Hongzhe Wen, Songbai Li, R. S. M. Lau, Jamie Zhang
With market capitalization exceeding USD250 billion by mid-2025, stablecoins have evolved from a crypto-focused innovation into a vital component of the global monetary structure. This paper identifies the characteristics of stablecoins from an analytical perspective and investigates the role of stablecoins in forming a hybrid monetary ecosystem where public (fiat, CBDC) and private (USDC, USDT, DAI) monies coexist. Through a number of econometric analysis models, we find that stablecoins maintain strong peg stability, while each type exhibiting distinctive responses to market variables such as trading volume and capitalization depending on the mechanisms behind. We also introduce a hybrid system design that proposes a two-layer structure, which private stablecoin issuers are backed by central bank reserves, ensuring uniformity, security, and programmability. This model takes advantages of both decentralized finance and payment innovation, while utilizing the Federal Reserve's institutional trust. A case study on the SVB-USDC de-peg event in 2023 illustrates how such a hybrid system could have prevented panic-induced instability through transparent reserves, secured liquidity, and interoperable assets. Through examination of the Dybvig model and simulation, we conclude that a hybrid monetary model not only enhances financial inclusivity, scalability, and dollar utility in digital ecosystems, but it also strengthens systemic resilience, offering a credible blueprint for future digital dollar architectures.
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