Interview with Dr. Xiao Feng (Part 1): The legislation of the US dollar stablecoin is a victory for technological innovation, but the impact will be very complex.

People generally expect that with the implementation of the US dollar stablecoin legislation, the blockchain digital economy will witness a remarkable explosion, creating new entrepreneurial opportunities around this US dollar stablecoin and real-world assets.

Written by: Meng Yan

Introduction: With the passage of the US dollar stablecoin bill by the U.S. Senate and the passage of the Hong Kong dollar stablecoin bill by the Hong Kong Legislative Council, stablecoins have quickly become the hottest industry topic and have attracted wider attention. It is widely expected that with the implementation of the US dollar stablecoin bill, the blockchain digital economy will usher in a very exciting explosion, and there will be a new entrepreneurial window around this US dollar stablecoin and real-world assets (RWA). Dr. Xiao Feng is a Chinese leader in blockchain research and practice, with a deep understanding of blockchain, stablecoins, and RWA. In order to fully understand the opportunities of this era, I had the honor to have an in-depth exchange with Dr. Xiao Feng through video conference and text, which I compiled and published for discussion with my peers. Due to the large length of the original article, it was published in two parts. The first half focuses on the significance of USD stablecoins, while the second half focuses on the stablecoin economy and the opportunities that RWA brings to Chinese entrepreneurs. The views in the article are only the words of one family, and readers are welcome to communicate.

1. The Motivation for Transparent Stablecoin Legislation

Meng Yan: Dr. Xiao, your recent speeches have caused great repercussions in the entire Chinese blockchain community, especially the "Back to the Origin" speech for blockchain entrepreneurs, which has a very wide impact. In this speech, you not only reiterated the value logic of blockchain again, but also made it clear that the industry is facing a new explosive cycle, and entrepreneurs need to return to their original intentions and start again and take the right path. This is my understanding of your speech.

The timing of your speech is indeed very accurate. THE U.S. SENATE PASSED A VOTE ON THE GENIUS STABLECOIN BILL ON MAY 19, FOLLOWED BY THE HONG KONG LEGISLATURE PASSING THE STABLECOIN BILL ON MAY 21. A legislative race over stablecoins has quietly begun. At present, a new consensus is being formed, that is, the blockchain field is about to usher in a golden window period of entrepreneurship and innovation, and its energy intensity may exceed that of AI for a period of time. Many outsiders who have never been involved in blockchain and Web3 may have been dismissive of this last month, and now they have adjusted their minds and started to pay attention to the opportunities in this space.

This situation has not come easily. I have been in this industry for ten years, and I have quite a few feelings about it. Over the past few years, major countries around the world have taken a very cautious or even negative attitude towards Blockchain, crypto assets, Token, DeFi, and Web3 as a whole, with tight regulations, and mainstream media has almost unanimously stigmatized it. In my impression, there has been no second example of such treatment of an emerging technology in over two hundred years since the Industrial Revolution. But the green mountains cannot hide the flow of the river, after all, this day has finally come.

However, the Trump administration in the United States suddenly made such a big turn, and the public still needs an explanation. I see that some self-media understand this matter from a conspiracy theory perspective, such as the Trump family using it as a tool for personal gain or as part of a currency war launched in conjunction with the trade war.

So what do you think are the motives behind the U.S. pushing for stablecoin legislation?

Xiao Feng: The U.S. presidential team and Congress are relatively candid and transparent regarding the motivations behind stablecoin legislation. They openly state that the first goal is to modernize the U.S. payment and financial systems, and the second is to solidify and enhance the position of the U.S. dollar, creating trillions of dollars in demand for U.S. Treasury bonds over the coming years. I believe this is the answer; there aren't so many conspiracy theories here.

Not long ago, I communicated with a crypto policy advisor to a U.S. president, and he told me very directly that Bitcoin as a national reserve is second for the United States, while the dollar stablecoin is the first, which is America's core interest. From what I understand, President Trump's team aims to ensure the passage of the GENIUS Act before the U.S. Congress recess in August, and it seems that it might happen even sooner.

In this case, the Hong Kong legislative authorities demonstrated flexibility and high efficiency by passing the stablecoin regulation with three readings, which is commendable.

Meng Yan: Some people have now compared this bill to the 1944 Bretton Woods Conference and the 1971 Nixon shock, saying that it is building a "Bretton system in the era of digital economy". The general logic of this statement is that the United States, in the process of deglobalization, is very worried about the weakening of the dollar's position. Therefore, the "nuclear weapon" of digital currency is used to reduce the dimensionality of the existing international monetary and financial system, hedge the impact on the US dollar, and consolidate the hegemony of the US dollar. What do you think of this point of view?

Xiao Feng: I just mentioned that one of the important purposes of the United States openly acknowledging the promotion of stablecoin legislation is to consolidate and enhance the position of the US dollar, and from the Senate's voting, this is a bipartisan consensus; they also know they are making history.

The United States formed this understanding through a process and at a certain cost. The previous U.S. government, especially expert bureaucrats like former SEC Chairman Gary Gensler, understood Blockchain. However, why has it been entangled for so many years? It is simply because they are reluctant to let go of the existing payment network, including SWIFT, as well as the financial governance, regulation, and anti-money laundering mechanisms built on this network.

However, the progress of blockchain technology itself in the past few years, especially the practice of financial sanctions against Russia after the Russian-Ukrainian war, shows that the technical advantages of blockchain are conclusive and irrefutable, so there is no doubt that the entire financial infrastructure is moving towards the blockchain, just like the steam engine to the era of electrification, and there is no force that can stop it. There is no point in burying your head in the sand anymore, the situation is stronger than people.

The Trump administration has demonstrated a more pragmatic attitude compared to the previous administration in various aspects; negatively speaking, it means not adhering to principles, while positively speaking, it indicates being proactive and effective. Therefore, the current U.S. attitude is that if payment settlements bypassing SWIFT are inevitable, then at least they should not bypass the U.S. dollar; if the tokenization of the dollar is unavoidable, then at least ensure that every dollar token is created based on U.S. assets. Since it cannot be blocked, it should be properly guided to ensure that in the digital economy, in the Web3 world, and in the AI era, the U.S. dollar remains a major payment settlement tool, which is a core national interest of the United States. From the U.S. perspective, this is a deliberate strategy, it is an open card.

Will the US dollar stablecoin be able to create a new "Bretton system"? Observation is required. Over the past few years, the dollar's global position has declined, and there is no doubt that the United States wants to strengthen its position through stablecoins. However, whether such a measure alone can achieve its goal, especially whether it can be said to have created a new system, may depend on the process of interaction between subsequent practice and legislation. However, I have a judgment that although the Trump team and the U.S. Congress have a deep understanding of the dollar stablecoin, they may not be able to fully imagine the long-term impact of this matter. IN THAT SENSE, PUSHING FOR THE GENIUS BILL IS RISKY. Will the future be as repetitive as his trade war policy? Observation is required.

2. Two Dollar Stablecoin Systems and Their Complex Consequences

Meng Yan: Speaking of long-term impacts, there is a popular conspiracy narrative in the Chinese internet about "currency wars," suggesting that the U.S. is initiating stablecoin legislation with the aim of "weaponizing" stablecoins. Do you agree with this statement?

Xiao Feng: "Currency wars" have been a popular narrative for more than a decade. From the standpoint of other countries, it is indeed necessary to make a full estimate of the impact of the US dollar stablecoin. Legislation to promote the tokenization of fiat money, unprecedented in the history of world currency, is bound to trigger a complex series of economic and financial reactions that no one can fully foresee the consequences, not even the President of the United States and Congress. BUT THERE ARE AT LEAST TWO ISSUES THAT NEED SPECIAL ATTENTION TO WHAT THE GENIUS BILL REVEALS.

The first is that sovereign currency borders have become more fragile. At present, the use of currency is bounded by the administrative division of the state, and the sovereign state has a monopoly on the internal currency and controls the exchange of foreign exchange on the border. This governance mechanism has been around for hundreds of years. Once the US dollar stablecoin was applied on a large scale, this mechanism was broken. Blockchain transforms the Internet into a payment network and financial infrastructure, so that money no longer depends on the traditional banking system and clearing network, but can penetrate into the micro level of another economy like a capillary through smart contracts, encrypted accounts and peer-to-peer transmission mechanisms, covering daily consumption, labor payment, cross-border e-commerce, freelance settlement, and even AI-to-AI and machine-to-machine payment behavior. At this stage, stablecoins are no longer just a payment tool, but a financial infrastructure that can be embedded in other countries' economic systems. It is able to "incorporate" part of the economic activities of other countries into its own economic map, essentially forming a new mechanism for the expansion of the monetary network. This poses a structural challenge to the existing sovereign monetary and financial regulatory frameworks, as well as macroeconomic policy control tools. Because you have built on the banking system, foreign exchange controls, payment and settlement rules, you are becoming more and more vulnerable to blockchain and stablecoin technology.

Meng Yan: The situation you mentioned has already happened. In some countries in Africa, Southeast Asia, and Latin America, their fiat currencies have depreciated year after year, and young people use USDT and other dollar stablecoins in large numbers, which has caused headaches for the monetary authorities of these countries. When I was on a business trip to Ghana last year, local central bank officials told me that dollar stablecoins were spreading like wildfire among young people in Ghana and Nigeria, weakening the status of fiat currencies in their home countries. They asked me how I could fend off the invasion of dollar stablecoins through technical means, and I couldn't answer. Because your national currency depreciates by 20-30% every year, it's no wonder that people don't use dollars.

Xiao Feng: This is just the beginning, with the development of US dollar stablecoins, there will be a second problem, that is, the complex ecology that may emerge from the offshore US dollar stablecoin system. ACCORDING TO THE GENIUS ACT, INSTITUTIONS OUTSIDE THE UNITED STATES CAN ALSO ISSUE U.S. DOLLAR STABLECOINS, BUT THEY MUST BE BASED ON U.S. FIAT ASSETS, REGISTERED IN THE UNITED STATES, REGULATED BY RELEVANT U.S. AUTHORITIES, COMPLY WITH RELEVANT U.S. LAWS, AND RESPOND TO ORDERS FROM U.S. LAW ENFORCEMENT AUTHORITIES AT ANY TIME. These requirements are very high, but it is important to understand that these requirements are a condition of "legal circulation in the U.S. market". Without access to the U.S. market, without exposure to U.S. people and U.S. entities, then even these conditions can be relaxed. In fact, this is equivalent to opening up a grayscale space, conditionally allowing foreign institutions to mint dollars. As a result, there will be two systems in the future, the onshore dollar stablecoin and the offshore dollar stablecoin, similar to today's dollar and Eurodollar systems. Among them, the onshore dollar is more strict and consistent, while the ecology of the offshore dollar will be more complex, and dozens or even hundreds of digital currencies called "dollar stablecoins" will circulate, circulate, map, exchange, and interact in dozens of public chains and hundreds of private chains of the two systems, which will produce complex effects that no one has seen before and no one can foresee.

Meng Yan: Is it possible to think that this is actually the United States ceding part of the minting rights to foreign non-bank institutions, and decentralizing the minting rights of US dollar stablecoins. This reminds me of the early years of the Western Han Dynasty in China, when coinage rights were delegated and private coinage was allowed, but there is no detailed record of how these currencies interacted and what kind of economic problems they caused. Since the dawn of industrial civilization, no country has attempted to decentralize seigniorage to foreign entities, and today we are witnessing a new phase in the history of the world's monetary development. Let me make a comparison that is not necessarily appropriate, the future US dollar stablecoin is like the copper coins of the Wenjing period, there are many "brands", some are high-quality, some are low-quality, some are minted by Deng Tong, and some are minted by Liu Wei, circulating and competing in the global market. On the surface, the U.S. government has ceded some of the U.S. dollar minting rights, but in fact, through supervision and law enforcement, it has turned U.S. bonds into "copper mines" for minting copper coins, making stablecoin issuers around the world "chain stores" of U.S. dollars, greatly increasing the demand for U.S. bonds in the global economy, increasing the penetration of U.S. dollars, and amplifying the long arm of U.S. financial supervision.

Xiao Feng: Yes, but the actual situation will be more complicated. When trade frictions lead to "anti-globalization," a trend of "dollarization" in the global digital economy emerges. As AI advances at an unprecedented pace, the "value internet" suddenly accelerates. The complex reactions of these economic and technological trends exceed everyone's predictive capabilities.

In particular, the offshore dollar stablecoin system will appear at multiple levels, which will attract many financial institutions, Internet companies and even sovereign countries to participate, and a particularly rich and complex ecology will emerge. From foreign-issued high-grade offshore dollar stablecoins that fully comply with U.S. regulatory rules and can be circulated in the U.S., to local U.S. dollar stablecoins that follow the regulation of other sovereign countries but do not enter the U.S. and do not touch Americans, to "wild" non-compliant U.S. dollar stablecoins, as well as various problems such as counterfeit currency, over-issuance, and dirty money that will inevitably occur, on the one hand, it will lead to a sharp amplification of the "brand effect" of the U.S. dollar, and the global spread of the psychological anchoring effect of the U.S. dollar as a "unit of denomination". On the other hand, the ultra-complex monetary system is bound to pose unprecedented challenges to the regulatory and financial stability of countries around the world and the United States. In the early stage, it is very likely that the regulatory capacity of the United States will not be able to keep up with or reach it, and it may even lead to policy reversal. In short, the real world will be very exciting and very messy. I can safely say that we will enter a period of ecological explosion of the digital economy, and soon see many new digital economy phenomena and business species.

At this stage, the discussion about this issue is still very insufficient. Especially on the Chinese internet, the discussion is severely lacking.

However, I still believe that the main purpose of the US dollar stablecoin is to follow the trend of technological development and preemptively consolidate the position of the US dollar, rather than aiming to attack the current international monetary system. The so-called "weaponization" is the "by-product" effect of the disruptive technological advantages of blockchain. It is easy to be misled if the issue is discussed emotionally. At present, in Chinese Internet public opinion, conspiracy theories and struggle narratives are very fashionable and enjoyable, and we must pay special attention to prevent being misled by emotions and standing on the opposite side of the historical trend. Quite simply, if this is a currency war, should it be guarded against? Do you want to continue to block the whole set of technologies such as blockchain, tokenization, and crypto finance? If you think about the problem this way, you will make a big mistake.

We must understand that the "aggressiveness" of blockchain stablecoins is to naturally absorb and bind more real economic activities under the framework of higher efficiency, lower cost and fewer links. Its expansion is based on technological superiority, relying on efficiency, institutional design, technological superiority and network effects, which cannot be resisted for a long time. We admit that it has the characteristics of disruptive innovation, which is aggressive and destructive to the existing technical system, and it is not an exaggeration to say that it is a dimensionality reduction attack. But what kind of attitude should we have towards it? Isn't the use of hot weapons against cold weapons a dimensionality reduction blow in history? Is the steam engine a dimensionality reduction blow to human and animal power? Isn't the Internet a dimensionality reduction blow to postal and telephone networks? So which side are you on?

My attitude has been consistent for the past ten years. When facing a technology like Blockchain, we should adapt to the trend and develop our stablecoin ecosystem in an open, compliant, and trustworthy manner, securing a place in the new generation of financial networks. Some talk about currency sovereignty and financial sovereignty, but I want to say that in the face of disruptive technological innovation, actively responding is the truly responsible attitude towards sovereignty.

3. The breakthrough of stablecoins is ultimately a victory of technological innovation.

Meng Yan: The United States took the lead in promoting stablecoin legislation, but it still has its particularities. This peculiarity lies in the fact that the first to come out and eat crabs turned out to be the world's largest and most advanced economy, to promote the world's most important reserve currency to take the lead in reform. For many countries, it may be more prudent to do some experiments in less important economies with less important currencies and move forward slowly. But now the attitude of the United States is equivalent to pushing a stormy change directly in front of everyone, which has indeed formed a forced situation, giving everyone a Sphinx-style dilemma: answer me, or I will eat you.

So in the face of this challenge, many people have a defensive mentality due to their stress response. Especially with the media constantly promoting how Blockchain is used for money laundering, illegal financing, and illegal transactions, and reporting various speculative stories every day, when suddenly the U.S. uses this technology to promote stablecoins and RWA, many people will naturally think that this is the U.S. trying to engage in a currency war, treating Blockchain as a weapon. This mentality is understandable.

Xiao Feng: The mentality is understandable, but we still have to use first principles and return to the original point to think. Now we are discussing the topic of blockchain and stablecoins, there are too many macro discussions, as soon as we open our mouths, we are talking about the monetary system, the hegemony of the dollar, and financial wars, but the micro discussions are very insufficient. Many of us forget that the number one driving force for the development of stablecoins has always been technological innovation, which is to create value for ordinary users and consumers. The reason why stablecoins have such a big impact is rooted in a series of technical advantages given to them by the blockchain. I have been talking about these contents for ten years, but it is not enough, it is necessary to repeat it at this moment, and we must make everyone understand that the technology of blockchain really has great advantages, it will definitely succeed, and no one can stop it.

Meng Yan: It is indeed very important to clarify this principle. I saw you mentioned in a speech that you have been fascinated by Blockchain for ten years and have not changed your original intention. Could you summarize again what technical 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 an account perspective, traditional finance relies on bank custody accounts to record all our economic activities. However, in Blockchain, there are no bank accounts; digital asset wallets take their place, referred to as crypto accounts. The creation of a crypto account is completed by the user themselves using cryptographic tools, self-created and self-custodied assets.

From a ledger perspective, a public chain is a global public ledger, with global liquidity, free from administrative divisions, and without geographical and temporal boundaries.

From the perspective of accounting methods, distributed accounting differs from double-entry accounting, and the clearing and settlement models are also different. Traditional finance uses net settlement, while Blockchain uses gross settlement, with both payment and settlement occurring simultaneously, which is known as payment upon settlement, completing payment, clearing, and settlement in one transaction.

From the perspective of accounting units, the accounting unit on the blockchain is the native cryptocurrency. If you want to use fiat currency as the accounting unit, mere orders won't work; you must first tokenize the fiat currency and create a digital twin of the fiat on the chain.

These technical advantages may seem abstract to say, but when they are reflected in the application, they will provide tangible benefits to users. We judge whether a new technology has an overwhelming advantage, in fact, there is a simple way, that is, you look at how many times the efficiency has improved, and how many times the cost has decreased. A tenfold advantage is a generational replacement, and if it is a hundredfold and thousandfold advantage, it cannot be stopped by any force. For example, if a car is about ten times faster than a horse-drawn carriage, then the whole system of horse-drawn carriages will inevitably be obsolete. The cost of the Internet is 100 times lower than that of the telegraph, telephone, and television networks, so when the Internet first appeared, many people also spared no effort to block Internet telephony and online video applications, but what was the result? These networks have now been replaced by the internet. In the face of such a huge technological superiority, no reason for conservatism or resistance is valid.

I've always said that users' needs for finance are eternal, and it is necessary to borrow money easily and receive it quickly. Let's compare this remittance efficiency. Sending money from Shanghai to the U.S. can now take days or even weeks; With blockchain stablecoins, it can be received in a few seconds. How many times is this efficiency gain? There is a more extreme case, I recently sent money from Hong Kong to Shanghai, only to confirm the failure after a month, and if I use stablecoins, it may be completed in 10 seconds, how many times is this efficiency improvement? It could be tens of thousands of times, hundreds of thousands of times. With such a huge technological advantage, can any force stop it?

Let me give you another example. It is difficult to achieve 24/7 uninterrupted operation in traditional trading systems. Some of the leading stock trading systems are now looking to extend their trading hours, and some are already planning to trade 23/5, 23 hours a day, five days a week, but it still has to stop for one hour a day, because in the traditional clearing and settlement system, there needs to be a point in time to pause, netting, and netting. But you see, we do payments and transactions on the blockchain, and they all run around the clock. Why? It is because of the just-mentioned that it is a one-by-one settlement of silver and goods on the global ledger, so it can achieve uninterrupted clearing and settlement. I've heard that NASDAQ is doing a 24/7 trading system, and I'm guessing it's going to use blockchain technology internally. Once this is done, investors around the world can use US dollar stablecoins to trade U.S. assets without interruption, and the implications for investors and U.S. companies are self-evident. So you see, these macro-strategic discussions, in the final analysis, are still based on technological innovation.

There are many other advantages, such as no intermediaries, peer-to-peer, no borders, instant settlement globally within seconds, nearly zero fees, automation on smart contracts, and irreversible transactions. Once users compare them, it's clear; is there still a need to persuade anyone? It's like comparing electric motors to steam engines, electric lights to gas lamps, or integrated circuits to vacuum tubes. As an ordinary user, without needing any specialized knowledge or relying on other conditions, you can easily see which one is superior and which one will be eliminated. This is an obvious fact.

If we understand the basic technical facts mentioned above, we will draw a simpler conclusion - the fundamental starting point for the United States to promote stablecoins is still to follow the trend of technological development and promote the modernization of payment and financial infrastructure.

Of course, such a strategy certainly has multiple considerations, including maintaining the hegemony of the US dollar, competing in the monetary and financial system, and even the perspective of the Trump family's profit-making. However, the foundation of all these considerations is based on the fundamental fact that Blockchain, as a new generation of financial infrastructure, has overwhelming technological advantages. Many people regard Blockchain as a terrifying force, one important reason being the lack of a profound understanding of the inherent advancement and inevitability of Blockchain technology itself. I often say that circumstances are stronger than individuals. If you can block it, you can certainly discuss whether to block it or not. However, if you cannot block it at all, what is the point of discussing how to block it? Knowing it cannot be done yet trying to do so will only miss the opportunity and fall behind in the new round of competition for financial infrastructure and monetary financial systems.

I am very excited about the early passage of the Hong Kong stablecoin bill; it is the right response.