Industry Insights: The Importance of Stablecoin Regulation and the Future of TWD Stablecoins

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CEO of BitAsset Technology, Wen Hung-chun, Expresses Concerns Over Special Law on Virtual Assets

The CEO of BitAsset Technology, Wen Hung-chun, recently shared his personal views on Taiwan's "Special Law on Virtual Assets." He emphasized that while the law has sparked widespread discussion, he is concerned that it does not include regulations on "stablecoins."

The Potential and Current Situation of Stablecoins

The Role of Stablecoins in Blockchain Finance and Real-World Currency Supply

Wen Hung-chun stated that stablecoins play a role in blockchain finance similar to the supply of real-world currencies. For example, the current global M2 supply of the US dollar from the four major central banks totals $86 trillion, supporting financial and capital markets with total assets exceeding $300 to $500 trillion. However, the current supply of on-chain US dollar stablecoins is only $150 billion, accounting for 0.174% of the global US dollar M2 supply, leaving significant room for improvement as mentioned by the CEO of Circle, who suggested a 10% penetration rate by 2025.

Looking back at the recent FSC regulation referencing the EU's MiCA regulations, it is worth observing whether the FSC will follow MiCA in classifying stablecoins as electronic money, regulating that only local operators can issue stablecoins and custody them locally.

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The Necessity of Legislation for TWD Stablecoins

The Relationship Between Economic Strength and the Issuance of Legal Tender

He emphasized that the circulation and utilization rates of a country's legal tender directly impact its economic strength.

To strengthen economic power, there must be a certain amount of legal tender or stablecoin issuance. Global financial assets will then be denominated in the country's legal tender or stablecoin. However, Taiwan currently lacks regulatory legislation for stablecoins and has no legally issued or used TWD stablecoins. This has a significant impact on Taiwan's discourse and pricing power for financial products denominated in TWD, potentially causing Taiwan to lose its lead in blockchain finance and be dominated by the US dollar in the long run.

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The Supply Cap and Risks of Stablecoins

Theoretical and Practical Limits of Stablecoin Supply

Researcher Yu Zhe-an pointed out that the current supply of risk-free M0 money is $5.7 trillion. If stablecoins adhere to no credit risk, the theoretical upper limit of supply is $5.7 trillion, but the practical limit may be only $1 trillion. Furthermore, if stablecoin operators are willing to take on credit risk, there is theoretically no upper limit on the supply. "Another question. If TWD stablecoins can be issued, won't domestic banks take up all the market share?" Yu Zhe-an remarked.

Taiwan's Financial Market Acceptance of Stablecoins

Market Share of Domestic Banks and Public Confidence

Wen Hung-chun believes that Taiwanese domestic banks or large payment institutions are likely to occupy almost all of the market share.

Due to Taiwan's similarity to Japan, with a relatively closed financial market, if Tether or Circle issue TWD stablecoins, compared to those issued by Taiwanese banks or Fubon Bank, the public would have more confidence in stablecoins issued by local banks. He quoted former FSC Chairman Tseng Ming-chung's statement that the intrinsic value of companies in the cryptocurrency industry is still insufficient.

In conclusion, there is still much room for improvement in Taiwan's regulation and issuance of stablecoins. The potential of stablecoins is enormous, and appropriate regulations and supervision will help enhance the international influence and economic strength of the TWD. Wen Hung-chun's perspective emphasizes the importance of stablecoins in blockchain finance and calls on the Taiwanese government to prioritize relevant legislation. However, there are differing opinions on whether there is a current need for stablecoins for cross-border use, considering that the TWD is not a major international currency. Currently, there is no disclosed regulatory framework for stablecoins in the special law project.

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