<div id="readability-page-1"><div><div><p>Author: Roy Sheinfeld, Bitcoin Magazine; Translator: Deng Tong, Jinse Finance</p><p>Technological products often have a natural upper limit to their practicality and popularity. Once they solve all the problems they can solve, their growth essentially reaches its limit. Just as every potato lover owns a peeler, the growth potential of the peeler market has essentially been exhausted. In fact, the biggest question in the field of artificial intelligence right now is how many problems it can actually solve. The market may have been overhyped, or it may have unlimited potential.</p><p>What about stablecoins? They have grown from almost zero a decade ago to a market capitalization in the tens of billions today, with monthly trading volumes exceeding $1 trillion. Citigroup predicts that by the end of this decade, the total market capitalization of stablecoins will reach around $2 trillion.</p><p>If we're talking about trillions of dollars, it sounds more like artificial intelligence than a peeler.</p><p>But do stablecoins have a natural limit? Are their practicality limited to certain specific problems? If so, what are those limitations? How much growth potential do stablecoins actually have? And what factors would hinder their development?</p><p> To find the answers to these questions, let's review why stablecoins have evolved to where they are today, what limits their future growth, and what this means for their overall utility (i.e., the range of problems they can solve). Why Stablecoins Gain Market Favor Three main reasons stand out for the current popularity of stablecoins. Price Stability and Low Volatility First is price stability. Many cryptocurrencies are highly volatile, making them suitable for speculation but not for everyday use. The value of stablecoins, as the name suggests, is stable. Price stability is their fundamental value proposition. Price stability is undoubtedly an advantage compared to other cryptocurrencies whose expected value will continue to rise. If your coins will double in value in five years, you might be reluctant to spend them now. But if your coins will only remain unchanged or even slightly decrease in value in five years, you'd better spend them before they become a drain on your wallet. Greater Portability Secondly, there's portability. Converting fiat currency to cryptocurrency can be cumbersome, but converting one cryptocurrency to another is often much easier. Therefore, many users find it more efficient to convert fiat currency to stablecoins in bulk and then easily transfer value between various cryptocurrencies as needed. USDT is the most traded coin because it performs well in any cryptocurrency transaction. In many markets, the first two factors reinforce each other. Many countries' domestic currencies depreciate faster than the currencies pegged to stablecoins, providing a way for people in these countries to protect their wealth from devaluation. Moreover, these countries often use currency controls to prevent capital flight, but their citizens can often circumvent these artificial barriers by purchasing stablecoins. Tax Optimization The third reason is simple: taxation. Many jurisdictions, including the US, Canada, the UK, Japan, and Australia, classify cryptocurrencies as commodities rather than currencies. Therefore, capital gains tax is levied on cryptocurrency price increases, making each transaction potentially a taxable event. However, many users and businesses may want to leverage the portability of cryptocurrencies, for example, as a payment channel, so the price stability of stablecoins can help them avoid taxable events in everyday payments. </p><p>National Rules</p><p>Fiat currency is the crown jewel of the modern state. Beyond the symbolic value of a national currency, controlling the source of everyone's funds is an extremely advantageous thing. To understand just how important this is, consider revisiting Ridley Scott's *Black Rain* (a film worth rewatching for many reasons, most notably Michael Douglas's cool mullet hairstyle). </p><p>History shows that states regulate everything within their power. </p><p>Centralization is also why states only began to favor tariffs over taxes in modern times. In an era of smaller bureaucracies and more dispersed populations, states struggled to tax income. They lacked both the data to quantify income and the technology to control it. Therefore, they preferred tariffs, as there were far fewer ports and bridges than households and shops. </p><p>Stablecoins are no exception.</p><p> Stablecoins are highly centralized, both in terms of their value source and actual operation, which is why regulators have been busy issuing various rules recently. While these regulatory measures may be necessary and wise, they do limit, and will continue to limit, the utility of stablecoins. </p><h2>Rules, Impact, and Future Outlook</h2><p>Recently, regulatory efforts have increased significantly, but this may simply be meeting market demand. In fact, the two major stablecoin issuers, Tether and Circle, are participating in the regulatory process with different strategies. They are well aware of their position as private dollar minting institutions and companies that absorb and reinvest large amounts of private deposits (like banks). Mature stablecoin issuers seem to crave regulation. </p><p>Regulators themselves also believe that stablecoin regulation is a good thing because it can protect users and provide issuers with a &#34;more predictable regulatory environment.&#34; Unsurprisingly, this is also the view of the U.S. Securities and Exchange Commission (SEC). </p><p>This argument is not without merit. Companies managing hundreds of billions of dollars in liabilities should be able to fulfill those liabilities, and perhaps someone should be auditing them. But existing regulations do create many obstacles for people in where and how to use stablecoins. Let's start with Europe, as regulatory legal terminology is the official language of the EU. The Crypto Asset Market Regulation (MiCA) is the most important stablecoin regulation in Europe. It came into effect in 2023, but its real impact didn't become apparent until the first quarter of 2025. Because MiCA requires stablecoin issuers to obtain an e-money license in at least one European country, major exchanges like Binance and Coinbase have delisted nine mainstream stablecoins, including USDT, the largest stablecoin by market capitalization. (Of course, a consortium of nine &#34;too big to fail&#34; European banks is attempting to launch their own euro-pegged stablecoin.) MiCA is like a regulatory nuclear bomb, effectively banning mainstream stablecoins and attempting to replace them with some artificially manipulated European alternatives. In contrast, the US is more conducive to experimentation and innovation, and has implemented the National Stablecoin Innovation Guidance and Establishment Act (GENIUS). The GENIUS Act's lenient aspect lies in the fact that the Treasury Department can determine that a foreign stablecoin issuer is adequately regulated in its home country, thus exempting it from the need to establish a branch in the United States. The Act also stipulates specific matters such as reserve requirements and information disclosure. While the GENIUS Act formally restricts issuers and protects users, it also subjects issuers to the Bank Secrecy Act to prevent money laundering. Anyone who has purchased cryptocurrency on an exchange knows that Anti-Money Laundering (AML) and Know Your Customer (KYC) processes can be very frictional and effectively limit how holders can use stablecoins. Eliminating this friction is one of the reasons stablecoins were initially attractive. Strengthening consumer protection may improve the overall utility of stablecoins in the long term, but users who want to buy and trade USDT now may not agree with this. While the EU and the US are arguably the most important markets for stablecoins, many other markets have either already established relevant regulations (e.g., Japan, Canada, Chile) or are in the process of establishing them (e.g., the UK, China, Australia, Brazil, Turkey). Imagine all these regulatory systems forming a giant Venn diagram, with the utility of stablecoins existing in the areas where these systems overlap and transactions remain economically viable. How large is this area? Given that stablecoins are pegged to national currencies heavily protected by individual governments, will these already diverse regulatory systems converge or diverge in the future? The more complex the regulatory systems, the smaller and more isolated the clearing markets where stablecoins can thrive. They will still have their own market space, but some will be smaller than others. Any stablecoin based on a national or even regional fiat currency is unlikely to meet the requirements of all market regulators and thus become a global currency. This may explain why the real-world use of stablecoins is far more geographically limited than many envision a “global digital dollar.” Even the most widely used stablecoin, USDT, operates on a large scale only in a few relatively lenient jurisdictions. USDC, with a market capitalization of about 40% of USDT and almost identical product functionality, faces the same structural limitations. Stablecoins are good, but Bitcoin has unlimited potential. Stablecoins are centralized fiat currency tokens. Due to their centralized nature and peg to national fiat currencies, stablecoins are tightly controlled by regulators, leading to costs and friction for all parties involved. This process has already begun and will continue. Does this mean stablecoins are doomed to fail? Not necessarily. As tokenized fiat currencies, stablecoins can thrive as long as fiat currencies are readily usable. In fact, this means traditional payment methods. I recently defined payments as instructions to repay debts. As long as reciprocal transactions exist through intermediaries, stablecoins are likely to play this role of &#34;exchange.&#34; In fact, established fintech companies like Klarna, PayPal, and Stripe launching their own stablecoins or stablecoin accounts may be driven by a desire to seize payment business from other fintech solutions (or to protect their own interests). Stablecoins are evolving into ordinary payment fintech, but perhaps only ordinary payment fintech. &#34;Ordinary&#34; here refers to the constraints imposed by national regulations and their functional and geographical limitations. This means high fees will flow to intermediaries, and users will encounter friction. But a vast realm of value transfer remains overlooked by existing payment models, perhaps because it requires direct, disintermediated transfers, ignores political and geographical factors, doesn't involve debt, or all of the above. The potential for value transfer is sometimes difficult to perceive because this fragmented, intermediary-dependent payment model dominates. Only recently have we acquired the technology to realize many more possibilities. However, whenever you give a street performer some coins or a tip to a content creator, you are transferring value, not settling debt. This transfer is disintermediated whenever cash flows between people. Now imagine a street performer on the other side of the world, and you discover him through an app. The key to perceiving the rest of this realm of value transfer lies in bringing this directness and borderlessness into our digital world. The friction required for value transfer is less than that of fiat currency, both technically and regulatoryly. But to achieve this, a decentralized currency, free from national currencies, is needed. Bitcoin is precisely that. Bitcoin is an open, decentralized, and neutral monetary network, available to anyone, anytime, anywhere. While stablecoins struggle to survive in the cracks of a regulatory jungle, Bitcoin soars freely. Built on and serving the internet, Bitcoin inherently possesses programmability, a quality stablecoins can only barely match. Bitcoin allows for direct, uninterrupted transfers between millions of users worldwide without third-party custodians. The future promised by stablecoins but rarely believed in has already become a reality for Bitcoin. No barriers, easier to win the game. Utility is a core concept in economics because it's the essence of decision-making. People choose what they deem most useful, and you know what's most useful because people have already made their choices. The fact that people are using stablecoins proves their utility. This utility won't disappear, but regulation will limit it. The growth of stablecoins will stop when their utility roughly equals the friction caused by regulation. Current regulatory conditions and potential future regulatory trends suggest we are very close to this equilibrium. However, because Bitcoin is not a centralized currency and does not rely on national fiat currencies, it is inherently more difficult to regulate and therefore receives far less regulation. Furthermore, Bitcoin is digital-native, making it naturally suited to a global world of commerce and value flows, allowing value to cross borders frictionlessly between applications anywhere. If regulation limits the utility of stablecoins, while Bitcoin is subject to far less regulation, then it is clear who will win the utility race.</p></div></div></div>

GBTC

CRCL

<p>The article discusses the potential impact of stablecoins on Bitcoin, highlighting their rapid growth and market capitalization, which could reach $2 trillion by the end of the decade. It identifies three main reasons for stablecoins' popularity: price stability, portability, and tax optimization. However, it also raises concerns about the limitations of stablecoins, particularly regarding regulatory challenges and their centralized nature. The future of stablecoins may be influenced by ongoing regulatory efforts and their role in the financial ecosystem.</p>

Will stablecoins pose an existential threat to Bitcoin?