Unlimited Issuance of Stablecoins: Analysis of Risks, Mechanisms, and Profound Impacts on the Cryptocurrency Market

Core Mechanisms and Operational Principles of Unlimited Stablecoin Issuance In the cryptocurrency field, stablecoins achieve price stability by pegging to fiat currencies or assets, and their "unlimited issuance" characteristic stems from the automated design of smart contracts. Collateralised stablecoins, represented by USDT (Tether) and USDC (USD Coin), can theoretically be continuously issued with the support of reserve assets; while algorithmic stablecoins regulate the circulating supply through an elastic supply mechanism. Although this design can quickly respond to market demands, it also lays the groundwork for systemic risks. When extreme market fluctuations occur, the automatic issuance mechanism may trigger chain reactions, as revealed by the vulnerability of algorithmic stablecoins during the 2022 Terra collapse event. Double-Edged Sword Effect of Unlimited Issuance on the Cryptocurrency Market Stablecoin issuance is directly linked to market liquidity injections. When stablecoin holdings on exchanges increase, it often signals that funds are preparing to enter the market, potentially driving up the prices of major assets such as Bitcoin. However, uncontrolled issuance leads to three major hidden dangers: first, it may create liquidity bubbles, causing asset prices to deviate from their actual value; second, it exacerbates market volatility, especially in the absence of transparent reserve audits; and third, it may trigger regulatory intervention, as the US Treasury has already included stablecoins within the scope of financial stability oversight. Data shows that in 2023, the total supply of stablecoins exceeded $130 billion, with their issuance pace showing a significant correlation with the cryptocurrency market's bull and bear cycles. Differences in Issuance Between Algorithmic Stablecoins and Collateralised Stablecoins There is an essential distinction in the issuance logic of these two types of stablecoins. Collateralised stablecoins, such as USDT (Tether), require backing by equivalent US dollar assets, with each issued token theoretically having corresponding reserves, although their actual reserve composition has been repeatedly controversial. In contrast, algorithmic stablecoins achieve elastic supply through a dual-token model, where the system issues tokens when the price is above the pegged value—a seemingly sophisticated mechanism that has exposed death spiral risks in practice. Notably, emerging hybrid stablecoins are attempting to combine the advantages of both, balancing issuance security through partial collateral and algorithmic regulation. Risk Control of Stablecoin Issuance from a Regulatory Perspective Global regulatory authorities remain highly vigilant regarding the unlimited issuance of stablecoins. The US-proposed Payment Stablecoin Act requires 100% high-quality asset reserves, while the EU's MiCA (Markets in Crypto-Assets) Regulation sets a daily transaction cap of €200 million. These regulatory measures aim to prevent three major risks: first, the risk of runs, where concentrated redemptions may lead to reserve asset liquidation crises when market confidence collapses; second, systemic risk, as stablecoins have grown into critical nodes connecting traditional finance and the crypto ecosystem; and third, interference with monetary policy, as large-scale stablecoins may affect the monetary transmission mechanisms of sovereign nations. A report by the Bank for International Studies (BIS) indicates that the daily settlement volume of global stablecoins has surpassed that of some national payment systems. Investor Strategies for Coping with Stablecoin Issuance Risks Prudent investors need to establish a stablecoin risk assessment framework. Priority should be given to monitoring issuer transparency, favouring compliant projects that regularly publish reserve audit reports; secondly, diversifying holdings across stablecoins with different mechanisms to avoid concentration of single-protocol risks; while closely monitoring on-chain data, tracking issuance dynamics through smart contract addresses. On a technical level, warning indicators can be set, as when daily issuance exceeds three times the historical average, it often signals abnormal market fluctuations. Additionally, emerging DeFi (Decentralised Finance) insurance protocols offer hedging tools for stablecoin de-pegging risks, allowing investors to cover potential losses by purchasing insurance. Future Evolution: A Path Combining Compliance and Technological Innovation The development of stablecoins is heading towards the intersection of compliance and technological innovation. The advancement of central bank digital currencies (CBDCs) may reshape the competitive landscape of stablecoins, while improved blockchain interoperability will facilitate cross-chain stablecoin circulation. On the technological front, privacy computing technologies such as zero-knowledge proofs are expected to enable real-time verification of reserves while protecting commercial confidentiality. Industry forecasts indicate that by 2025, the market size of compliant stablecoins may exceed $3 trillion, but this process will inevitably be accompanied by stricter disclosure requirements and capital adequacy standards. Only by establishing a sustainable issuance mechanism can stablecoins truly become reliable infrastructure for the digital economy.