Author: Xiao Feng
Some time ago, I had dinner with Mr. Li Shanquan, one of the world's top actively managed gold fund managers, in Shanghai. He has been deeply involved in the field of gold funds for decades, and I have been investing in crypto assets such as Bitcoin for more than ten years. The topic of the dinner naturally revolved around gold and Bitcoin, which is known as "digital gold."
We all noticed a significant phenomenon: the gold investor group is mainly middle-aged and elderly people over 50 years old, while Bitcoin supporters are mostly concentrated in the younger generation under 40 years old. This reminds me of the book "Money Pyramid" published by CITIC Press six years ago. The book keenly captured the gap in wealth concepts caused by generational change and predicted that when the younger generation enters the mainstream of society, it will inevitably promote the Bitcoin they believe in to enter the mainstream asset allocation. I think the author never expected that it was an octogenarian who finally promoted the inclusion of Bitcoin in asset reserves (meaning that BlackRock CEO Larry Fink led the approval of the Bitcoin spot ETF).
The Millennium Evolution of Monetary Properties: Nature, Law and Technology
Therefore, Brother Shanquan sorted out three crucial changes in the property of currency development, which is helpful for us to understand the essence of digital currency. The brief description is as follows:
- Natural currency: The value of currency thousands of years ago, whether it was shells, silver or gold, was based on the scarcity and natural endowment of its physical existence.
- Legal currency: Legal tender (fiat currency) that emerged hundreds of years ago, its value is given compulsory force by national legislation and relies on national credit endorsement.
- Technology -based currency: The value of the currently booming digital currency, with Bitcoin as its banner, is guaranteed and endorsed by digital technology systems such as cryptography , blockchain (distributed ledger), digital wallets, and smart contracts .
Distributed ledger: the cornerstone of technical currency and the millennium change of accounting
The core support of technology-based currency lies in distributed ledger technology . Looking back at history, the accounting method of human society can be regarded as a milestone event of "a thousand-year change":
- Simplified accounting method (about 3500 BC): Originated from the Mesopotamian region (the Sumerian region between the Tigris and Euphrates rivers), one of the cradles of human civilization. The clay tablet account book discovered by archaeologists in 3500 BC is the earliest form of accounting that humans have seen so far.
- Double-entry bookkeeping (circa 1300 AD): Double-entry bookkeeping was born in Italy as the prosperous maritime trade along the Mediterranean coast required complex accounting processing. After hundreds of years of optimization, it is still used today and has become the mainstay of modern accounting.
- Distributed accounting (2009-Present): As human society has fully entered the digital era, the Bitcoin blockchain was born in 2009, officially opening the third revolution in human accounting history - the distributed accounting era. This unprecedented accounting method change has far-reaching significance and value that we may not be able to fully appreciate at present.
Bitcoin : A "hard-core" digital asset that surpasses gold
From this perspective, Bitcoin can be regarded as a hard asset that is "harder" than physical gold. This statement may be contrary to common sense - after all, Bitcoin is invisible and intangible. However, the global reserves, annual production, total trading volume and other data of gold are always shrouded in fog and difficult to accurately grasp; the corresponding relationship between paper gold (such as ETF) and physical gold is highly dependent on the credit commitment of the issuing institution, and there is a risk of decoupling; gold trading also faces the problem of color identification, which requires reliance on professional institutions or individuals. In contrast, Bitcoin:
- The total amount is constant (21 million), the output of each block, and the daily global transaction volume are all backed by distributed ledger technology, which is open , transparent, tamper-proof, traceable on the chain, and auditable by everyone .
- There is no difference in fineness, and the Bitcoins circulating around the world are essentially completely homogeneous digital units.
Therefore, as a "digital gold" to fight inflation, relying on the certainty and stability brought by the distributed ledger , Bitcoin has shown potential advantages over physical gold in terms of value storage functionality.
Distributed ledger: Building a new generation of financial market infrastructure
Since the launch of the Bitcoin blockchain mainnet in January 2009, this distributed ledger-based system has been running stably and uninterruptedly for more than 16 years . Even from the perspective of large-scale engineering practice, it can be regarded as a new generation of financial market infrastructure (FMI) that has undergone countless rigorous "destructive tests" and is fully capable of being put into production.
Regardless of whether it is new or old, the core mission of FMI is to build efficient, secure and reliable payment, transaction, clearing and settlement rules, systems, architecture and regulatory framework. The reason why FMI based on distributed ledger is called "new generation" is that it subversively reconstructs the core rules:
- Decentralized trading: Eliminate the central counterparty (CCP) and achieve true peer-to-peer (P2P) trading.
- Transaction- by -Transaction Gross Settlement: Abandoning netting, adopting a transaction-by-transaction (Gross) settlement model.
- Delivery vs. Payment (DvP): No longer relying on netting settlement, smart contracts are used to achieve atomic synchronous transfer (Delivery vs Payment) of assets (such as tokens) and funds (such as stablecoins), ensuring that transaction finality is achieved instantly.
This architectural revolution has brought significant advantages: significant simplification of links , significant reduction in costs, and geometric improvement in efficiency .
Reality confirms this efficiency gap: at present, the intraday trading volume of the New York Stock Exchange (NYSE) and Nasdaq has fallen below 50% of the total trading volume of US stocks. Emerging channels such as after-hours trading and dark pool trading continue to erode the share of traditional exchanges. Although the two major exchanges have announced that they will extend trading hours to meet the challenges, they are subject to the clearing and settlement system of traditional FMI (such as the current T+2 clearing system in the United States). No matter how the NYSE's share clearing is optimized, it can only be close to 5×23 hours (about 1 hour of clearing window must still be reserved every day), otherwise the system will fall into chaos. Crypto asset exchanges, relying on the new generation of FMI, have long achieved 7 ×24 hours of all-weather, global trading capabilities. This is a vivid reflection of the difference between the old and new sets of financial market infrastructure.
Four "killer" applications born from new infrastructure
On top of this solid new generation FMI, at least four "killer applications" with disruptive potential have been born:
- Bitcoin : A new asset allocation tool - Its application scenarios are expanding from family wealth allocation to corporate cash management, and even leaping to the discussion level of national strategic reserves.
- Stablecoin : A revolutionary payment and settlement tool - The annual on-chain transaction volume in 2024 exceeded 16 trillion US dollars and is still growing rapidly. China's cross-border e-commerce is an important beneficiary of the stablecoin cross-border payment dividend. The proportion of overseas buyers using stablecoins for payment continues to rise, and the number of stablecoins received by Chinese merchants has also surged.
- DeFi (decentralized finance): an efficient financial investment tool - By the end of 2024, the total value locked (TVL) in DeFi protocols will reach approximately $ 190 billion . The DeFi lending market is active. For example, the annualized interest rate of USDT on-chain lending is stable at around 8 % . Its revolutionary nature lies in that lending and borrowing on the blockchain is automatically executed by smart contracts , eliminating the intermediary links of traditional finance. This not only greatly reduces the trust cost and operational risks, but also increases the capital turnover efficiency to more than 10 times that of the traditional lending model , and the clearing and settlement efficiency has achieved a qualitative leap.
- Tokenized Assets (RWA): The Future Is Coming - The "real-world asset tokenization" that has been popular in the market recently aims to map traditional financial assets and even physical assets to the blockchain.
The Evolution of Asset Tokenization: From On-chain Native to Everything on Chain
Asset tokenization is essentially the construction of digital twins of assets , mapping (OnChain) the assets in the real world (OffChain) to the blockchain and casting them into corresponding tokens; Bitcoin is a digital native asset , created from scratch on the blockchain. Since last year, a clear trend has been taking shape: on the one hand, digital native crypto assets (such as Bitcoin) are moving from on-chain to off-chain ( such as Bitcoin spot ETFs listed and traded on traditional stock exchanges); on the other hand, the digital twin wave of traditional financial assets is moving from off-chain to on-chain , such as BlackRock tokenizing its U.S. Treasury bond funds and U.S. dollar money market funds.
The practice of asset tokenization can be traced back to about ten years ago:
- Phase 1 : Currency Tokenization (started in 2015) - marked by the birth of USDT, the stablecoin of the US dollar. There are two core reasons why stablecoins can rise rapidly and be widely used: first, the crypto-financial ecosystem urgently needs a stable value scale to measure other assets and conduct transactions; second, stablecoins cleverly combine the legal attributes of legal currency ( relying on legal currency reserves and compliance frameworks) with the technical attributes of tokenization ( transparency, efficiency, and programmability), forming a dual credit endorsement , which greatly enhances market acceptance.
- Phase 2 : Tokenization of financial assets (emerging in 2024) - The core challenge of this stage is to solve the problem of " how to put on the chain " ? That is, how to register the asset data and rights of the real world on the distributed ledger in a true, accurate and tamper-proof manner, and ensure that the on-chain tokens and the status of the off-chain assets are continuously synchronized and never disconnected. Financial assets (such as bonds and fund shares) have become natural pioneers for the implementation of tokenization technology because they already have a mature legal framework, strong regulatory attributes and credit endorsement provided by a centralized registration and settlement system.
- Phase 3 : Tokenization of physical assets (future direction) - This is a more challenging area involving real estate, commodities, artworks, etc. The core difficulty lies in: How to use the technical properties of distributed ledgers to create a reliable digital mapping for physical assets in the physical world? How to ensure that the physical property rights represented by the tokens on the chain are clear and the status is real? The Decentralized Physical Infrastructure Network (DePIN) is highly anticipated. It may achieve dynamic perception, data chaining and automated management of physical assets by combining the Internet of Things (IoT), Oracle and blockchain technology, thus paving the way for large-scale and trusted tokenization of physical assets.
The core value and three strategic uses of stablecoins
As a successful example of the first phase of asset tokenization, the value of stablecoins goes far beyond being a "stable anchor" in the crypto world. It is not only a perfect fusion of the legal attributes of fiat currency and the technical attributes of tokens, but also an indispensable core component of the new generation of financial market infrastructure. In-depth analysis shows that the strategic value of stablecoins is mainly reflected in three core uses:
1. Revolutionary payment and settlement tools: Reshaping cross-border value circulation
- Pain points of cross-border payments: The traditional cross-border payment chain is lengthy, with many participants (remittance banks, agent banks, clearing banks, and beneficiary banks), high and opaque fees, long settlement cycles (usually taking several days), and is limited by bank business hours and compliance review efficiency.
- Stablecoins’ solution: Stablecoin payments based on distributed ledgers have the advantages of peer-to-peer (P2P), 24/7 operation, near-real-time finality (usually within a few minutes), low fees and transparency . The remitter directly sends the stablecoin to the recipient’s wallet, greatly simplifying the process, reducing costs and increasing speed.
- The practice of China's cross-border e-commerce has confirmed: As mentioned above, China's cross-border e-commerce is a significant beneficiary of stablecoin cross-border payments. Overseas buyers are increasingly inclined to use stablecoins such as USDT and USDC for payment because their convenience far exceeds traditional cross-border remittances. After receiving stablecoins, Chinese sellers can exchange them for legal tender through compliant channels or directly use them for on-chain operations. This model effectively avoids the high friction costs of traditional cross-border payments and accelerates capital repatriation, especially benefiting small and medium-sized cross-border merchants. In the future, with the improvement of compliant channels and the popularization of user habits, the depth and breadth of the application of stablecoins in B2B, B2C and even C2C cross-border scenarios will continue to expand.
2. Efficient and flexible investment tools: unlocking a new financial ecosystem on the chain
- The core fuel of DeFi lending: Stablecoins are the most important basic assets and units of account in the current DeFi lending market . Users can deposit idle stablecoins into DeFi lending protocols (such as Compound, Aave), and automatically lend them to borrowers in need through smart contracts, thereby obtaining considerable and transparent interest income (as mentioned earlier, USDT's annualized income is about 8%). This on-chain lending model is characterized by no permission, global openness, automated execution, transparent collateral ratio, and extremely high capital utilization . Investors can easily invest their stablecoins in interest-earning without complicated account opening procedures or credit checks, and obtain returns that exceed traditional bank deposits.
- Universal certificate for subscribing to tokenized assets (RWA): With the advancement of tokenization of financial assets (Phase 2) and future tokenization of physical assets (Phase 3), stablecoins will become the main payment medium and unit of account for subscribing to these on-chain tokenized assets . Investors can use stablecoins to directly purchase tokenized U.S. Treasury bonds, money market fund shares, real estate REITs shares, and even future tokenized rare metals or energy products. This not only greatly lowers the investment threshold (allowing fragmented investment), improves the liquidity of assets, but also simplifies the process of cross-border investment. In this scenario, stablecoins play the role of a bridge connecting the traditional financial world with the emerging on-chain asset world, and are a "pass" for investors to enter the RWA investment field.
4. Payment and settlement network in the AGI era: the cornerstone of value circulation in the machine economy
- New demands in the AGI era: When general artificial intelligence (AGI) develops to a high enough level, and AI agents begin to be independent of humans, autonomously conduct economic activities, create value, and generate transaction needs, the value exchange between machines (M2M) of "embodied AI" will inevitably generate high-frequency, real-time, automated, and human-free value exchange needs. For example, self-driving cars automatically pay for charging, smart factory equipment automatically settles energy or computing power rental fees, and AI services automatically purchase data or API calls.
- Limitations of traditional payment systems: Traditional bank account systems, credit card networks, etc., are highly dependent on human identity authentication, manual operations, and centralized clearing, and are completely unable to adapt to the machine economy's needs for high- frequency, small-amount, real-time, automated, and trust-free payment and settlement.
- The ultimate advantage of stablecoins: the integration of programmable currency and smart contracts
- Programmability : As a digital currency, the transfer rules, conditional payments (such as "cash on delivery" and "payment upon reaching a target"), and account splitting logic of stablecoins can all be defined through smart contracts to achieve fully automated value transfer.
- Machine-friendly interaction : Stablecoin transactions are based on blockchain addresses and API interfaces, which are naturally easy to be called and integrated by AI programs and IoT devices.
- Distributed ledger protection : Provides transparent, tamper-proof transaction records and near-real-time final settlement, ensuring instant and reliable transactions between machines.
- Borderlessness : A globally unified digital value standard eliminates currency conversion barriers for machine cross-border transactions.
- Core solution : Programmable stablecoins based on distributed ledgers and smart contracts will become the optimal solution for the value circulation network supporting the efficient operation of the future AGI-driven machine economy due to their technical attributes (automatic execution, efficient and transparent, seamless integration) and stability (unified value scale). It is not only a payment tool, but also the "blood" and "nervous system" of the machine economy.
Conclusion
From the millennial evolution of currency attributes (nature -> law -> technology), to the distributed ledger opening the third revolution in bookkeeping methods and laying the foundation for the new generation of financial market infrastructure, to the stablecoin relying on its unique advantages of integrating legal and technical attributes, showing disruptive potential in the three strategic areas of cross-border payments, on-chain investment (DeFi and RWA), and future AGI machine economy, we can clearly see that a technology-driven financial paradigm change is accelerating. Stablecoins are far from being a simple "crypto world dollar". With its powerful technical attributes, it is reshaping the form of value exchange and is expected to become a key hub connecting reality and virtuality, the present and the future, and the human and machine economy. Its development process will profoundly affect the global financial landscape and the future direction of the digital economy.
