Deng Jianpeng: Thoughts on the connotation and risks of stablecoins

In September 2021, the People’s Bank of China, in conjunction with the Supreme Court, the Supreme Procuratorate and other ministries and commissions, issued the “Notice on Further Preventing and Disposing of the Risks of Virtual Currency Trading Hype.” The issuance, use of encryption technology, distributed accounts or similar technologies, and the existence of digital forms are not legally compensatory, and should not and cannot be used as currency in the market. “This is the central bank’s issue of virtual currencies since 2013. It is the first time to notice the risks of stable currencies such as TEDA since its regulatory documents, and it is also the first attempt to regulate stable currencies such as TEDA. The author has been paying close attention to stablecoins for many years. In particular, this unregulated stable currency TEDA, according to statistics, holds about 60% of its share by Chinese investors, so the potential risks to the property rights of Chinese citizens are the greatest. The author has always believed that stablecoins headed by TEDA coins should be highly valued by China’s financial regulators. This article first attempts to discuss its connotations, classifications and risks.

I. Introduction

The essence of the blockchain is a distributed ledger accounting tool, based on the self-trust, tamper-proof, and irreversible characteristics of technology and algorithms, and has important application value in the Internet and the real world. Among them, stable coins are an important product of the innovation and development of financial technology and blockchain finance. The market price of virtual currency represented by Bitcoin often fluctuates violently. Investors in some countries have policy restrictions on purchasing virtual currency with legal currency. A stablecoin with relatively stable price and convenient transactions has emerged. Stablecoins usually anchor specific assets, transaction media and payment methods that are partly anonymous, low transaction costs, safe and convenient.

With the enhancement of the wealth effect of virtual currencies such as Bitcoin in recent years, stablecoins, as an extremely important means of payment in the virtual currency market, have rapidly expanded their market value, more diverse embedded scenarios, and rapid innovation and iteration. They have become a force that cannot be ignored in the blockchain finance field. As of April 2021, the market value of the number one stablecoin “Tedcoin” (USDT) in circulation has exceeded US$45 billion, and the total market value of global stablecoins has exceeded US$80 billion in the same period; [①]Fintech company Facebook in 2019 Proposed a stable currency plan-Libra (later renamed Diem), and is expected to launch a pilot stable currency pegged to the US dollar in 2021 to provide global users with financial services without banks. With the development of blockchain finance, stablecoins have not only become an important “financial infrastructure” in the virtual currency trading market as a means of payment, they have accelerated their penetration in many scenarios of decentralized finance (DeFi), and are the deepening development of blockchain finance. An important driving force for the exchange; furthermore, because stablecoins can be easily exchanged with legal currencies, it will have a wide range of impacts on the monetary policy and financial system in the real world.

The innovation, complexity and high risk of stablecoins have attracted the close attention of some countries and international financial organizations. Some unregulated stablecoins are widely circulated around the world, which may pose systemic risks. At the same time, traditional economic regulations and financial supervision generally have gaps in dealing with blockchain finance and stablecoins , and there are varying degrees of “supervision failure” [2]56-66 . Compared with mainstream virtual currencies such as Bitcoin and Ethereum, and central bank legal digital currencies, stablecoins have always been an area where scholars and financial regulators pay less attention. Existing research focuses on foreign finance and regulatory agencies (including international financial regulatory organizations), mainly from the perspectives of finance and economics to study the connotation, function, and operating mechanism of stablecoins [3] . Domestic finance focuses on stablecoins. There are few normative studies from the perspective of law and supervision, and most introductory studies. However, investors in China’s “currency circle” and virtual currency exchanges controlled by the Chinese hold more than 60% of the world’s TEDA coins [4] , and China’s policies, legislation, and supervision related to stablecoins are completely blank. On the one hand, financial regulators such as the Central Bank of China have not been able to study stablecoins. Existing regulatory documents (such as the “Announcement on Preventing Token Issuance Financing Risks”, referred to as “Announcement 94”) lack regulatory intentions and legal definitions for stablecoins. And risk warnings, making it difficult for regulators to monitor and deal with stablecoin risks; on the other hand, domestic stablecoin cases have increased rapidly in recent years. According to the “China Judgment Document Network”, there have been more than 100 cases involving TEDA coins. And it has shown explosive growth in the past one or two years. Legislative, regulatory, and academic research lags have led to many difficulties in the judicial practice of stablecoins. For example, some grassroots courts cannot understand the legal attributes of stablecoins and directly rejected the litigants’ prosecutions[②]; Misunderstanding of “94 Announcement” [③]The phenomenon of different judgments from the same case has harmed the parties’ expectations of judicial stability to a certain extent, and is not conducive to the prevention and control of stable currency risks and the protection of the parties’ legitimate rights and interests. In addition, stablecoins are very close to central bank digital currencies in terms of payment functions and convenience. Therefore, the research on stablecoins will likely provide more academic wisdom for optimizing the central bank’s digital currency practice. How to understand stablecoins and their risks more comprehensively and accurately, and to explore the regulatory model and regulatory countermeasures of stablecoins has become a major issue of the times. This article aims to conduct a comprehensive review of the existing domestic and foreign stablecoin related research, sort out the content, classification, stability mechanism and risk of stablecoins, analyze the deficiencies of related research, and try to put forward a stablecoin regulatory idea suitable for my country. Follow-up research and risk regulation provide academic wisdom.

2. The connotation, function and status of stablecoins

Stablecoins were first produced in 2014. So far, there are nearly 60 stablecoin projects in the virtual currency market. Representative stablecoins include: TEDA, USDC , Libra and DAI. Among them, TEDAcoin is the stable currency with the largest market size and trading volume. In the first half of 2021, its turnover rate and daily trading volume can usually reach 100% and more than US$50 billion. [④] Since 2019, stable coins have entered the fast lane of development, and related projects have grown rapidly, mainly in the United States, Europe, Hong Kong, Australia and some island regions. According to related research reports, the stablecoin project teams are mainly located in the United States (19) and Europe (13, including 5 in Switzerland and 3 in the United Kingdom); among the legal registration places of stablecoins, the United States is the most common. 10; followed by Switzerland with 7; Hong Kong, Australia, Cayman and Jersey are also legal registration places for multiple stablecoin projects. [5]

Stable coins are closely related to virtual currencies, but they cannot be equated to virtual currencies. The aforementioned regulatory documents issued by the central bank in 2021 in conjunction with multiple ministries include “virtual currencies such as TEDA coins”. This statement is obviously incorrect. According to the TEDA issuer’s claim, the TEDA currency is backed by USD reserves. Therefore, we cannot call TEDA a “virtual currency” anyway. In addition, it is defined by the Anti-Money Laundering Financial Action Task Force (FATF): virtual currency is a programmable token that can be traded in digital form, using cryptography and distributed ledger technology as the underlying technology, and has a transaction medium and/or A value in digital form that has the function of a unit of valuation and/or value storage, but does not have the status of legal tender in any jurisdiction. [6] Virtual currencies usually do not have any asset backing, their prices fluctuate sharply, and there is a greater risk of speculation. In order to avoid the risk of price fluctuations and reduce transaction costs, a “stable currency” with the goal of “maintaining price stability” and facilitating transactions is derived from many virtual currencies and has gained independent connotations. In 2019, the Financial Stability Board defined a stable currency as “an encrypted asset that maintains a stable price relative to a specific asset, asset pool or a basket of assets” [7]1-4 , using collateral (such as legal currency, precious metals or mainstream virtual currencies) ) As a backing, or use algorithmic mechanisms to stabilize prices to minimize price fluctuations. Stable coins reflect the price stability of real-world liquid assets as the degree of stability related to virtual currencies, and provide price stability expectations that other virtual currencies lack [8] . The pegged exchange rate and built-in exchange rate mechanisms are used to achieve anchoring goals ( See Table 1). [9]7

Table 1     Comparison of stable coins and virtual currencies

type Price stability Asset support Programmability Convertibility
Virtual currency X X X

Note: “√” stands for “Yes”, “×” stands for “No”

Table 1 compares stable coins and virtual currencies in terms of price stability, asset support, programmability, and convertibility. It can be seen that both are programmable tokens issued and operated based on the blockchain network. The difference is that, compared with virtual currencies, stablecoins obtain “price stability” through asset support and have a certain intrinsic value. “Price stability” is the primary and core feature of stablecoins. In addition, stable currencies are backed by assets, and some stable currencies (such as legal currency mortgage stable currencies) also support two-way exchange with legal currencies.

As a virtual currency pursuing price stability, stable currency has three functions: First, it has the function of maintaining value and making profits. In the face of large fluctuations in the virtual currency market, the exchange of stable currencies and virtual currencies can avoid market volatility risks. The second is innovative payment and settlement (cross-border payment) methods. The International Securities Regulatory Commission believes that the function of stable currency is to create a global, efficient and accessible means of payment and value storage, which is of great value for improving the efficiency of financial services and promoting inclusive innovation. Stable coins bridge the gap in the value network between traditional currencies and virtual currencies. Stable currency does not require a traditional financial account, and can provide a convenient means of payment for the conversion of different assets through the exchange between virtual currency-stable currency-legal currency. Its low cost, convenience and partial anonymity (pseudo-name) characteristics help To improve the safety, efficiency and inclusiveness of cross-border payments, it is disruptive to the traditional payment industry. Third, with the widespread use of stablecoins and the launch of more virtual currency exchanges, on the one hand, it can bypass the traditional bank account and financial service system, provide financial services to groups without financial accounts, and expand the inclusiveness of finance [10 ]193-220 ; On the other hand, it has gradually become the infrastructure of encrypted economy and blockchain decentralized finance, which promotes the rapid development and evolution of blockchain decentralized financial ecology. [11]

The most significant function of stablecoins is to become a new and convenient means of payment based on stable prices. In actual operation, some stable currencies with large circulation and widely used conform to the currency form and have a certain purchasing power due to the support of assets, thereby obtaining economic currency attributes [5] and can perform some of the functions of traditional currencies such as The medium of exchange, the storage of value and the means of circulation may even surpass the national currency to become a global payment tool. With the further expansion of the stablecoin market, coverage of the population, and usage scenarios, it has the potential to trigger major innovations in the current payment system.

3. Classification of stablecoins

Scholars have developed classification standards under different cognitive frameworks and structural attributes for the classification of stablecoins. The classification of stablecoins by existing achievements is as follows:

Based on the different stability mechanisms of stablecoins, stablecoins can be divided into: asset-backed stablecoins and algorithmic stablecoins (algorithmic stablecoins), that is, stablecoins based on asset support and stablecoins based on algorithm support. Some scholars call them There are custodial stablecoins and non-custodial stablecoins [12] . Mortgage stablecoins can be further subdivided into legal currency mortgaged stablecoins (single legal currency or a basket of legal currency) and virtual currency mortgaged stablecoins. [7] According to the three dimensions of mortgage type, issuer’s responsibility, and the degree of decentralization of responsibility, scholars divide stablecoins into cash tokenized stablecoins (cash backed) and on-chain asset-backed stablecoins (virtual currency). Supported) and algorithmic stablecoins (expected purchasing power is supported) 3 categories. [13]3-20 Although the above-mentioned institutions and scholars have different expressions on the classification of stablecoins, the essence is that they are dichotomy based on their stability mechanism. At present, the Financial Stability Board and other international financial organizations, as well as the United States, the European Union and other countries and regions generally adopt this classification method. This classification method is a summary of the most important characteristics of stablecoins and provides an effective way to deepen the understanding of stablecoin risks and propose countermeasures. method. Under this type of framework, scholars have counted 57 stable currencies around the world, of which asset-backed stablecoins accounted for 77% (fiat-collateralized stablecoins accounted for 33%, virtual currency-collateralized stablecoins accounted for 44%), and the algorithm is stable Currency accounts for 23%. [5] The above statistical results reflect that asset-backed stablecoins are easier to promote to the market, and the design is relatively simple, occupying the mainstream position of the stablecoin market. Figure 1 shows the mainstream classification of stablecoins and the proportions of different types of stablecoins.


Figure 1      Mainstream classification and proportion structure of stablecoins

In addition, some scholars have also proposed some derivative stablecoin classification standards. According to the degree of centralization of the stablecoin operating mechanism, stablecoins can be divided into centralized stablecoins and decentralized stablecoins; according to whether the target of stablecoins is the US dollar, it can be divided into stablecoins that are anchored to the US dollar and non-anchorage Stablecoins fixed in US dollars; according to whether stablecoins are regulated by sovereign states, they can be divided into regulated stablecoins (such as U.S. dollar coins, Gemini US dollars), unsupervised stablecoins (such as TEDA coins) and algorithmic stablecoins [14 ]1-24 ……Most of these classifications only represent the indirect characteristics of a certain aspect of stablecoins, and cannot directly or comprehensively present the boundaries of different types of stablecoins. This article uses the stability mechanism as the standard to classify stablecoins, and provides a clear framework for exploring the risks and regulatory responses of stablecoins.

It can be seen that scholars have a high degree of consensus on the connotation and classification of stablecoins, and they emphasize that “price stability” and “stability mechanism” are the core factors and standards for the definition and typology of stablecoins. But are the existing standards unique and fixed? The answer may be no. First of all, the definition of stablecoins by existing financial regulatory agencies and international financial organizations may not be accurate and complete. With the continuous innovation of stablecoins, the element of “price stability” may not cover the new types of stablecoins (such as algorithmic stablecoins). For all the features, more diversified factors such as “whether there is asset support” or “whether it supports exchange with existing legal currency” can be introduced to define a comprehensive concept of stablecoins. Secondly, the classification of stablecoins is also a process of continuous improvement. At present, some algorithmic stablecoins have the characteristics of “hybrid stablecoins”, and tokens can be minted by staking stablecoins such as TEDA coins and “loans”, or such algorithmic stablecoins can be included in the category of mortgage stablecoins. In the context of the rapid iteration of blockchain technology and the market, we need to establish a dynamic understanding of the connotation and type of stablecoins, and accurately identify the risks of stablecoins through the ever-changing appearance.

Fourth, the stability mechanism and risks of mortgage-based stablecoins

The production and development of stablecoins present the characteristics of bottom-up “disruptive innovation”. Its own non-compliance and negative externalities may pose huge risks to the country, society and individual investors. Foreign scholars and some financial regulatory agencies have achieved a clear and accurate understanding of stablecoins, especially on the design and impact of stablecoin stability mechanisms, and comprehensively use economics, computers and other disciplines to carry out cross-research and empirical analysis. , Have a clearer grasp of the risks of different types of stablecoins. The academia divides the risk analysis of stablecoins into the internal risks and external risks of stablecoins. The former refers to the risk characteristics of stablecoins, and the latter refers to the impact and negative effects of stablecoins on the economy and society.

Mortgage-type stable currency stability mechanism is realized by anchoring legal currency or assets, and using asset stability to achieve price stability. US dollar stable currency issuers adjust the number of stable coins in circulation on the market to make their prices by issuing and destroying tokens. Stable fluctuating around 1 U.S. dollar. Scholars analyzed the stability of different supported assets of mortgage stablecoins, and pointed out that the additional liquidity brought about by the upward trend is a factor leading to instability, and anchoring recent prices can increase stability. [15] 1065-1070 Compared with the stable currency anchored by a single legal currency, the stable currency supported by a basket of legal currency has less volatility in response to the impact of external factors. [16] 1131-1134 legal currency mortgaged stablecoins have the characteristics of centralization. The issuer controls most of the centralized power. Compared with other types of stablecoins, the circulation cost is lower and more stable. The degree of centralization of virtual currency mortgage stablecoins is second. In addition to the issuer, it is also necessary to introduce borrowing interest rates, liquidation ratios, and use third-party arbitrage to maintain currency stability.

The legal currency mortgage stable currency mainly has the following four internal risks: (1) The risk of centralized operation process. Mortgage-type stablecoins are issued by centralized private institutions (such as large Internet companies such as Facebook), which rely entirely on their own infrastructure to operate, internal decision-making and review mechanisms are not transparent, and convertibility may not be guaranteed [17]1-47 , The black box operation of unregulated stablecoins (such as TEDA coins) may result in a series of risks such as information leakage and money laundering. (2) Fraud, credit and financial risks caused by compliance issues such as insufficient reserve assets of stablecoins. The audit operation of stablecoin reserves is not transparent, which increases the risk of runs. (3) Operational risk, operational risk and reputation risk. Take Libra as an example. Its issuance mainly relies on Facebook’s operating channels and ecosystem. There may be behaviors such as theft, market abuse, market manipulation, etc. within the publisher, and there may also be technical and operational risks such as operational loopholes, operational errors, or hacker theft. [18] 2-8 . At the same time, the reserves of stablecoins are easily affected by the operating conditions of custodian banks, and there is a certain reputation risk. (4) Privacy and data risks. Centralized stablecoin issuers and virtual currency exchanges holding stablecoins control user registration and transaction data, and there is a greater risk of data leakage. [18]7 In addition, for virtual currency collateralized stablecoins, the risk is mainly manifested in their excessive reliance on traditional virtual currencies and large price fluctuations. Once the collateral price drops and reaches the liquidation ratio, the system’s automatic liquidation will bring investors Come property damage. [10]193-200

The external risks of mortgage-based stablecoins are mainly manifested in the following four aspects: (1) Foreign exchange risks and systemic financial risks. The large-scale issuance and use of stablecoins may impact the stability of a country’s foreign exchange management and financial and monetary system. On the one hand, the issuance and circulation of mortgage-based stablecoins are separated from the foreign exchange regulatory system of sovereign countries, and the two-way exchange with legal currencies may cause the loss of domestic assets [19]67-86 ; on the other hand, the US dollar stablecoin controls a large amount of US dollars. Reserve assets form a strong coupling with the US dollar legal currency, representing the global extension of the US dollar and US dollar clearing system, enhancing the US dollar’s ​​competitive advantage, which may endanger the monetary sovereignty of some weak currency countries, impact monetary policy, and endanger the country’s financial stability and security , The formation of systemic “too big to fail” and “too many connections to fail” [17]1-47 , and even aggravate the currency substitution effect and trigger the central bank’s competitive response or regulatory rebound. [20]   (2) Legal and regulatory risks. Fiat-collateralized stablecoins may be regarded by the US Commodity Futures Trading Commission as a fiat currency swap product, that is, “retail foreign currency options”, and the redemption process may also be regarded by the US Securities and Exchange Commission as a “redemption of bills” and entered into securities. Scope, or may also enter the state’s regulatory scope, regulatory risks cannot be ignored [21] . (3) Stable coins are often used as tools for money laundering and terrorist financing, threatening national security and financial stability. (4) The impact of stablecoins on payment systems and cross-border payment settlements. If stable currency is widely used as a means of payment, it will impact or partially replace traditional payment and settlement intermediaries (such as credit card networks, payment processors, clearing networks, etc.), which has greater risks than virtual currencies such as Bitcoin.

The above risks have the characteristics of complex types, cross-domain spread, and risk conversion. Among them, the risk conversion characteristics refer to the qualitative conversion of stable currency risks, such as the conversion of centralized process risks to other risks, and the negative risk of stable currency itself. Externalization, etc. From this point of view, compared with ordinary virtual currencies, stable currencies are very close to legal digital currencies in function, and will have a more obvious impact on the modern economy and financial system.

V. Stability mechanism and risks of algorithmic stablecoins

Algorithmic stablecoins use algorithmic mechanisms to automatically adjust the balance between supply and demand for tokens. This mechanism design is derived from the elastic supply model of total money supply changing with demand proposed by Ametrano in 2014 [22] and the seigniorage share model proposed by Robert Sams in 2015. The seigniorage model is composed of the token itself and the “seigniorage shares” that fluctuate with the market. The transaction cost of the holder is used to adjust the transaction behavior and affect the balance of supply and demand in the stablecoin market. [23] Subsequent algorithmic stablecoins mostly draw on these two models, including the flexible supply mechanism of single-token algorithmic stablecoins (such as AMPL ) and the seigniorage mechanism of multi-token algorithmic stablecoins (such as Basis, etc.) . According to statistics, more than 53% of algorithmic stablecoins have adopted the seigniorage share mechanism, which regulates market supply and demand and stabilizes prices through incentive mechanisms such as transaction interest and liquidity equity. [14] 1-24 Take the three token system of the basic protocol Basis as an example. The system consists of three tokens: basic stable currency (BAC), basic bond (BAB) and basic stock (BAS). The expansion and contraction of the currency realizes a decentralized “central bank” monetary policy [24] . These three tokens are similar to the U.S. dollar, U.S. dollar treasury bonds and Fed stocks. Scholars have proposed ideas for optimizing the stability mechanism of algorithmic stablecoins. For example, non-collateralized stablecoins can be issued at the application layer of the blockchain [25] , or through optimization of collateral, adjustment of deposit interest rates, open market operations, and dynamics. Adjust mining rewards and transaction fees to stabilize prices. [26] The design of the stability mechanism of algorithmic stablecoins is generally more complicated than that of mortgage-based stablecoins.

Some scholars believe that the risks of algorithmic stablecoins mainly include: (1) The risk of market fluctuations of collateral. (2) Financial risks caused by imperfect smart contract design. For example, algorithmic stablecoins can attract users by issuing fixed-income products (bonds) to provide future income expectations, which will lead to high growth in bond issuance or interest levels in the long term, which may undermine the ability of stablecoins to peg the exchange rate stability. [27] (3) Risk of manipulation by market participants. In the early stage when the market value of algorithmic stablecoins was relatively small, the stablecoin system might be manipulated by participants, harming the interests of users. (4) The impact of a run caused by user speculation and market panic. [5]

The external risks of algorithmic stablecoins are mainly manifested in legal and regulatory risks, and their complex stability mechanisms may touch the legal and regulatory boundaries of sovereign countries. For example, the design of algorithmic stable currency bonds and equity auxiliary tokens is subject to regulatory uncertainty in the current securities law and commodity law, suspected of initial token issuance financing, or may be in line with the “investment contract” in the US Securities Law Howe Test. The “common goal” element is identified as a security [28]166-200 ; the issuance or repurchase of bond tokens in the stablecoin system may constitute the “issuer’s or third-party’s effort” element in the Howe test; the system is more stable The equity incentives allocated by currency holders may also be regarded as the “expected benefits” under the Howe test [29] and fall into the scope of securities. Existing research involves the potential risks of algorithmic stablecoins, and explores the possibility of including algorithmic stablecoins in supervision in the existing legal framework, but there are no targeted regulatory regulations and practical cases.

In addition, existing studies also have shortcomings: First, in terms of research objects, existing studies have incomplete risk analysis of different types of stablecoins. Scholars mostly focus on the risk research of legal currency mortgaged stablecoins, and pay less attention to the risks of virtual currency mortgaged stablecoins and algorithmic stablecoins. And the type of mortgage stable legal tender coins, most scholars have focused on in recent years caused widespread debate and a greater international influence of Libra currency [19] 67-86 , but have not yet entered Libra currency issuance practice, while the market capitalization and trading volume position Teda, which ranks first and has the greatest impact on virtual currency transactions, is mentioned incidentally and needs to be analyzed in depth. Second, the analysis of the internal and external risks of stablecoins in existing studies mostly stays on the surface, failing to analyze the deeper risks of stablecoins and the reasons for the risks. This is also the problem that this research hopes to solve.

6. Further understanding of the stability mechanism and risks of stablecoins

To sum up, the mechanism of stable currency to maintain the stability of currency value is a reference and adjustment on the basis of traditional currency quantity theory and national currency issuance mechanism. The design of the stability mechanism of stablecoins is a process of seeking “stability anchors”. Tracing the history of currency development, the “anchor” of currency has undergone the evolution from commodities → precious metals → gold → national credit, forming a modern relatively mature monetary credit system. The design of stable currency mostly borrows the credit anchor of fiat currency, or relies on the value anchor of valuable assets or even the credit anchor of smart contract algorithm. The impact of operations and the market even collapsed. For the legal currency credit anchor of the legal currency mortgage stable currency, due to the volatility of the US dollar, the euro and other legal currencies and possible insufficient reserves of centralized issuers, the stable currency linked to the legal currency will also have volatility in transactions. And liquidity crisis; for virtual currency mortgage stablecoins and algorithmic stablecoins, they support the issuance by collateralizing mainstream virtual currencies such as ether or other types of stablecoins, which will be affected by virtual currency market fluctuations and asset liquidation , Interference stability. Among them, algorithm-based stablecoins are the most typical. Since 2021, there have been events such as algorithmic stablecoin crashes (such as USDX), continuous deflation (such as AMPL), continuous inflation to flash crashes (such as BDO), and the prices of some algorithmic stablecoins (such as basic stablecoins) have increased significantly. If it falls below $1, there is even a zero crisis. [30] Therefore, algorithmic stablecoins are more susceptible to investor irrational behavior and market speculation. This is where the monetary policy goals of algorithmic stablecoins and mortgage stablecoins differ. Drawing on Mundell-Krugman’s “Impossible Triangle” theory, stablecoins anchoring the US dollar (such as TEDA) sacrifice the independence of monetary policy to maintain exchange rate stability and free flow, thus transparency, complexity and autonomy lower [31] , the dollar and other strong currencies a greater impact; and algorithmic stable currency to abandon a fixed exchange rate in order to seek an independent monetary policy, aimed at Ethernet Square establishment of an independent legal tender in the existing monetary system and other public chain [31], Pursue greater transparency and autonomy in monetary policy. It can be seen from this that the “anchor” of stablecoins is fragile and unstable. It cannot “contend” with the current monetary system. Especially for most algorithmic stablecoins, it is “unstable” (unilateral inflation or Deflation) is its biggest direct risk. A series of internal and external risks caused by “instability” will seriously affect investors’ property interests and financial stability, and even promote the transformation of stable currency risks from individual risks to social risks.


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[④] Data source: real-time data of TEDA, non-small platform market quotations, as of June 11, 2021.

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