Decoding the constructive and destructive effects of the stablecoin bill on "DeFi+RWA"

Author: Jerry@TPDAO, BeeGee

The U.S. House of Representatives voted on the stablecoin bill this week, the first time a cryptocurrency regulation bill has been put to a vote in Congress, a milestone in Capitol Hill’s efforts to codify federal regulations for the digital asset industry. The discussion of the bill a week ago has dragged on until now. This is not only a cautious attitude, but also a strategic ambition. This is related to the layout of great powers in a new era of encryption, which will determine the status of sovereign countries in the process of integrating with the encryption world.

Therefore, this article discusses the constructive and destructive effects of the Stablecoin Act on “DeFi+RWA”, which is to be placed in the context of the integration process of sovereign countries and the encrypted world. This is just the right time - the geek spirit in the encrypted world is constantly touching the boundaries of the real world, Web3 technology and applications have begun to enter industrial development, the financial market and order in the real world are in trouble, and the encrypted market, especially DeFi, is also exposed. For the problem of lack of motivation, the integration of the two worlds is the best positive solution. This is the natural existence of objective conditions, which has led to the integration of the two sides so that each can find its own place and seek common development.

**Let’s start with destructiveness first—from the moment the draft of the stablecoin bill was announced, the crypto world was full of vigilance. **For example, the discussion on the encryption market is specific and meaningful in terms of the requirements that stablecoin issuers must comply with and who will regulate them:

**If the bill passes, the requirement to get approval could create more problems. It may directly destroy the composability of DeFi. **For example:

If USDC has been approved by the relevant regulators, does Compound need to obtain the same approval to issue cUSDC (a yield-generating asset) for its lending platform?

If I run a bridge protocol, do I need to get approved for the bridge version of USDC?

If a wrapped version of a stablecoin is required to connect to real-world assets, how would that be achieved?

Since the draft, the discussion on how the stablecoin bill will affect the top decentralized stablecoins has run through the topics of every stablecoin project participant. But this is only a narrow perspective. Now, behind the differences of opinion between the Democratic Party and the Republican Party is indeed a high degree of strategic unity - in the context of the continuous development of the encryption market, the encryption world and the continuous radicalization of the digital process, the United States is trying to use stablecoins as a basis to strengthen the US dollar in the traditional financial order. and the forces in the encrypted economic system. **

Therefore, we have to face up to the layout of the encrypted economic system by sovereign government forces, including the efforts of the United States to establish a currency status for the U.S. dollar in this stable currency bill. This may be a departure from Satoshi Nakamoto’s original intention, but in fact this kind of departure has been happening all the time, especially when ** is now dominating the stablecoin system - what Satoshi Nakamoto did not expect is that not only does the cryptocurrency not Being able to revolutionize the dollar has also made the dollar the biggest beneficiary. **** In the encrypted economic system, the mainstream stable currency is based on the traditional US dollar as its currency system. The Federal Reserve does not issue a single currency, but has already included the encryption market in its hands, and has used this to complete the iteration from “gold·power·dollar” to “power·dollar” and then to the encrypted world-“power·digital dollar”. If there is no strong confrontation force, the era of “digital dollar” unification is coming. **

When we face up to this integration process, we not only see the sovereign government’s ambition to regulate and dominate the encryption market, but also the integration and empowerment process of the traditional financial market and the encryption economic market. Obviously, the ** Stablecoin Act affects not only the stablecoin market of hundreds of billions of dollars, but behind it is the trillion-dollar DeFi market, tens of trillions of RWA markets, and the entire encrypted economic system. **

In the analysis of “Why “Convergence” Becomes the Value Investment Research Theme of the “Next Round of Bull Market”” at the end of last year, we judged that: after the hard work of the early builders of the blockchain world, the infrastructure of the encrypted world has been continuously improved, and the encrypted ecology It is moving from being active in investment/speculative attributes such as ICO, DeFi, and NFT to the level of industrial and financial integration. We judge that the key word for the next round of bull market is integration—the integration of web3 technology and the industrial ecology of many industries; the integration of the encrypted economy and the financial system of the sovereign world; the integration of DeFi and web3 non-financial use cases.

Today, RWA has gradually become the most valuable narrative in this fusion process. In “Decoding RWA: The Most Valuable Encryption Narrative in the Context of Compliance” earlier this month, we judged that the application ecology of Ethereum and other public chains will be the most powerful fundamental support in this cycle, but It brings us more confidence, and we think the biggest support at the market level is RWA. **

Going back to the U.S. dollar and the U.S. layout behind the U.S. Stablecoin Act, it is necessary for us to focus on the financial structure of the sovereign government in the physical world during the integration process of sovereign finance and the encrypted economy. The layout of the RMB and Hong Kong appears to be urgent—in the overall In the RWA system with a total market capitalization of tens of billions of dollars, the digitization of sovereign government currency, including the possibility of the Hong Kong government’s digital Hong Kong dollar, such as the digital Hong Kong dollar (e-HKD) pilot program explores six use case categories, including Web3 Settlement , tokenized assets and tokenized deposits…

On the practical level of the more concrete capital market, we can see the two directions of the RWA treasury bond market in the US market and the Hong Kong stock market, which represent the process of RWA capitalization generated by the market. For example, Ondo Finance announced the launch of tokenized funds in January this year, bringing risk-free interest rates to the chain, allowing holders of stable coins to invest in bonds and U.S. Treasury bonds; the chain bond platform launched by the asset management company Matrixport, Matrixdock, In late January this year, the business related to treasury bonds was launched; OpenEden was founded by former employees of Gemini, and launched tokenized U.S. treasury bonds in April this year. Holders of stable coins can mint TBILL through the OpenEden TBILL Vault to obtain unlimited U.S. treasury bonds. risk benefit. Recently, against the backdrop of rising interest rates, U.S. Treasury yields have climbed steadily and have now significantly surpassed DeFi yields.

ThePrimedia has continued to pay attention to the linkage between the Dubai RWA market and the Hong Kong market in the past month. In particular, in mid-June, BOCI issued 200 million digital notes RWA for the Hong Kong market through UBS (UBS), and some doubts were raised-the adoption of the “main Ethereum blockchain” mentioned in the original article by UBS is actually not the main network of Ethereum, but by the Ethereum is a centralized alliance chain deployed for open source code; under the uncontrollable risks such as policy compliance, supervision and transaction efficiency, traditional institutions still have a long way to go to deploy business on the public chain, even traditional financial institutions are still concerned about tokenization RWAs are showing increasing acceptance.

It is foreseeable that traditional exchanges will play a role in the secondary trading of tokenized RWAs. For example, the Australian Securities Exchange may consider listing tokenized RWAs on its platform in the future. As the field continues to mature, regulatory developments will be the driving force behind mainstream adoption. But the emerging RWA track is not only emerging with new native projects.

A brief summary: **The main purpose of the US Stablecoin Act is twofold: 1. To regulate the stablecoin industry; 2. To serve the digital dollar. **** First aspect Specifically, the bill requires stablecoin issuers to apply for a license from the Federal Reserve, which needs to meet capital requirements, risk management requirements, etc. **Regulatory, require that regulated depository institutions seeking to issue stablecoins will be subject to appropriate federal banking agency supervision, while non-banking institutions will be subject to Federal Reserve supervision. Failure to register could result in up to five years in prison and a $1 million fine. Issuers outside the United States must seek registration in order to conduct business in the country.

**Secondly, the bill seeks new exports for the U.S. dollar and blocks the creation of stablecoins in other areas, which is conducive to the expansion of the U.S. dollar and is not conducive to the discovery of new values. **For example, in terms of reserves, it requires applicants to have “one-to-one reserves”, including: currency (ie US dollars), treasury bonds, repurchase agreements, and central bank reserve deposits. These are based on fiat currencies or their derivatives and nothing else. In addition, the new draft bill has a “two-year ban”, which requires a ban on issuing, establishing or generating “non-tangible asset-backed” stablecoins within 2 years. In essence, it is to clear the existing obstacles for the internationalization of its dollar.

** On the positive side, the regulatory boundaries are clarified, which is conducive to the further development of stablecoins, and is expected to add “blood” to the development of the industry for DeFi. From this perspective, it is extremely beneficial to the development of DeFi. But on the other hand, ** has also increased compliance costs and compressed DeFi’s profit margins. Overall, positive for DeFi. **

It’s also a positive move overall for RWA. The bill requires that the reserve be composed of fiat currency, which means that the fiat currency in RWA will become part of the cryptocurrency at the legislative level, so that on-chain projects around assets such as fiat currency and national debt can be carried out legally and on a large scale. **This is also an important step towards the large-scale development of RWA, and the large-scale development of RWA will lay a solid foundation for the large-scale adoption of the encryption industry. **

In 2023, tokenization has been called “the killer app of traditional finance” by JPMorgan Chase and “the market of the future” by BlackRock CEO Larry Fink. So at the market level, the proliferation of tokenized RWAs is a positive development for cryptocurrency investors. Besides being able to take advantage of higher Treasury yields, the introduction of RWAs also introduces more stable assets to DeFi and increases the variety of collateral.

But we have to raise the stable currency bill to the level of the encrypted economy layout of sovereign countries. From this perspective, the RWA track will be the main battlefield for the integration of sovereign countries’ finance and encrypted economy. We have seen the ambitions of the United States, and we are also looking forward to the layout of Hong Kong.

Remarks: This article was completed by TheprimediaDAO co-research and co-creation collaboration. The main collaborators are TheprimediaDAO initiator Jerry (@ThePrimedia) and TheprimediaDAO Builder, TigerVCDAO Investment Head BeeGee (@BeeGeeETH).