Are Stablecoins Harmful to The Market?

“Stablecoins are the next opportunity.” “Stablecoins become the new favorite.” “Stablecoins are the only opportunity during the bear market.” Today, everyone is discussing stablecoins, and stablecoins have become the new “gold rush” in cryptocurrencies.

However, do stablecoins present an opportunity or are they harmful to the market? Is it progress or regression in the industry?

In the afternoon of September 27, Huoxun Finance, Three-Quarter Blockchain, ZOS, and +Chain Community jointly held a brainstorming session on stablecoins at the Wanli Center in Beijing. They invited more than 20 guests including traditional financiers, blockchain investors, blockchain entrepreneurs, and senior digital currency analysts to participate in a three-hour debate which was likely the most heated on the topic to date.

Guests were divided into groups of supporters, opponents and neutrals in terms of their attitude towards stablecoins. Huoxun Finance summarized the opinions of the guests:


Xiao Lei, Senior Digital Currency Analyst:

Stablecoins provide more imagination for the digital currency market

 It is necessary for digital currencies to break through a bottleneck to enter the currency field, that is, changing from a currency not in circulation to a currency in circulation, and changing from an investment target to a currency in circulation. However, if digital currencies want to enter the circulation field, they are limited in two aspects. First, the price is extremely unstable; second, it is limited by various policy factors. In this case, I think stablecoins will play a role in the smooth entry into the circulation field.

In addition, I personally believe that stablecoins are in line with economic development trends. We used to use gold as a currency based on trading. Later, we found that credit is the essence of currency, so we have systems such as legal tender and credit currency. Then we slowly moved to the virtual world where transactions are more frequent, 24 hour access to currency is needed, and there is no settlement time or intermediary, meeting the demands of the world’s massive trading system.

The digital currency may be one direction. From this point of view, the legal tender is part of a transitional period, but the human currency is a transition from gold to digital currency. Will stablecoins provide the imagination necessary to break the bottleneck of the digital currency market? This is one thing I am thinking about.

Gao Chao, founder of ZOS:

Stablecoins solve problems with global circulation of legal tender

Stablecoins actually appeared in 2014, but did not receive much attention at the time and people thought they had little application in the real world. Recently on September 10, the New York Monetary Authority approved two stablecoins, which provided some official endorsement; I feel that the role and value of a stablecoin may be more important than developments in other industries.

I personally feel that stablecoins really solve problems with global circulation of legal tender. Legal tender cannot be circulated worldwide without cross-border remittances, cross-border payments, and cross-border trade settlements. Stablecoins in US dollars enable global circulation; money is no longer in the banking system, but it can still be circulated. This may have an impact on global trade payments and settlements in the future.

Yang Mindao, former executive at Standard Chartered Bank and founder of Qushi Capital:

Stablecoins are the wormhole connecting the two parallel universes of blockchain and real finance

I think that stablecoins are the wormhole connecting the two parallel universes of blockchain and real finance. The two values can be interoperable. The blockchain industry has a big problem, that is, stability. Stablecoins are a very good tool for traders to avoid volatility.

An important role of stablecoins is to establish a native digital currency bank on the blockchain where the overall currency is generated such that capital costs are kept low, far lower than traditional financial capital. This is a real revolution.

USDT in legal tender as a digital currency. I think it has two important functions. First, it allows the currency exchange of legal tender across a global market. In addition, I think legal tender-based digital currency payments have obvious advantages for developing countries.

Guo Jing, Investment Director at BlockVC:

Algorithm-based stablecoins are a potential competitor to the legal tender settlement system

When we discuss the impact of stablecoins on the US dollar, the biggest competition may come from the payment and settlement system. The circulation space of currently-issued stablecoins is still in an area separate from that of legal tender, like a parallel solution.

If its credit source is from the US dollar, this chain has a very weak link. Taking Tether as an example, if it is closed by the US government, USDT becomes meaningless, air, and nothing; and the weakest section of the chain is cut off.

But if this stablecoin is instead based on an algorithm, no one can cut it off from the source. Its competition relies on subsequent payment and settlement systems. From this perspective, the algorithm-based stablecoin is a potential competitor to all current legal tender settlement systems.

Qi Jie, DFund partner:

Stablecoins provide a good complement for a time where digital currency trading and investment attributes are excessively magnified

We are still in a very early stage. We have a variety of currencies which are developing at a high speed. This leads us to have a common feeling that the trading and investment attributes are excessively magnified. We have created a stablecoin by means of financial engineering. This stablecoin provides a good supplement at this time.

Hu Maomao, CTO of Calculus:

Today, some in the US regard USDT as dollars

I was in New York last month. There are many OTC intermediaries but it is difficult for them to settle transactions. If you settle in US dollars, then one bank account is part of the financial system and the other is part of the blockchain system, and thus the two bank accounts cannot be connected. Thus, settlement is very troublesome and complicated. I have some friends in New York and have found that some people in the market simply regard USDT as US dollars. This is indeed something magical.

 Daxiang, co-founder of Huoxun Finance:

Stablecoins are convenient, but they should be renamed as “stabilizers”

I am engaged in branding. I think that if everyone has a problem understanding stablecoins, maybe it is because the name is wrong. This is how I feel, as stablecoins bring convenience. They are the intersection of the worlds of blockchain and legal tender. Stablecoins are not coins. They are a stabilizer, a container, and embody certain functions. The two should not be confused. After the gold is stored, the legal tender is issued, and after the legal tender is stored, the stablecoin is issued. This is not the case.


Zhao Jinsong, Chairman of the Lanmao Money Management Platform:

GUSD is just a gimmick; it’s only the practice of interest groups

I have been working and studying in the United States for 17 years. I think GUSD is a gimmick. It is recognized only by the State of New York. Because the United States is a commonwealth, each state has its own laws and the federal constitution can be extinguished. So, the model GUSD is a centralized stablecoin.

The biggest problem with a centralized asset and bond model is that it requires a credit endorsement. The credit endorsement from the Department of Finance in the State of New York cannot represent the will of the US government. This is because there are many interest groups in the US financial system. GUSD is the practice of some of these interest groups, and this model will actually destroy all core interests of the Fed.

 So far, only the United States adopts this practice but it shows they are keeping an open mind. As history tends to repeat itself, consensus of everyone is coming, just like the Internet. But US financial interest groups are still looking for ways to participate in it, and they want to control it.

Zhou Jianrui, columnist in Zhihu:

Stablecoins are harmful and represent a regression in the industry; they demonstrate the power of the shadow cast by the dollar over the blockchain industry

Satoshi Nakamoto mentioned his reasons for inventing Bitcoin in his paper. To sum up, Bitcoin aims to oppose the dollar hegemony and establish a decentralized point-to-point payment system.

Stablecoins oppose this goal, and are a blockchain technology that highlights the hegemonic position of the US dollar; it represents the shadow of the US dollar over the blockchain industry.

USDT and other stablecoins are small waves faced during rapid development. At one point, a stamp currency was used for sending emails. One email cost one electronic stamp. Many collected these stamps which only proved to be worthless later on. Similarly, stablecoins will be like a small wave that dissipates over time. Stablecoins are a regression, and anything of this nature will not see long term development.

Supporters refuted Zhou Jianrui’s claim

Zhao Wei, founder of Mofei Capital:

Stablecoins are not in conflict with the ambitions of Satoshi Nakamoto; they are just part of a transitional stage

Stablecoins are part of a transition process before Bitcoin occupies a larger stage. As part of a transition, I do not feel there is a problem regarding the consistency of the final direction. There are multiple paths to the same goal, and stablecoins are not in conflict with the ambitions of Satoshi Nakamoto. They aim to realize a larger stage for Bitcoin.

Looking at long-term historical development, we can learn from China’s 5,000-year history. The world is divided and then reunited, and consensus on some issues is passed on to future generations.

Xu Bin, founder and CEO of InVault:

Stablecoins based on legal tender will not go very far

Leaving algorithm stablecoins aside, let’s focus on stablecoins based on legal tender. If traditional legal tender is used as a payment and trade settlement tool, all payment industries will follow the laws of anti-money laundering, anti-terrorism financing, and customer identification to ensure money does not flow into the hands of criminals. But once legal tender stablecoins are brought on the blockchain, they become anonymous. The compliance mechanisms we just mentioned will have no effect. How will these stablecoins enter a mainstream payment system under such circumstances? I personally think that the possibility is very low. Thus, a conclusion is reached: stablecoins based on legal tender will not go very far.

Another thing that everyone has been ignoring is the standardization of stablecoins based on legal tender. How is this handled under law? I looked up the GUSD white paper and found that it did not mention USDT or these legal aspects. The way it works is through depositing legal tender into a bank. This bank is regularly audited by the government to ensure that if you have issued one hundred million in legal tender, there is actually one hundred million in legal tender in the bank.

But the question remains: if you have deposited one hundred million in legal tender, how is the bank statement recorded? Do you record the assets in the statement? Because once you have recorded the deposit, it becomes troublesome as the stablecoin will flow out through the credit system. If you issue one hundred million through a stablecoin, one hundred million will be transferred within the credit system.

In this case, the problem is that the stablecoin deposited through a credit system can flow out again. A stablecoin equal to one US dollar could be equal to two US dollars in the market. This is detrimental and means that the money could be used continuously. What is even worse is that exchanges can list a fake stablecoin by refactoring the code, so I am doubtful such a digital currency will go very far.

Supporters refuted Xu Bin’s claims

Xiao Lei:

It is a logical error to think that due to the constraints of the traditional systems, stablecoins will not develop further

I think that Xu Bin’s conclusion is false. Under his assumptions, the banking system is perfect, and the AliPay and WeChat payment systems would have no need to exist. Bitcoin also has no room for survival.

If you think that Bitcoin is part of a traditional market, how would it be launched? We could say that the world would become chaotic, however Bitcoin still rose to market value of more than 200 billion, and close to 300 billion at its peak. Therefore, it is illogical to think that because traditional systems have a lot of constraints that stablecoins will not progress any further.

I think that stablecoins based on legal tender are most likely to enter the circulation field of finance. In addition, I think that stablecoins are just getting started. What I worry about is that others will not extend its application in the future, but this will be resolved soon.

Neutral opinions

Sun Jian, founder of JLab:

Stablecoins are a short-term behavior but present arbitrage opportunities

We invested in two stablecoin projects before they becomes popular. One is a US project that uses a mechanism model to ensure the stability of the currency. The other is from Singapore and anchors itself to gold and other assets of equivalent value.

I was not very optimistic about stablecoins previously; I think it is a short-term behavior. But from an investor perspective, if there is a better arbitrage opportunity here, we will still invest.

Hu Jun, founder of Kexin Capital:

How do we reconcile the contradictions between pursuing asset returns and avoiding fluctuations?

What is the core essence of a stablecoin? It is a coin and its core is to help with stabilization. I think that sovereignty and currency have been inseparable since ancient times from the perspective of political science and economics.

If you want to use a stablecoin as a currency that can be circulated around the world, it must be supported by an institution or team with sufficient capacity, funds, and knowledge in algorithms, mortgages, and legal tender.

We use bitcoin as an asset. If you want to pursue the benefits of such assets, stablecoins without volatility present a contradiction. How do we resolve and reconcile this contradiction? I think this is a particularly big problem and I do not have clear thoughts on this currently.

Yang Shuo, partner at Funeng Capital:

How do we solve the problem of endorsement and consensus during the development of a stablecoin?

I have a few doubts: most exchanges still use USDT. The use of GUSD in exchanges has a very important influence on blockchain. What impact does this digital currency newly recognized by the government have?

Another question is about consensus. Although it is endorsed by the US government, and there are contracts issued in Ethereum, how many people know about it and believe in it? It seems that few people know about it and believe in it currently and I am not sure what will support its promotion.

Kuai Dong, co-founder of CoinBank:

People’s views on stablecoins depend on the needs of people themselves

At present, stable digital currencies are based on the concept of manual intervention to control market stability, such as price control for OTC merchants and input and output volume control for applications. The risk lies mainly in the many OTCs and applications currently circulated, because their manual intervention is more direct and effective. However, this presents other problems.

For a stable digital currency in large-scale circulation, for example, USDT, there is a lot of controversary. Some people think that its risk lies in opacity, and some people think that the currency market itself should be opaque, and the opacity in many scenarios will provide a higher liquidity.

Therefore, this also causes people to have a very different view on the risks of stablecoins. People’s views on stablecoins depend on the needs of people themselves, and this will always be controversial.


  1. I’ve got an idea. What if we take the best of both worlds and create a stablecoin that is still a 100% decentralized cryptocurrency but only removes the volatility?
    So price can still grow with demand, but stability in price fluctuations keeps those, who actually use it as a currency, comfortable to hold it long term.


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