Mr. Zhou Xiaochuan 👨🏻‍💼 on Stablecoins: Risks and Regulatory Challenges

Former Governor of the People's Bank of China, Zhou Xiaochuan, recently delved into the current state and potential risks of stablecoins. His core viewpoint is that stablecoins need to be examined from multiple dimensions, and the financial risks they may bring should be cautioned against. Below, I will outline his main views for you.

1️⃣ Core Risks of Stablecoins

Zhou Xiaochuan believes that stablecoins mainly have the following two major risks:

• "Currency Overissuance" Risk: Stablecoin issuers may overissue stablecoins without 100% real reserves.
• High Leverage Amplification Effect: The operation after the issuance of stablecoins may produce a multiplier effect of currency derivation, further amplifying risks.

2️⃣ Channels of Amplification Effect of Stablecoins

Zhou Xiaochuan pointed out three typical channels of the amplification effect of stablecoins:

1. Deposit and Loan Channel
2. Collateral Financing Channel
3. Asset Market Trading (additional purchase or revaluation of issuance reserve assets) Channel

3️⃣ Prudent Views on Decentralization and Tokenization

Zhou Xiaochuan holds a calm attitude towards the current trend of decentralization and tokenization:

• He believes that not all financial services are suitable for decentralization, and there are not many financial services that can achieve significant efficiency improvements through decentralization.
• He pointed out that the retail payment systems in China and many Asian countries have succeeded based on account systems, and the digital currency developed by China is also account-based, which is an extension and iterative update of the existing financial system.
• He emphasized that centrally managed account systems still show good applicability, and the basis for fully tokenizing to replace account-based payment systems is insufficient.

4️⃣ Balance Between Payment Efficiency and Compliance

Zhou Xiaochuan raised two major concerns in the payment system:

• Payment Efficiency: Stablecoins are considered a potential way to improve payment efficiency, but Zhou Xiaochuan pointed out that China and Southeast Asia have already achieved significant improvements in payment efficiency and convenience through account-based systems (such as third-party payments, digital RMB).
• Compliance: Stablecoin payment business still has obvious deficiencies in compliance aspects such as Know Your Customer (KYC) and Anti-Money Laundering (AML). The technical route itself is not the only criterion, and the comparison of payment performance must also highly emphasize security and compliance.

5️⃣ Market Manipulation and Investor Protection

Zhou Xiaochuan reminded from the perspective of market transactions to guard against the following issues:

• Market Manipulation, especially price manipulation.
• "Mixed Currency" or the mixed use of multiple currencies: This arrangement provides possibilities for market manipulation.
• Investor Protection Issues: He specifically mentioned that some market promoters attract a large number of students under 18 to participate in transactions through stablecoins and RWA (Real World Assets) technology, which may bring risks.

6️⃣ Motivations of Various Participants

Zhou Xiaochuan believes that the motivations and behavior patterns of various participants in stablecoins need to be examined:

• The issuing institutions of stablecoins are generally commercial institutions for profit, but the payment system includes some functions or links with infrastructure attributes and inclusive attributes, which cannot be completely dominated by commercial interests.
• He pointed out that in regions like China where retail payment systems are already very efficient and low-cost, the space for new entrants to profit by reducing costs through stablecoins is very limited.
• He warned that the risk of stablecoins being excessively used for asset speculation should be guarded against, as deviation in direction may lead to fraud and instability in the financial system.

7️⃣ Challenges in the Circulation Path of Stablecoins

Zhou Xiaochuan also reminded to pay attention to the complete mechanism from issuance to recovery of stablecoins:

• If there is a lack of sufficient demand scenarios, stablecoins may not be able to enter effective circulation, that is, they may be issued but not circulated.
• If the main line of payment is not smooth, the main channel for stablecoins to enter circulation may overly rely on speculation of virtual assets, thus generating health concerns.

8️⃣ Summary of Zhou Xiaochuan's Views on Stablecoins

The table below summarizes Zhou Xiaochuan's main views and concerns on stablecoins:

💎 Summary

Zhou Xiaochuan's attitude towards stablecoins is multi-dimensional prudent regulation. He acknowledges that stablecoins may be useful in certain scenarios (such as DeFi and tokenized ecosystems), but emphasizes that their risks cannot be ignored—especially issues such as overissuance, leverage effects, market manipulation, and compliance deficiencies. He reminds us that existing centralized account systems (including China's digital RMB) have already performed well in terms of payment efficiency and compliance, and stablecoins are not a universal solution.

For ordinary investors and industry participants, understanding these risks and multi-dimensional perspectives is very important for correctly viewing the development of stablecoins and future regulatory directions.

• Access to Virtual Asset Trading: $GUOTAI JUNAN I(01788.HK) 、$Futu(FUTU.US)、$FOSUN INTL(00656.HK)$CM BANK(03968.HK) 、$VICTORY SEC(08540.HK)etc.;
• Stablecoin Issuance Related:Circle Technology related ($ZA ONLINE(06060.HK) 、$GOFINTECH QUANT(00290.HK) 、$Z FIN(01168.HK)etc.), $JD-SW(09618.HK) 、$STANCHART(02888.HK) , domestic state-owned enterprises and other applicants;
• Hong Kong Virtual Asset Exchange (VATP License):$OSL GROUP(00863.HK) 、$HKE HOLDINGS(01726.HK)$LIANLIAN(02598.HK) 、$Futu(FUTU.US) 、$PUXING ENERGY(00090.HK) (holding Hashkey);
• Downstream Application Scenarios of Stablecoins:$YEAHKA(09923.HK) 、$GOLDSTREAM INV(01328.HK) 、$LIANLIAN(02598.HK)
• RWA Related:$CRYPTO FLOW(08198.HK) 、$SENSETIME-W(00020.HK) 、$ETHK LABS INC.(01931.HK) 、$PHANCY(06682.HK) 、$LINEKONG(08267.HK) 、$RUIFENG RENEW(00527.HK) 、$FOSUN INTL(00656.HK)、$GOFINTECH QUANT(00290.HK) 、$SYNAGISTICS(02562.HK)、$YUNFENG FIN(00376.HK) 、$DL HOLDINGS GP(01709.HK)、$EASOU TECH(02550.HK) 、$VOBILE GROUP(03738.HK)、$CMGE(00302.HK) 、$GCL TECH(03800.HK) 、$LINKLOGIS-W(09959.HK)、$COOLPAD GROUP(02369.HK) 、$GREENLAND HK(00337.HK) 、$DMALL(02586.HK)
• US Stock Stablecoin Direct Issuers:$Circle(CRCL.US)
• US Stock Trading Platforms and Ecosystem Partners:$Coinbase(COIN.US)、$Robinhood(HOOD.US)
• US Stock Traditional Financial Institutions Layout Stablecoins:$JPMorgan Chase(JPM.US)、$Bank of America(BAC.US) 、$Interactive Brokers(IBKR.US) 、$Citigroup(C.US)
• US Stock Innovative Technology and Infrastructure Companies:$Mega Matrix(MPU.US)
• US Stock Payment and Fintech Companies:$Paypal(PYPL.US) 、$SoFi Tech(SOFI.US) 、$Visa(V.US)