The Essence and True Impact of Stablecoins from an Accounting Perspective
A Rebuttal to the View That “Stablecoins Re-Monetize Debt”
Recently, many content creators have argued that stablecoins allow debt to be “re-monetized.” This claim contains a fundamental error; in particular, the term “re-” is completely at odds with the operational logic of stablecoins. Stablecoins themselves do not possess collateralization, staking, or lending functions. Unlike traditional banks, they cannot expand their capital base through deposit-taking and the money multiplier effect—where a single dollar in the banking system can be turned into several dollars in circulation through lending—but stablecoins lack this attribute entirely.
Essentially, stablecoins are more akin to shares representing ownership in the assets held by the issuing entity. For example, if an issuer holds $1 million in short-term Treasury bonds and issues 1 million stablecoins, each stablecoin corresponds to 1/1,000,000th of the bond’s ownership. In essence, they are equity certificates rather than fiat currency.
The Actual Channels Through Which Stablecoins Impact the Monetary System
Many people misunderstand the channels through which stablecoins affect the monetary system, believing that the process of issuing stablecoins causes debt to be monetized. This is a complete misconception. The impact of stablecoins on M2 and the money multiplier is entirely concentrated in the stage where institutions use raised funds to purchase short-term Treasury bonds; it has no direct relationship with the issuance of stablecoins itself.
The specific impact can be divided into two phases:
Short-Term Liquidity Squeeze Effect
If a large amount of capital is used to purchase stablecoins in the short term, these funds will shift from the banking system to the short-term Treasury market. If this money remained in banks, banks could leverage the money multiplier through lending to support market liquidity. However, after purchasing short-term Treasuries, these funds temporarily leave the banking credit system, failing to generate a money multiplier effect in the short term and instead causing a squeeze on market liquidity.
Long-Term Liquidity Expansion Effect
In the long term, these funds will flow back into the real economy through government fiscal channels. Funds raised by the U.S. government through the issuance of short-term Treasury bills will be injected into the market via fiscal expansion—either to subsidize real industries such as manufacturing, or to fund social welfare programs and pay civil servant salaries. Ultimately, the funds will return to the banking system, businesses, and households, thereby increasing overall market liquidity.
In other words, the impact of stablecoin-related capital flows on liquidity follows a “contraction first, expansion later” process. The ultimate flow of funds depends entirely on the direction of fiscal budget expenditures. Industries receiving fiscal allocations will gain access to more abundant capital, while sectors not covered will face funding pressures. For example, the pharmaceutical industry has endured significant financial strain in recent years due to adjustments in the structure of fiscal spending.
The Accounting Logic Behind Stablecoin Operations
To fully understand the nature of stablecoins, it is necessary to map out the entire process using accounting principles:
- Individual Subscription Phase: Individuals use cash to purchase stablecoins. On the individual’s asset side, cash decreases while stablecoin assets increase; on the issuer’s liability side, stablecoin payables increase (to be redeemed for cash when users redeem their holdings in the future), and on the asset side, an equivalent amount of cash is added.
- Institutional Bond Purchase Phase: The issuing institution uses the raised cash to purchase short-term Treasury bonds from the U.S. Treasury. The institution’s cash on the asset side decreases, while short-term Treasury bond assets increase; on the U.S. Treasury’s side, Treasury bond issuance increases on the liability side, and cash increases on the asset side.
- Fiscal Spending Phase: The U.S. Treasury injects the funds raised from bond issuance into the real economy through fiscal spending, causing cash to flow back into the banking system and the hands of market participants.
- Redemption Phase: If a user redeems stablecoins, the issuer must sell short-term Treasury bonds to obtain cash for redemption, while simultaneously canceling the corresponding stablecoin liability.
Throughout this process, the stablecoin exists solely as a certificate representing a share of Treasury bonds; it does not create new credit on its own, and thus does not perform the so-called function of “re-monetizing debt.” Many people believe that issuing stablecoins is equivalent to re-monetizing Treasury bonds, but this view essentially confuses the relationship between the certificate and the underlying asset, mistaking an equity certificate for a credit creation tool.