Stablecoins and foreign exchange, although both pegged to fiat currencies, operate on completely different logics. You can understand them as follows: foreign exchange is the official, sovereign-level 'exchange between countries', while stablecoins are private, technology-driven 'on-chain vouchers'.
First layer: essence and credit, completely different.
This is the most essential difference, which determines everything else.
Foreign exchange: the US dollars and euros you exchange are ultimately guaranteed by the sovereign credit, economic strength, and military power of the issuing country. It is a 'national IOU', backed by law and the machinery of the state. 1 dollar is always worth 1 dollar because US law states so.
Stablecoins: The USDT and USDC you hold are backed by a commitment from the issuing private company. It is an 'IOU' from the company. 1 USDT equals 1 USD because the issuing company Tether states, 'I have 1 USD in assets corresponding to it in my bank and promise you can redeem it.' Your trust has shifted from the state to the commercial company and its audit reports.
Second layer: System and circulation, worlds apart
This is the fundamental difference in how they operate in reality.
Foreign exchange system: Operates within the traditional financial system composed of central banks, commercial banks, and the SWIFT network. Transfers are strictly limited by business hours, regional regulations, and anti-money laundering scrutiny, making it centralized and gated.
Stablecoin system: Operates on public blockchains (such as Ethereum, Solana). Transfers are peer-to-peer, with 24/7 global instant settlement (only requiring payment of the network Gas fee), occurring outside the traditional banking system, and is decentralized and open.
Third layer: Function and risk, each going their own way
Because of the different essence and systems, their main uses and the risks they face are also vastly different.
Core functions and risks of foreign exchange:
Purpose: Mainly used for international trade, cross-border investments, and national foreign exchange reserves. You may exchange for US dollars at a bank for study abroad, travel, or foreign trade business.
Main risks: Exchange rate fluctuations (USD against CNY) and foreign exchange control policy risks (countries suddenly restricting exchange or remittance limits).
Core functions and risks of stablecoins:
Purpose: Mainly serves as the 'blood' within the cryptocurrency ecosystem. Most scenarios involve stablecoins for pricing and settlement when you trade Bitcoin on exchanges, lend on DeFi platforms, or pay on-chain fees. It is primarily a trading tool in the crypto world.
Main risks:
Collateral risk: Does the issuing company truly hold sufficient and high-quality USD assets (cash, government bonds)? Tether has been questioned and fined for lack of transparency regarding its collateral.
Run on the bank and de-pegging risk: If everyone simultaneously demands to exchange stablecoins back to USD, and the company cannot provide instant redemption, the stablecoin price will drop below 1 USD (i.e., 'de-pegging'). The collapse of the algorithmic stablecoin UST is an extreme case.
Regulatory and compliance risks: Global regulation of stablecoins is still being improved, with uncertainty about being defined as securities or facing strict restrictions.
Technical risks: The smart contracts underpinning stablecoins may have vulnerabilities, leading to asset theft.
Thus, foreign exchange is the cornerstone of 'national credit' in the traditional financial world, while stablecoins are the bridge and tool of 'private credit' built in the crypto world. The former serves as the foundation of the modern economy, while the latter attempts to create a more efficient and globalized parallel payment and value transfer experiment on this foundation using new technology.
Simply put, when you exchange RMB for USD, you trust America; when you exchange RMB for USDT, you trust the company Tether and the collateral behind it. This is the most fundamental difference between the two.
