Circle Chief Economist Gordon Liao: The overseas stabilization currency is evolving in three key directions

Digital version of "Small Bank"

what's called stablecoinfrom a balance sheet point of view, it can be a form of “narrow banking”。Back in the 20th century, American economistsIrving Fisherthe concept of “100 per cent currency” (100 per cent money) was introduced, requiring 100 per cent reserve support for commercial bank deposits. in such cases, the assets on the balance sheet of commercial banks consist entirely of government liabilities。

Over the past decade, the currency of stability abroad has evolved considerably. Initially, the stabilizer issues the currency on the public block chain (which creates liabilities), and its counterpart assets on the balance sheet are a wide array of combinations, ranging from short-term United States Treasury bills to slightly higher-risk assets (such as commercial notes and short-term loans)。

In recent years, the standards for issuing stable coins abroad - especially those supported by French currency - have increased significantly. This can be attributed to both the issuer ' s increased self-regulation and the overall improvement of regulatory frameworks within jurisdictions. With the adoption of the United States GENIUS Act of 2025, the European Code of Encrypted Assets of 2024 (MiCA, Markets in Crypto-Assets Regulation) and the relevant rules being developed in several other jurisdictions, the United States Government has made the following recommendations:We have seen fundamental changes in the asset reserve structure of the stable currency。

Now, if you look at foreign-dominated stable currencies like USDC, you find that their French-currency assets consist almost exclusively of relatively low-risk financial instruments, with very short conversion periods and little credit risk exposure. Typically, these include short-term United States Treasury bonds with a duration of less than 90 days, reverse repos, and a percentage of commercial bank deposits。

SoAs far as asset formation is concerned, today's stability abroad is very close to the concept of "100% currency" that Fisher described earlier。whenever there is a financial crisis, economists always repeat the idea of full-reserve money - that is, abandoning the “partial reserve” system, and that banks no longer lend. but in history, this vision has never been completely on the ground. today, for the first time in the world, we see how narrow banking works as a currency。

Achieving a single currency

As mentioned earlier, the US GENIUS Act was passed in 2025, and the Fed has recently published a consultation on “settlement accounts”. These accounts are in fact interest-free accounts opened at the Fed, which were not intended for non-banking agencies to hold reserves, but whichFor non-banking institutions to access the interbanking full-time settlement systemRTGS(Real-Time Gross Settlement)- In AmericaFedwireSystem. These clearing accounts enable non-banking institutions to hold short-term United States Treasury bonds as 100 per cent of reserve assets while obtaining access to FedWire. Previously, FedWire could only be accessed through traditional master accounts or deposit accounts, meaning that the accesser must be a commercial bank or depositor, and such entities usually carry a large credit risk (credit risk)。

WITHOUT EXCEPTION, THE EUROPEAN CENTRAL BANK (ECB) TARGET2 SYSTEM HAS AN ACCESS PROGRAMME FOR NON-BANK INSTITUTIONS。this has enabled the concept of “100 per cent penetrating government debt” (100 per cent pass-through government liability) to be realized, thus allowing stable currency issuers to divest themselves of various credit risks, including those associated with deposit institutions。

this will be a major change in the history of monetary banking, which embodies the idea of "singleness of money." in the early nineteenth centurythe united states experienced a time when banks were flowering "wildcat banks."。At that time, different private institutions issued their respective currencies, which varied in terms of transaction prices on the market. To some extent, the field of currency stability abroad is currently facing a similar situation: while they can exchange their face value with the French currency at 1:1, their transaction prices tend to have premiums or discounts on the secondary market, thus slightly deviating from the face value. If we can finally settle the funds through Fed Wire, that means it's possibleA single currency is achieved through a unified clearing mechanism。

Separation of payments from credit

From the balance sheet, it's a stable currency abroada key point is that it separates the “credit creation” function of financial intermediaries from its “payment” function。Payment operations are transactions aimed at achieving high value and high frequency, which is distinct from the lending involved in the credit operations. This risk spread will not occur if the payment activities are separated from the credit activities of these banks。You may recall that a few years ago, when large regional banks in the United States, such as Silicon Valley Bank, collapsed, there was a small panic in the payment system, because many financial technology companies had large deposits in Silicon Valley。

Stable currency, as a full reserve currency, means that end-users can really use it as a payment tool without fearing the underlying credit risk of the debtor。This will also result in a significant reduction in the leverage of financial intermediaries。History has repeatedly shown that the leverage effect of financial intermediation tends to lead to the accumulation of balance sheet risk and further financial instability。It is this risk of accumulation of financial intermediation that led to the 2008 financial crisis and the Great Depression of the 1930s。

We can also see that this trend is being achieved through the new technological architecture。some of the traditional operations of financial intermediaries - such as lending, trading and brokering services - are being altered by purely chain-based programmable protocols。In many distributive finance (DeFi) scenarios, stable currencies are increasingly being used as a basic module of the “money LEGOs” model to implement financial services efficiently through agreements. For example, the “automated Market Make, AMM” service is essentially a way of facilitating the mobility of encrypted assets. It is programmed directly into smart contracts, instead of relying on traditional exchanges, central Limited Order Book, or traditional traders。

another area of growth in distributed finance is mortgaged lending. this is similar to repurchase loans (repo loans) or securities lending in traditional finance: end-users (usually hedge funds) use these securities-guaranteed loans to trade or leverage. today's distributive finance can be reproduced:The settlement and liquidation of loans created on the basis of full collateral digitized securities, assets or stable currency are completed in the chain。To some extent, this has increased transparency, made systemic risk more visible as a whole and resulted in greater automation while drawing on traditional buy-back markets. By automating, we may be able to avoid repeated freezing problems in the buy-back market。

Cross-border payments and settlements

In terms of applications, I think..Cross-border payments are a huge market for foreign currency stabilization, as they address the current pain。Remittances on a global scale would need to be made through a chain of transit banks (corporating banks) and separately dealing with transmission of information (through SWIFT) and settlement (by updating the books of related banks in different jurisdictions). And by stabilizing the currency, the end-user -- be it a merchant, an exporter or a digital asset dealer -- can shift value from one currency or jurisdiction to another in a block chain, which can be done almost instantaneously。

At the same time, while the vast majority of overseas stabilization currencies (over 90 per cent) are currently denominated in United States dollars, the situation is rapidly changing, and many of the stabilization currencies denominated in local currency are growing rapidly. Circle has issued a euro-stable currency known as EURC, which, although currently in circulation (about 300 million euros), is well above the dollar-stable rate. With the spread of digitization of securities, I expect that these currencies will grow faster。When securities are denominated and traded in their own local currency, it would be natural to use the local currency to stabilize the currency - not the United States dollar to trade in these digital securities。

In additionIt also provides an opportunity for international settlements in different currencies。For example, about 25 per cent of global trade today is related to China, but only about 5 per cent is settled in renminbi. There is therefore considerable scope for using currencies other than the United States dollar for cross-border settlements. Taking into account the simultaneous development of the digitalization of securities, people will be able not only to pay in their own currency, but also to store and invest in their own currency. Allowing assets and securities to be digitized would therefore also be useful in promoting local currency stability。

Development of market design

in terms of market design, i believe that the digitization of risks will become increasingly important. the previous reference to digital secured credit on distributed financial platforms was one such growth point, and credit for collateral was, after all, relatively easy. but at the same time, we're seeing an accelerated growth of uncollarized loans. such loans take place in the chain, but need to be combined with information under the chain (e.g. credit rating), mainly using block chain technology as a back-end settlement service. in general, i think..The digitization of credit instruments (including sovereign and private credit) will show an increasing trend。

And in the last year or twoit is a new phenomenon that predicts a surge in attention and use in the market。In these markets, end-users can forecast the outcome of a given event. For example, through weather contracts, one can predict the weather in a given area and receive compensation if rainfall exceeds a certain threshold. These projections could also be related to elections or the world situation. The growth of these markets is incredible, with annual growth rates as many as possible。

This is also, to a large extent, a market design issue. From an economic point of view, the forecast market is similar to the Arrow-Debreu securities, i.e. the payment of a unit return in a given world state。To some extent, this is improving the market, making trade in Arrow-Debreu securities possible and providing an opportunity for hedge risk。at the same time, it also addressed another major central theme of the seminar: smart payouts. i thinkDealing with the specific state of the world as a projection will drive the application of intelligent bodies in the block chain in a more interesting direction。

Potential changes in Internet business models

Finally, I would like to turn to the technical dimension. The overseas stabilization currency is another upgrading of Internet payment technology. It is well known that Internet payments have been a challenge. I can even saythe lack of built-in primary payment mechanisms is one of the “original sin” of the internet。This lack has led Internet companies to focus their business models on acquiring user eyeballs and data, with advertising as the main source of income. It has also given rise to Internet giants, represented by search engines and social media, with mixed results。

as micropays and small cash payments can be achieved through block chains and stable currencies, i think we will have the possibility of solving the core problem of the internet: failure to pay directly to content creators。The business model of large Internet companies will make it possible to move from a data- and advertising-centred mode of realization to one of content and actual use。AS AI IS RAPIDLY CHANGING THE WAY USERS INTERACT WITH THE INTERNET, WE WILL SEE MORE CHANGES IN THE WAY INTERNET PAYMENTS ARE MADE -- FOR EXAMPLE, THE SPREAD OF MICROPAYMENTS, WHERE USERS PAY A FEW CENTS FOR EACH QUESTION THEY ASK. MAYBE THIS..it will also contribute to the rise of "smart pay", whereby every autonomous smart person (autonomous anent) will pay for the services of other smarts through block chain technology。This will usher in a new era。

Thank you。

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