The Economist: If stablecoins are really useful, they will also be truly disruptive.

The view that Crypto Assets have not yet produced any noteworthy innovations has long become a thing of the past.

Written by: The Economist

Compiled by: Centreless, Deep Tide

One thing is clear: the view that Crypto Assets have not produced any noteworthy innovations is a thing of the past.

In the eyes of those conservative individuals on Wall Street, the "use cases" of Crypto Assets are often discussed with a tone of mockery. Veterans have seen it all before. Digital assets come and go, often in the spotlight, exciting those investors who are keen on memecoin and NFT. Besides being used as tools for speculation and financial crime, their utility in other aspects has also repeatedly been found to have flaws and shortcomings.

However, the latest wave of enthusiasm is different.

On July 18, President Donald Trump signed the "Stablecoin Act" (GENIUS Act), providing the long-desired regulatory certainty for stablecoins (crypto assets backed by traditional assets, typically the US dollar). The industry is currently in a booming phase; Wall Street professionals are now rushing to get involved. "Tokenization" is also on the rise: on-chain asset trading volume is rapidly increasing, including stocks, money market funds, and even private equity and debt.

As with any revolution, the revolutionaries are ecstatic, while the conservatives are worried.

Robinhood's CEO Vlad Tenev (Vlad Tenev) stated that this new technology could "lay the foundation for Crypto Assets to become a pillar of the global financial system." European Central Bank President Christine Lagarde (Christine Lagarde) has a slightly different view. She is concerned that the emergence of stablecoins is tantamount to "the privatization of currency."

Both parties are aware of the scale of the transformation at hand. Currently, the mainstream market may face more disruptive changes than the early speculation in Crypto Assets. Bitcoin and other Crypto Assets promise to become digital gold, while tokens are merely wrappers, or carriers representing other assets. This may not sound remarkable, but some of the most transformative innovations in modern finance have indeed changed the way assets are packaged, segmented, and restructured—Exchange-Traded Funds ( ETF ), Eurodollars, and securitized debt are typical use cases.

Currently, the circulating stablecoin value is 263 billion USD, which is an approximately 60% increase from a year ago. Standard Chartered Bank predicts that in three years, the market value will reach 2 trillion USD.

Last month, JPMorgan Chase, the largest bank in the United States, announced plans to launch a stablecoin product named JPMorgan Deposit Token (JPMD), despite the company's CEO Jamie Dimon's long-standing skepticism towards Crypto Assets.

The market value of tokenized assets is only $25 billion, but it has more than doubled in the past year. On June 30, Robinhood launched over 200 new tokens for European investors, allowing them to trade U.S. stocks and ETFs outside regular trading hours.

Stablecoins make transaction costs low and quick and convenient, as ownership is instantly recorded on the digital ledger, thereby eliminating intermediaries that operate traditional payment channels. This is particularly valuable for cross-border transactions that are currently costly and slow.

Although stablecoins currently account for less than 1% of global financial transactions, the GENIUS Act will provide support for them. The Act confirms that stablecoins are not securities and requires that stablecoins must be fully backed by safe, liquid assets.

According to reports, retail giants including Amazon and Walmart are considering launching their own stablecoins. For consumers, these stablecoins could be similar to gift cards, offering a balance for spending at retailers, and potentially at lower prices. This would eliminate companies like Mastercard and Visa, which have a profit margin of about 2% on sales facilitated in the United States.

Tokenized assets are digital copies of another asset, whether it's a fund, company stock, or a bundle of commodities. Like stablecoins, they can make financial transactions faster and easier, especially when it comes to trading illiquid assets. Some products are just gimmicks. Why tokenize stocks? Doing so may allow for 24-hour trading, as the exchanges where stocks are listed do not need to be open, but the advantages of this approach are questionable. Moreover, for many retail investors, the marginal trading costs are already very low, or even zero.

Effort Tokenization

However, many products are not that fancy.

Taking money market funds as an example, they invest in treasury bills. The tokenized versions can also serve as a means of payment. These tokens are backed by secure assets, just like stablecoins, and can be seamlessly exchanged on the blockchain. They also represent an investment that outperforms bank interest rates. The average interest rate for U.S. savings accounts is less than 0.6%; many money market funds have yields as high as 4%. BlackRock's largest tokenized money market fund is currently valued at over $2 billion.

"I expect that one day, tokenized funds will be as familiar to investors as ETFs," said the company's CEO Larry Fink ( in a recent letter to investors.

This will have a disruptive impact on existing financial institutions.

Banks may be trying to venture into the new digital packaging space, but part of the reason they are doing so is realizing that tokens pose a threat. The combination of stablecoins and tokenized money market funds may ultimately reduce the attractiveness of bank deposits.

The American Bankers Association pointed out that if banks lose about 10% of their $19 trillion retail deposits (the cheapest source of financing), their average cost of funds will rise from 2.03% to 2.27%. Although the total deposits, including commercial accounts, will not decrease, the banks' profit margins will be squeezed.

These new assets may also have a disruptive impact on the broader financial system.

For example, holders of Robinhood's new stock tokens do not actually own the underlying stocks. Technically, they hold a derivative that tracks the asset's value (including any dividends paid by the company), rather than the stocks themselves. Therefore, they cannot obtain the voting rights typically granted by stock ownership. If the token issuer goes bankrupt, holders will find themselves in trouble, needing to compete with other creditors of the collapsed company for ownership of the underlying assets. Earlier this month, the fintech startup Linqto, which applied for bankruptcy, faced a similar situation. The company had issued shares of private companies through special purpose vehicles. Buyers are now unclear whether they own the assets they believe they possess.

This is one of the biggest opportunities for tokenization, but it also presents the greatest challenges for regulators. Pairing illiquid private assets with easily tradable tokens opens up a closed market for millions of retail investors, who have trillions of dollars in capital to allocate. They can purchase shares in the most exciting private companies that are currently out of reach.

This raises questions.

The influence of the U.S. Securities and Exchange Commission ) SEC ( and other institutions on publicly traded companies is far greater than on private companies, which is why the former is suitable for retail investors. Tokens representing private shares will turn what was once private equity into assets that can be traded as easily as ETFs. However, ETF issuers promise to provide intra-day liquidity by trading underlying assets, while token providers do not make such promises. At a sufficiently large scale, tokens can actually turn private companies into publicly traded companies without the usual disclosure requirements.

Even regulatory bodies that support Crypto Assets want to draw a line.

Hester Peirce, a commissioner of the U.S. Securities and Exchange Commission (SEC), is referred to as the "Crypto Assets Mom" due to her friendly attitude towards digital currencies. In a statement on July 9, she emphasized that tokens should not be used to evade securities laws. "Tokenized securities are still securities," she wrote. Therefore, companies issuing securities must comply with disclosure rules regardless of whether the securities are packaged in new crypto assets. While this is theoretically reasonable, the large number of new assets with new structures means that regulators will be in a perpetual state of catch-up in practice.

Therefore, there is a paradox.

If stablecoins are truly useful, they will also be genuinely disruptive. The greater the appeal of tokenized assets to brokers, clients, investors, merchants, and other financial companies, the more they can change finance, a change that is both exciting and concerning. No matter the balance between the two, one thing is clear: the view that Crypto Assets have yet to produce any noteworthy innovations is a thing of the past.