The Future of Stablecoins: Opportunities and Risks Under Threefold Challenges

In the wave of digital assets, stablecoins are undoubtedly one of the most striking innovations in recent years. By pegging themselves to fiat currencies like the US dollar, they have built a "safe haven" of value in the volatile world of cryptocurrencies, gradually becoming an important infrastructure in decentralized finance and global payments. Their market capitalization has leaped from zero to hundreds of billions of dollars, seemingly heralding the rise of a new form of currency.

However, just as the market was in a frenzy, the Bank for International Settlements (BIS) issued a stern warning in its May 2025 economic report. The BIS clearly pointed out that stablecoins are not real currency, and behind their seemingly prosperous ecosystem lies systemic risks that could undermine the entire financial system. This conclusion is like a bucket of cold water, forcing us to re-examine the nature of stablecoins.

This article will provide an in-depth interpretation of the BIS report, focusing on its proposed "triple gate" theory of currency - that any reliable monetary system must pass through the three tests of singularity, elasticity, and integrity. We will analyze the dilemmas faced by stablecoins at these three gates in conjunction with specific examples and explore the future direction of currency digitization.

The First Gate: The Dilemma of Uniqueness - Can Stablecoins Ever be "Stable"?

The "uniqueness" of currency is the cornerstone of the modern financial system. It means that at any time and in any place, the value of one unit of currency should be exactly equal to the face value of another unit. Simply put, "a dollar is always a dollar." This constant uniformity of value is the fundamental premise for currency to fulfill its three main functions as a unit of account, medium of exchange, and store of value.

The core argument of BIS posits that the value anchoring mechanism of stablecoins has inherent flaws, making it fundamentally impossible to guarantee a 1:1 exchange with fiat currency. Its trust does not stem from national credit, but rather relies on the commercial credit of private issuers, as well as the quality and transparency of reserve assets, which makes it susceptible to the risk of "decoupling" at any time.

The BIS cited the historical "Free Banking Era" as a mirror in its report. At that time, the United States had no central bank, and state-chartered private banks could issue their own banknotes. These banknotes were theoretically redeemable in gold or silver, but in practice, their value varied based on the issuing bank's credit and solvency. A $1 bill from a remote area bank might only be worth 90 cents in New York, or even less. This chaotic situation led to extremely high transaction costs, severely hindering economic development. Today's stablecoins, in the view of the BIS, are a digital replica of this historical chaos - each stablecoin issuer acts like an independent "private bank", and whether the "digital dollar" it issues can truly be redeemed is always an unresolved question.

The recent painful lessons are enough to illustrate the problem. The collapse of the algorithmic stablecoin UST, which went to zero in value within just a few days, wiped out hundreds of billions of dollars in market value. This incident vividly demonstrates how fragile the so-called "stability" is when the trust chain is broken. Even asset-backed stablecoins have always faced scrutiny regarding the composition, auditing, and liquidity of their reserve assets. Therefore, stablecoins are already struggling at the first hurdle of "uniqueness."

The Second Gate: The Tragedy of Elasticity - The "Beautiful Trap" of 100% Reserve

If "uniqueness" pertains to the "quality" of currency, then "elasticity" pertains to the "quantity" of currency. The "elasticity" of currency refers to the financial system's ability to dynamically create and shrink credit based on the actual demand of economic activities. This is the key engine that allows the modern market economy to self-regulate and sustain growth. When the economy is booming, credit expansion supports investment; when the economy cools down, credit contraction controls risks.

The BIS points out that stablecoins, especially those that claim to hold 100% high-quality liquid assets as reserves, are essentially a form of "narrow banking" model. This model uses users' funds entirely to hold safe reserve assets without engaging in lending. While this may sound very safe, it comes at the complete expense of monetary "elasticity".

We can understand the differences through a scenario comparison:

The traditional banking system ( has resilience ): Suppose you deposit 1000 yuan into a commercial bank. According to the fractional reserve system, the bank may only need to keep 100 yuan as reserves, while the remaining 900 yuan can be loaned to entrepreneurs in need of funds. This entrepreneur uses the 900 yuan to pay the supplier's invoice, and the supplier then deposits this money back into the bank. This cycle continues, and the initial deposit of 1000 yuan generates more money through the credit creation of the banking system, supporting the operation of the real economy.

The stablecoin system ( lacks flexibility ): Suppose you use $1000 to purchase 1000 units of a certain stablecoin. The issuer promises to deposit all of this $1000 in a bank or purchase US Treasury bonds as reserves. This money is "locked" and cannot be used for lending. If an entrepreneur needs financing, the stablecoin system itself cannot meet this demand. It can only passively wait for more real-world dollars to flow in, and cannot create credit based on the endogenous demand of the economy. The whole system is like a "stagnant pool of water", lacking the ability to self-regulate and support economic growth.

This "inelastic" characteristic not only restricts its own development but also poses a potential impact on the existing financial system. If a large amount of funds flows out of the commercial banking system and is instead held in stablecoins, it will directly result in a decrease in the funds available for banks to lend, shrinking their credit creation capacity. This could trigger a credit squeeze, raise financing costs, and ultimately harm small and medium-sized enterprises and innovative activities that are most in need of financial support.

Of course, in the future, with the widespread use of stablecoins, there may be stablecoin banks ( lending ), and this credit creation will flow back into the banking system in a new form.

The Third Barrier: The Lack of Integrity - The Eternal Game Between Anonymity and Regulation

The "integrity" of currency is the "safety net" of the financial system. It requires that payment systems must be secure, efficient, and able to effectively prevent illegal activities such as money laundering, terrorist financing, and tax evasion. Behind this, there needs to be a sound legal framework, clear delineation of responsibilities, and strong regulatory enforcement capabilities to ensure the legality and compliance of financial activities.

The BIS believes that the underlying technological architecture of stablecoins - especially those built on public chains - poses a severe challenge to the "integrity" of finance. The core issue lies in the anonymity and decentralization features, which make traditional financial regulatory measures difficult to implement.

Let us imagine a specific scenario: a stablecoin worth millions of dollars is transferred from one anonymous address to another through a public blockchain, and the whole process may take just a few minutes with low fees. Although the record of this transaction is publicly traceable on the blockchain, correlating these addresses made up of random characters with individuals or entities in the real world is exceptionally difficult. This opens the door for the convenient cross-border movement of illicit funds, rendering core regulatory requirements such as "know your customer" and "anti-money laundering" virtually ineffective.

In contrast, traditional international bank transfers, although sometimes appearing inefficient and costly, have the advantage of being under a strict regulatory network for each transaction. The remitting bank, receiving bank, and intermediary banks must comply with the laws and regulations of their respective countries, verify the identities of both parties involved in the transaction, and report any suspicious transactions to regulatory authorities. Although this system is cumbersome, it provides a fundamental guarantee for the "integrity" of the global financial system.

The technological characteristics of stablecoins fundamentally challenge the intermediary-based regulatory model. This is precisely why global regulatory agencies remain highly vigilant and continuously call for their inclusion in a comprehensive regulatory framework. A currency system that cannot effectively prevent financial crimes, no matter how advanced its technology, will not gain the ultimate trust of society and government.

Blaming the "integrity" issue entirely on the technology itself may be overly pessimistic. With the increasing maturity of on-chain data analysis tools and the gradual implementation of global regulatory frameworks, the ability to track stablecoin transactions and conduct compliance reviews is rapidly improving. In the future, fully compliant, transparently reserved, and regularly audited "regulatory-friendly" stablecoins are likely to become mainstream in the market. At that time, the "integrity" issue will largely be alleviated through the combination of technology and regulation, and should not be viewed as an insurmountable obstacle.

Supplement and Reflection: Real Challenges Beyond the BIS Framework

In addition to the three major challenges at the economic level, stablecoins are also not without flaws at the technical level. Their operation highly depends on two key infrastructures: the internet and the underlying blockchain network. This means that once a large-scale network outage, submarine cable failure, widespread power outage, or targeted cyber attack occurs, the entire stablecoin system may come to a standstill or even collapse. This absolute dependence on external infrastructures is a significant weakness compared to the traditional financial system. For example, recent geopolitical conflicts have led to nationwide internet outages in certain countries and even power outages in some regions; such extreme situations may not have been fully considered.

The more long-term threat comes from the disruption of cutting-edge technology. For example, the maturation of quantum computing could pose a fatal blow to most existing public key encryption algorithms. Once the encryption system that protects the security of blockchain account private keys is cracked, the security foundation of the entire digital asset world will cease to exist. Although this seems distant at present, it is a fundamental security risk that must be faced for a monetary system aimed at carrying global value flow.

The rise of stablecoins is not just about creating a new asset class; it is also directly competing with traditional banks for the most essential resource – deposits. If this trend of "financial disintermediation" continues to expand, it will weaken the core position of commercial banks in the financial system, thereby affecting their ability to serve the real economy.

A narrative that is worth exploring further is a widely circulated one - "stablecoin issuers support their value by purchasing U.S. Treasury bonds." This process is not as simple and straightforward as it sounds, as there is a key bottleneck behind it: the reserves of the banking system. Commercial banks' reserves at the Federal Reserve are not unlimited. Banks need to hold sufficient reserves to meet daily settlements, respond to customer withdrawals, and comply with regulatory requirements. If the scale of stablecoins continues to expand, large purchases of U.S. Treasuries will lead to excessive depletion of the banking system's reserves, and banks will face liquidity and regulatory pressures. At that point, banks may limit or refuse to provide services to stablecoin issuers. Therefore, the demand for U.S. Treasuries by stablecoins is constrained by the adequacy of the banking system's reserves and regulatory policies, and it cannot grow infinitely.

The Future of Stablecoins: Between "Encirclement" and "Reconciliation"

Integrating the BIS's prudent warnings with the realities of market demand, the future of stablecoins seems to be at a crossroads. It faces pressure from global regulators' "encirclement" while also seeing the possibility of being incorporated into the mainstream financial system's "reconciliation."

The future of stablecoins is essentially a game between their "wild innovative vitality" and the core requirements of the modern financial system for "stability, safety, and controllability." The former brings the possibility of efficiency improvement and inclusive finance, while the latter is the cornerstone of maintaining global financial stability. Finding a balance between these two is a common challenge faced by all regulators and market participants.

In the face of this challenge, the BIS has proposed a grand alternative: a "unified ledger" based on central bank currencies, commercial bank deposits, and government bonds that are "tokenized." This is essentially a form of "co-optation" strategy. It aims to absorb the programmability brought by tokenization technology,