What Is a Stablecoin?
A stablecoin is a digital token built on blockchain, backed by real-world assets, most commonly, the U.S. dollar. Think of it as a “blockchain version” of the dollar. Like Bitcoin, stablecoins are decentralized and borderless. Unlike Bitcoin, their value doesn’t swing wildly from day to day.
That stability is exactly what Bitcoin lacks if you want to use it for daily transactions. Bitcoin has evolved into a kind of digital gold—a place to store value, not a currency to buy coffee. In contrast, stablecoins bridge that gap. They act like money, look like money, and in many cases, move more freely than money ever could.
A useful analogy: casino chips. You trade cash for chips, use them in a specific context, and cash them out when you’re done. Stablecoins work similarly—anchored 1:1 to a fiat currency, designed to be redeemed any time. But unlike chips, they don’t stay confined to one room. They travel across networks, platforms, and borders with very few restrictions.
Regulation Is Pushing Stablecoins Into the Mainstream
Stablecoins have been around for more than 10 years. But it wasn’t until 2018 that they began to grow rapidly. And it wasn’t until recently that lawmakers really began to care.
Now, the U.S. (via the GENIUS Act), Europe (through MiCA), and Hong Kong are all racing to build stablecoin legislation. Regulation, not hype, is what’s pushing stablecoins into the spotlight.
Still, “stable” isn’t a guarantee. Even the biggest players have stumbled. USDT, the most widely used stablecoin, had once dropped below $1. USDC, despite being regulatory-friendly, lost value during the Silicon Valley Bank crisis. And Terra/Luna—an algorithmic stablecoin with no real backing—collapsed entirely.
To be truly stable, a stablecoin needs three things:
Full reserves — Every coin must be backed by an equal amount of real-world assets.
Asset safety — Reserves must be securely held, not misused.
Redemption guarantee — Users must always be able to exchange 1 stablecoin for 1 unit of fiat.
Failures tend to happen when these principles are broken—when reserves are mismanaged, or transparency is lacking. That’s why modern stablecoin regulation increasingly looks like banking oversight: clear rules, regular audits, no interest payments (to discourage speculation).
The GENIUS Act, for example, requires stablecoin issuers to report reserves monthly. And those reserves must be liquid—mostly cash, short-term U.S. Treasuries, overnight repos, and select money market funds. It’s not flashy. But it’s what makes the system work.
Why Stablecoins Took Off So Fast
The rise of stablecoins didn’t happen because someone wrote a whitepaper. It happened because they solved problems that needed solving.
Blockchain-based economies—NFTs, crypto games, decentralized exchanges—needed a way to move money quickly, cheaply, and without needing a bank. Stablecoins filled that need.
In some countries with hyperinflation or capital controls, stablecoins offer ordinary people access to a more stable currency. They’re not just used by crypto traders—they’re used by merchants, freelancers, even families.
For issuers, there’s a clear business model. They earn fees on transactions. They earn returns on the reserves. So there’s real incentive to expand, find new use cases, and keep the system running smoothly.
The Real Revolution Is in How We Transact
The traditional global payments system—think SWIFT—is slow, expensive, and opaque. Cross-border wires can take days, and fees can chew up a significant chunk of the transfer.
Stablecoins are different. Built on blockchain, they’re available 24/7. They settle in minutes, often seconds. Transaction fees? Often under 0.5%.
Stripe’s stablecoin payments product has cut B2B settlement times from days to minutes. MoneyGram’s USDC-based remittance service handles $millions daily between the U.S. and Mexico—settling in under five minutes. And now, AI systems are starting to integrate with stablecoin infrastructure, dynamically choosing the cheapest or fastest payment routes in real time.
Stablecoins processed $27.6 trillion in transactions in 2024—more than Visa and Mastercard combined. Yet, they still trail far behind traditional ACH systems.
At this stage, the primary use of stablecoins is still in online crypto trading. Offline retail and B2B payments are just beginning to develop, while cross-border payments are entering a phase of rapid growth.
Monetary Policy Meets a New Reality
Stablecoins also raise important questions for central banks.
If issuers are allowed to invest their reserves, that affects how much money is effectively in circulation. Too much freedom, and it could distort monetary policy. Too little, and innovation stalls. Regulators are walking a tightrope.
Stablecoins also present challenges to capital controls. If KYC (Know Your Customer) is only enforced at the point of issuance, then the tokens could be traded freely after that—creating potential loopholes for money movement.
What’s Next? A Lot of Unknowns
Right now, U.S. dollar-backed stablecoins dominate. Because the dollar is still the most stable and liquid currency in the world, USDC and USDT have become the default.
But the future won’t be won just by who has the best reserve policy. It will depend on network effects, trust, and real-world utility.
Whoever can embed their stablecoin into daily life—into real commerce, finance, and services—will have the upper hand. This isn’t just a race of tech; it’s a race of relevance.
Banks aren’t sitting this out either. Institutional players are developing “deposit tokens,” issued by banking consortia (JPMorgan, BofA, Citi, etc). Payment networks like Zelle and Partior are expected to roll out their own versions soon. Their focus is on B2B settlement—where improving efficiency and lowering transaction costs matter most.
Compared to crypto-native stablecoins, bank-issued tokens will offer tighter compliance and better integration with existing systems. But they might be less open, less flexible.
So, where does this all go?
We don’t know yet. It’s possible that one or two dominant stablecoins continue to grow, expanding into financial services and eventually rivaling traditional banks, a winner-take-all outcome. It’s also possible that the banking system adopts blockchain more successfully and pulls stablecoins into its orbit—regulating, integrating, and reshaping them into bank-led instruments. Or, perhaps, stablecoins remain outside the traditional rails, carving out a long-term role as an independent alternative.
But one thing is clear: the real opportunity is not creating yet another token. It is in building infrastructure, services, and use cases around the leading ones that already work.