Core Viewpoint - Stablecoins have become a focal point in the global financial sector, especially following regulatory developments in Hong Kong and the U.S. The International Bank for Settlements (BIS) has highlighted that while stablecoins show potential in tokenization, they currently fail to meet the requirements to be a pillar of the monetary system, performing poorly in three key tests: singularity, elasticity, and integrity [1][2][4]. Group 1: Performance in Key Tests - Stablecoins exhibit structural flaws in singularity, elasticity, and integrity, limiting their role to that of an auxiliary rather than a foundational currency [2][4]. - In terms of singularity, asset-backed stablecoins resemble digital promissory notes, lacking the necessary attributes to pass the singularity test, as they are tied to specific issuers and do not guarantee uniform value [2][3]. - The elasticity test reveals that stablecoins cannot flexibly adjust supply based on market demand due to their prepayment mechanism, which restricts their ability to provide liquidity in times of need [4][5]. Group 2: Integrity and Compliance Issues - Stablecoins face significant integrity challenges, particularly in compliance with anti-money laundering (AML) and counter-terrorism financing (CFT) regulations, as they can easily be used for illicit activities due to their anonymous nature [5][6]. - The reliance on decentralized wallets and mixing services complicates the enforcement of KYC regulations, making it difficult to monitor transactions effectively [5][6]. - While some measures exist to freeze accounts and track illicit transactions, these are insufficient for the scale of daily transactions, leaving stablecoins vulnerable to misuse by criminal organizations [6]. Group 3: Future of Tokenization - The report emphasizes that tokenization of central bank reserves, deposits, and government securities could serve as a foundation for the next-generation monetary and financial system, with central banks playing a catalytic role [1][9]. - The "Pine Project" initiated by the New York Federal Reserve and BIS showcases the potential advantages of a fully tokenized financial system, including improved operational efficiency and automated backend processes [9][10]. - However, transitioning to a fully tokenized system presents challenges, particularly in ensuring interoperability between existing account-based systems and new tokenized infrastructures [10].