The Growing Challenge of Crypto Assets to the Global Financial System

By Yang Tao
(Deputy Director, National Finance and Development Laboratory, Chinese Academy of Social Sciences)

Introduction

Recent developments in the crypto asset space have reignited global discussions about their impact on financial systems. From the launch of World Liberty Financial's "Strategic Token Reserve" to support Bitcoin and Ethereum, to the issuance of Trump meme coins, these innovations underscore the urgent need to address crypto assets' challenges to traditional finance.

The People's Bank of China highlighted cryptocurrency regulatory trends in its 2024 Financial Stability Report, while the 2025 Central Political and Legal Work Conference emphasized studying virtual currencies. This calls for a re-examination of crypto assets' role in modern finance.

Understanding Crypto Assets

Narrow Classifications

1. Bitcoin-like cryptocurrencies: Primarily for asset reserves.
2. Stablecoins (e.g., USDT, USDC): Used for payments.
3. Smart contract-based tokens (ETH, SOL): Enable DeFi/PayFi innovations.
4. Tokenized real-world assets (STO/RWA): Represent equities, bonds, and other compliant instruments.

Broad Classifications

• Web3 assets (NFTs, SocialFi, DAOs).
• Crypto-linked financial products (e.g., Bitcoin ETFs).
• Central bank digital currencies (CBDCs).

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Regulatory Responses

Global efforts to adapt include:

• U.S.: FIT21 Act (2024), SEC’s crypto working group (2025).
• EU: MiCA framework (effective 2024).

Despite cautious adoption, Trump-era policies signal a pro-crypto shift, driven by:

1. Economic incentives.
2. Political fundraising from crypto circles.
3. Alignment with decentralized governance ideals.
4. Deregulation agendas post-2008 crisis.
5. Dollar-denominated stablecoins reinforcing USD dominance.
6. Tax revenue from crypto businesses.

Key Challenges

1. Standard-setting for Web3 finance: Ensuring credit consensus.
2. Investor protection: Defining "qualified" investor criteria.
3. Traditional vs. DeFi coexistence: Risk management in asset interoperability.
4. Real-world economic impact: Moving beyond speculative use cases.

👉 Learn about DeFi integration

FAQs

Q: Are crypto assets replacing traditional currencies?
A: Currently, they function more as assets than currencies, with limited impact on monetary systems.

Q: How do stablecoins affect USD dominance?
A: Dollar-pegged stablecoins may paradoxically strengthen USD's global role.

Q: What’s the priority for regulators?
A: Balancing innovation with consumer protection and systemic risk mitigation.

Conclusion

Crypto assets will remain central to global financial discourse, influencing cross-border capital flows and geopolitical dynamics. Proactive research and international regulatory collaboration are essential to harness their potential while mitigating risks.

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