From the US Dollar to Blockchain: The Financial Revolution of Stablecoins
executive summary
Throughout history, currency has evolved around three core functions: serving as a medium of exchange, a means of storing value, and a unit of account. At the same time, the pursuit of faster settlement, lower costs, and borderless use has driven the transformation of currency from localized barter systems to today’s global digital networks.
Since the end of World War II, the US dollar has become the dominant global currency, meeting the key attributes of currency more effectively than any other currency.
Stablecoins represent the next stage of evolution in currency and payment systems, laying the foundation for the financial system with faster settlement speeds, lower fees, seamless cross-border functionality, native programmability, and powerful audit tracking capabilities. The current stablecoin ecosystem includes several different types of stablecoins, mainly distinguished by their collateral support, degree of decentralization, and mechanism for maintaining price linkage.
Stablecoins pegged to the US dollar are in high demand due to their various use cases, including value storage, cross-border remittances, payments, revenue generation, cryptocurrency trading, and as shadow monetary policy tools.
Stablecoins are becoming a powerful tool for shadow monetary policy and are increasingly seen by governments and finance departments as strategic tools for managing sovereign debt, promoting currency and financial system influence.
We expect that the total market value of stablecoins will reach approximately $4.9 trillion in the next decade, an increase of nearly 20 times from current levels.
introduction
We provide a brief historical overview of currencies, US dollars, and central banks in the following text. If you wish to directly learn about stablecoins, you can skip to the “Stablecoins” section.
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After the global financial crisis and the subsequent government bailout of over leveraged financial institutions (“the Chancellor of the Exchequer is about to provide a second bailout for banks”), Bitcoin emerged as a non sovereign alternative aimed at achieving “a pure peer-to-peer electronic cash form that allows online payments to be sent directly from one party to another without going through financial institutions”. Although Bitcoin has successfully served as a censorship resistant and holder asset, independent of any central authority control, it has yet to become a practical tool for daily payments due to limitations such as low transaction throughput, slow settlement times, high fees, significant price fluctuations, and poor user experience. Although Bitcoin may ultimately prove to be a superior form of currency (able to withstand the depreciation of fiat currencies and the arbitrary decisions of central bankers), currently, the vast majority of global trade is still conducted in US dollars. The digital representation of the US dollar, stablecoins, is increasingly replacing the electronic cash system role originally envisioned by Bitcoin.
These ‘room temperature superconductors of financial services’ are bringing about change for individuals in high inflation or authoritarian regimes, enabling value transfer through low-cost peer-to-peer remittance payments, while enhancing user experience and real-time functionality for multinational corporations. In addition, we believe that the structural debt dynamics of the United States, the need to find new marginal buyers of US treasury bond bonds, the need to maintain the hegemony of the US dollar, as well as the Trump administration’s deregulation stance and macroeconomic policies, are laying the foundation for a long-term bull market to stabilize the currency. In this context, we expect the total circulating market value of stablecoins to expand to trillions of dollars.
The History of Money
To understand why stablecoins represent the future of currency and settlement, it is first necessary to trace the historical evolution of currency and identify the core attributes that enable the currency system to effectively serve society. This includes not only the macro trajectory of currency development, but also the rise of US dollar hegemony and the “excess privilege” enjoyed by the United States as the world’s leading reserve currency issuer.
Barter and commodity currency
Early civilizations relied on barter, directly exchanging goods and services. With the increasing complexity of society, the low efficiency of barter led to the emergence of commodity currencies such as livestock (9000-6000 BC) and shells (around 1200 BC in Asia). These early currencies had intrinsic or socially recognized value, laying the foundation for standardized exchange media.
metal money
With the expansion of trade networks, society gradually adopts metal as a medium of exchange due to its durability and ease of segmentation. In the Zhou Dynasty of China (around 1000 BC), metal currency appeared in the form of small bronze tools and imitations of cast shells. By the 7th century BC, India, China, and the Aegean region had independently developed true currencies. Indian currency is made of perforated metal plates, while Chinese currency is made of cast bronze coins, usually with holes for easy connection. In Anatolia, the Kingdom of Lydia introduced the first standardized currency, with its metal content certified by seals. This innovation marks the unification of the value storage and exchange medium functions of currency, while allowing the state to regulate the money supply and profit through seigniorage. The transition from commodity exchange to metallic currency significantly expanded long-distance trade, such as the Athenian silver coins supporting imperial expansion and widespread circulation, while Chinese bronze coins helped unify the East Asian market.
Paper currency and credit
Although metal currency dominated the classical era, medieval China ushered in the next major leap – the emergence of paper currency. In the Tang Dynasty (618-907), merchants used promissory notes in the form of “flying money” to avoid long-distance transportation of heavy copper coins. This system evolved into official paper currency during the Song and Yuan dynasties, allowing China to use paper currency 500 years earlier. However, excessive issuance led to inflation, and by 1455, the Ming Dynasty had abandoned paper currency due to severe devaluation. Although paper currency was not introduced to Europe until centuries later, China’s experience highlights the efficiency and risks of similar legal tender. Meanwhile, in 12th century England, the Royal Treasury used tally sticks to record debts and taxes as a form of credit currency. These wooden sticks were circulated as “accounting currency” for transactions with the royal family and were still in use until the 19th century. These innovations mark the shift of currency towards abstract forms – written tools and credit records – laying the foundation for modern banking.
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Bank notes, trading platforms, and central banks
By the late Middle Ages and Renaissance period (15th-17th centuries), formal banking and the first paper currency emerged in Europe. The Medici family and other wealthy families in Florence run banks, hold deposits, issue credit, and pioneered the double entry bookkeeping method, laying the foundation for modern financial accounting. In the 16th century, Antwerp and Amsterdam became financial centers, with bills of exchange, marine insurance, and international credit supporting the expanding global trade. The establishment of public banks is a major breakthrough. The Amsterdam Bank, established in 1609, accepted various currencies and issued deposit certificates, creating a stable ledger currency or “bank currency” widely used in European trade. Merchants can directly transfer balances on bank accounts, foreshadowing modern checking accounts. In the 17th century, paper currency made its debut in Europe. In 1661, the Stockholm Bank in Sweden issued the first batch of public banknotes, supported by heavy copper deposits. Despite initial success, excessive issuance led to the bank’s collapse in 1664. In 1694, the Bank of England was established and began issuing receipts for deposits and government loans as banknotes. These early notes were representative currencies that could be exchanged for gold and silver. Over time, the Bank of England gained a monopoly on bill issuance, marking a crucial shift from a private to a centralized, state-owned monetary system. This period marked the rise of central banks and national currencies.
Legal tender and national currency
By the 18th century, paper currency and banknotes were widely present in Western economies, but not always stable. During the American Revolutionary War and the French Revolution, the government issued paper currency that was not entirely supported by metal – an early form of legal tender. The “Continental Coin” issued by the Continental Congress in the United States quickly depreciated due to excessive issuance, leading to the claim that it is “not worth a Continental Coin”. In the 19th century, the national currency began to take on a modern form. Many countries have established central banks or finance departments to issue standardized bills and currencies. Metal backed banknotes during peacetime have become the norm, restoring public trust. In the UK, the 1844 Banking Charter Act required Bank of England notes to be backed by gold as the dominant legal tender. Other countries have followed suit and linked their currencies to precious metals to enhance credibility. This marks the beginning of the gold standard era.
gold standard
In the 19th century, there was a heated debate surrounding whether currency was based on gold, silver, or both. At the beginning of the century, many countries adopted the bimetallic standard and considered gold and silver as legal tender. For example, the 1792 U.S. Currency Act established a 15:1 silver to gold weight ratio. However, with the growth of global trade and the emergence of new metal supplies, fluctuations in relative value have led to one metal being squeezed out of circulation – an example of Gresham’s law. Britain was the first to switch to a pure gold standard in 1816, defining the pound solely as gold and ceasing the production of high-value silver coins. By the end of the 19th century, other major economies followed suit and gold became the dominant standard in international trade. In the United States, the debate over bimetallic materials is particularly intense. After the discovery of a large amount of silver lowered its value, the “73 Years of Crime” Act of 1873 ended the minting of silver dollars, pushing the United States towards a de facto gold standard. Despite strong populist pressure to restore silver, supporters of gold ultimately emerged victorious. The 1900 Gold Standard Act officially defined the US dollar as approximately 1/20.67 ounce of gold, consolidating the United States’ commitment to the gold standard monetary system.
Modern Central Banks and Global Institutions
To manage national currencies and ensure financial stability, countries are increasingly relying on central banks. Early examples include Riksbank in Sweden (1668) and the Bank of England (1694). In the 19th and early 20th centuries, more central banks were established, such as the Bank of France (1800), the German Imperial Bank (1876), and the Bank of Japan (1882). In the United States, the Federal Reserve System was established in 1913 to address recurring bank panics and regulate credit. Under the gold standard, central banks were typically granted exclusive rights to issue banknotes, such as the Bank of England becoming the only legal issuer in the mid-19th century, and the Federal Reserve taking on this role after 1913. The central bank also manages gold reserves and maintains a fixed exchange rate, ensuring the convertibility of paper currency and gold is its core responsibility. However, during World War I (1914-1918), many countries suspended the convertibility of gold to finance war expenses through printing money. The United States also suspended domestic gold exchange during the Great Depression of 1933.
electronic money
The form of currency continues to evolve with technological advancements. In the mid-20th century, banks began using computers, giving rise to electronic currency transfers. By the 1970s, the SWIFT system enabled instant global movement of funds through electronic signals, replacing the need for physical cash. At the consumer level, payment cards have changed the way people obtain currency, starting with the Diners Club credit card in 1950 and the widespread adoption of credit and debit cards in the 1960s and 1970s. By the end of the 20th century, most currencies existed in the form of digital ledger entries rather than paper currency. The Internet has accelerated this transformation. By the 1990s and 2000s, platforms such as online banking and PayPal enabled anyone to send currency electronically. In the 2010s, mobile payment and financial technology innovation surged, from M-Pesa in Kenya to applications such as Alipay and Venmo. Nowadays, in developed economies, most currencies are fully digitized, and physical cash only accounts for a small portion of the total money supply.
Throughout history and civilization, currency has evolved independently around a set of fundamental characteristics that enable it to effectively serve as a medium of exchange, a store of value, and a unit of account. These attributes include:
Interchangeability: Each currency unit must be interchangeable with other units of the same denomination. For example, a $100 banknote has exactly the same functionality as any other $100 banknote, ensuring uniform value and eliminating the need to distinguish between different units.
Durability: Currency must be able to withstand long-term physical wear and tear. It should be able to maintain its shape and function after repeated use and trading, ensuring long-term circulation.
Portability: Effective currency must be easy to transport and use over long distances. Whether it is physical currency or digital currency, it must be able to efficiently transfer between parties, avoiding excessive friction or costs.
Separability: Currency must be easily divisible into smaller units to facilitate transactions of different scales.
Consistency: All banknotes of the same denomination should have identical appearance and value. Standardization can enhance trust, simplify identification, and reduce transaction errors.
Scarcity: In order to maintain purchasing power, currency must exist in a limited supply. If the supply grows too fast relative to demand, the value of money will shrink, leading to inflation and a collapse of trust.
Acceptability: Currency must be widely recognized and accepted as an effective form of payment. Widespread social and institutional recognition is the foundation of its practicality and legitimacy.
Over time, the essence of currency continues to evolve in the pursuit of higher efficiency. People have always been committed to developing currency forms with faster transaction settlement speed, lower circulation costs, and no geographical restrictions, from localized barter systems to global digital networks.Please appreciate this article by supporting digital currencies such as USDT, BNB, ETH, and SOL. Thank you very much!
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