innovation, finding a balance between "encirclement" and "reconciliation," and paving the way for a more efficient, secure, and inclusive financial future.