The National Natural Science Foundation of China is funding a research project on stablecoin risk governance, indicating a potential shift towards stricter regulation of stablecoins in the country.

Executive Summary

The National Natural Science Foundation of China is funding a research project focused on the risks associated with stablecoins and their impact on the international monetary system. This initiative suggests a potential move towards stricter regulation of stablecoins within China and its cross-border activities.

The Event in Detail

The National Natural Science Foundation of China has released application guidelines for a 2025 research project on stablecoin risk governance. The project, titled "Research on Global Stablecoin Risk Governance and Cross-Border Collaborative Regulatory Systems," includes one general topic and five sub-topics. These sub-topics cover stablecoin structural evolution, intrinsic vulnerabilities, impact on monetary sovereignty, impact on the financial intermediary system, and global regulatory framework. The research period is set for 10 to 12 months, commencing in November 2025.

Market Implications

This research initiative signals a potential shift in China's regulatory approach to stablecoins. While China has banned stablecoin promotion and seminars on the mainland to curb speculation and capital flight, this research could inform future policies. The focus on risks, vulnerabilities, and impact on monetary sovereignty suggests that China is considering stricter controls on stablecoin activities within the country and internationally. Any regulations enacted as a result of this research could impact stablecoin adoption and usage within China.

Expert Commentary

Former PBOC Governor Zhou Xiaochuan has expressed concerns about stablecoins' potential to destabilize financial systems, warning that they could be “excessively used for speculative asset trading,” creating vulnerabilities to fraud and systemic instability. This sentiment aligns with the research project's focus on risk governance and regulatory frameworks.

Broader Context

China's approach to stablecoins reflects a balancing act between fostering innovation and mitigating systemic risks. While restricting domestic stablecoin promotion, China is simultaneously pursuing strategic yuan-backed initiatives to expand the yuan’s global influence. Hong Kong, with its Stablecoins Ordinance mandating 100% reserve backing and AML compliance, serves as a controlled environment for stablecoin experimentation, bridging China's e-CNY and global stablecoins. The U.S. currently maintains a dominant position in the global stablecoin market, with USD-denominated stablecoins accounting for over 90% of the total market. However, this leadership faces challenges from foreign jurisdictions and central bank digital currency initiatives from strategic competitors. Some experts suggest that efforts to stabilize stablecoins may paradoxically increase the risk of sudden runs that could destabilize the stablecoin and even the broader financial system. Research indicates that a system that includes crypto assets is built on foundations far shakier than many realize, with about a one in three chance of a major run on assets in a 10-year period. As stablecoins grow in market value, this hidden instability becomes more dangerous.