the age of stablecoins

Earlier this year, a small but telling headline made waves in digital finance circles: Tether, the issuer of USDT—the world’s largest stablecoin—is exploring a new product tailored for the U.S. market. Not long after, the SEC made a clarifying move of its own, stating that certain “Covered Stablecoins,” backed 1:1 by fiat reserves, would not be treated as securities. For those paying attention, these weren’t isolated updates but indicated a prominent shift.

Just a few years ago, stablecoins were seen as a niche crypto tool, mostly used by traders looking for refuge from Bitcoin’s volatility. Today, they’re reshaping the way value moves around the world. The total stablecoin market has now surpassed $220 billion, and forecasts suggest it could balloon to $1 trillion by the end of 2025. What’s happening is a structural evolution in global finance——not just another crypto cycle. 

Stablecoins have become a foundational element of the digital asset system—bridging TradFi and DeFi, startups and central banks, regulators and technologists. In doing so, they’re laying the groundwork for a new global financial infrastructure that reaches far beyond crypto.

At their core, stablecoins are crypto assets designed to maintain a stable value by being pegged to more predictable, real-world assets—most commonly fiat currencies like the U.S. dollar. Unlike Bitcoin or Ethereum, whose prices can fluctuate wildly within hours, stablecoins are engineered for consistency. Whether it’s through fiat reserves, algorithmic controls, or asset backing like gold, the goal is simple: stability.

This stability isn’t solves a fundamental problem that has long limited the use of cryptocurrencies in everyday life: volatility. While Bitcoin is often hailed as “digital gold,” its price swings make it impractical for routine payments, payroll, or financial planning. Stablecoins step into that gap, offering a digital currency that behaves more like cash, without the uncertainty.

> Why does this matter?

Stablecoins unlock a wide range of real-world use cases that volatile cryptocurrencies simply can’t handle: 

Lower transaction fees compared to traditional banking or remittance systems, especially for cross-border payments.

Faster settlement times, enabling near-instant transfers without reliance on intermediaries or clearinghouses.

Improved global access, particularly for individuals and businesses in regions where traditional banking is slow, expensive, or entirely out of reach.

As a result, stablecoins are becoming the connective tissue between TradFi and the emerging world of digital assets. For businesses, they offer operational efficiency; for individuals, they offer access; for the financial system at large, they represent the infrastructure for a more agile, inclusive global economy.

Stablecoins may all aim for the same outcome—price stability—but the way they achieve it varies dramatically. Under the hood, four core models dominate the landscape, each with its own balance of risk, decentralization, and trust. Here’s a breakdown of how they work—and what to watch out for.

fiat-backed stablecoins

Pegged to fiat currency (e.g., USD) held in reserve

how it works:

Each token is backed 1:1 by a traditional currency held in regulated bank accounts. You can redeem one stablecoin for one dollar (in theory). Examples include USDT (Tether) and USDC.

pros

stable and predictable: Maintains a tight peg to fiat.

simple model: Easy to understand and use.

trusted by institutions: Often includes audits and public reserve reports.

cons 

centralized: Relies on trust in the issuer and custodians.

de-pegging risk: If reserves are mismanaged or trust erodes, stability can fail.

limited yield: Reserves are typically held in low-risk assets, generating low returns.

> commodity-backed stablecoins

Pegged to physical assets such as gold or oil

how it works:

Each token represents a claim on a physical asset. For example, PAXG (Paxos Gold) represents one ounce of gold held in a vault.

pros

tangible value: Backed by assets with real-world use.

potential hedge: Commodities like gold may appreciate over time.

cons 

storage and custody costs: Physical assets aren’t free to manage.

price fluctuation: Commodity markets can still swing.

centralization: Reserve control is off-chain and trust-based.

> crypto-backed stablecoins

Collateralized with other cryptocurrencies (over-collateralized)

how it works:

Users lock up volatile crypto (e.g., ETH) as collateral to mint stablecoins. Since the collateral is volatile, the system requires over-collateralization. DAI is the best-known example.

pros

more decentralized: Run by smart contracts, not custodians.

transparent: Collateral can be audited on-chain.

cons

volatility pressure: Sharp market crashes can destabilize the system.

complexity: Not beginner-friendly. Managing collateral ratios takes effort and understanding.

> algorithmic stablecoins 

Peg maintained via code, not collateral

how it works:

These use supply and demand algorithms to adjust the number of tokens in circulation. If the price rises, more tokens are minted. If it drops, tokens are burned or removed. TerraUSD (UST) was a major experiment here—until it collapsed.

pros

highly scalable: No reserves needed to grow.

decentralized in theory: No reliance on custodians or collateral. 

cons

high risk: Lacks real-world backing; loss of market confidence can trigger collapse.

unproven: Past models have failed under pressure (e.g., UST).

In essence, there’s no one-size-fits-all model. Each stablecoin design comes with trade-offs:

> fiat-backed offers reliability but is centralized.

> commodity-backed brings tangible value but adds cost and complexity.

> crypto-backed leans into decentralization but faces volatility stress.

> algorithmic pushes the boundaries of design—but at the highest risk.

For users and builders, understanding these models is key to choosing the right tool—and navigating the stablecoin ecosystem with eyes wide open.

Thanks to their speed, efficiency, and price stability, stablecoins becoming the go-to solution for problems that traditional finance has struggled to solve for decades. Here are some of the most impactful and fast-growing use cases:

> remittances

Traditional remittances can take days and cost up to 10% of the total amount sent. Stablecoins cut through that friction, offering faster, cheaper transfers—especially valuable in underserved regions. For example, MoneyGram’s partnership with Stellar enables USDC-based remittances across Southeast Asia, Africa, and Latin America—bypassing banks and slashing fees. 

• why it matters:

> instant settlement

> lower fees

> borderless reach

> e-commerce and merchant payments

Global sellers and online platforms are increasingly turning to stablecoins for fast, low-cost transactions. Platforms like Stripe support USDC payouts across blockchains like Solana, enabling businesses to accept digital dollars and convert to local fiat easily. Revolut uses USDC and USDT for international supplier payments, saving on FX and banking fees.

• why it matters:

> faster cross-border settlement

> lower transaction and FX costs

> enables 24/7 global commerce

> Defi 

Stablecoins are the liquidity layer of DeFi. Without them, lending, borrowing, and trading protocols would be far more volatile and unpredictable. DAI and USDC are widely used across DeFi for yield farming, liquidity pools, and decentralized exchanges. Their price stability makes them the preferred unit of account in a volatile ecosystem.

• why it matters:

  > enables stable lending and borrowing

  > powers decentralized markets

  > reduces exposure to crypto volatility

A recent episode of alpha un# podcast with ZARP founder Simon Dingle highlights how stablecoins are increasingly used for everything from treasury management to DeFi participation—particularly in emerging markets, where local stablecoins offer a more stable and accessible alternative to dollar-based systems. 

> corporate treasury and settlement

Enterprises are increasingly integrating stablecoins into their treasury operations to streamline payments and reduce costs. One Fortune 500 company deployed stablecoins across 12 countries, cutting settlement times from three days to two minutes—saving an estimated $45 million annually in banking fees.

• why it matters:

  > real-time global settlements

  > lower overhead on transactions

  > greater control over cash flow

> cross-border b2b payments

Cross-border business payments are often slow and layered with intermediaries. Stablecoins change the equation with near-instant, direct transfers. Providers such as BitPay and Wyre use stablecoins to create a “stablecoin sandwich”—translating local currencies to stablecoins, sending them instantly across borders, and converting back to local currency at the destination.

• why it matters:

  > streamlined B2B payments

  > reduced need for currency swaps

  > speed and transparency across jurisdictions

Traditional stablecoins such as USDT and USDC offer one key benefit—price stability. But what if your digital dollars could also earn while staying stable?

That’s the promise of yield-bearing stablecoins—a new class of digital assets that combine the stability of fiat-pegged tokens with passive income potential. Through integrations with lending platforms, staking protocols, and RWA strategies like the U.S. Treasuries, these stablecoins deliver yield directly to holders—often without needing to exit the crypto system.

Yield-bearing stablecoins are changing how we think about digital cash—offering stability with the added benefit of returns. Take âtv 111, for example. It’s a USDC vault built by aarnâ that helps users earn more by combining stable DeFi yields with bonus rewards in its native token, $AARNA. Funds are automatically rebalanced across top protocols such as Aave and Compound to secure the best available rates. It’s a streamlined way to put idle stablecoins to work—earning more, with less effort.

> how they work

There are two main models for generating yield:

• rebase models: Your wallet balance automatically increases over time as interest is distributed. Examples include USDY (Ondo Finance), BUIDL (BlackRock), and USDM (Mountain Protocol), which pass through yield from U.S. Treasuries or similar assets.

• non-rebase models: You earn yield by actively staking or holding the token in specific DeFi protocols. Examples include eUSD (Lybra) and USDe (Ethena), which leverage ETH staking and derivatives-based strategies to generate returns.

> why this matters

Yield-bearing stablecoins represent a powerful convergence of TradFi and DeFi:

• familiar yet advanced: They offer a savings-like return, but powered by blockchain-native mechanics.

• attractive for institutions: With yields ranging from 3% to 30% depending on strategy and risk, these assets are gaining traction among funds and treasuries looking for stable yield in volatile markets.

• fuel for DeFi: Yield-bearing stablecoins unlock new utility across decentralized lending, liquidity provision, and automated financial tools—without introducing crypto’s trademark volatility.

• inflation hedge: In high-inflation economies, a stable, yield-generating digital asset can offer both security and growth.

> but there are risks

As with all financial innovation, the upside comes with important caveats:

• smart contract risk: Most yield-bearing stablecoins depend on DeFi protocols, which can be exploited if not properly audited.

• yield volatility: Returns aren’t guaranteed—APYs can swing based on market conditions, staking rewards, or interest rate changes.

• liquidity pressure: Mass redemptions or protocol shocks can test the stability of the peg.

• centralization: Some models (like USDM or BUIDL) rely on centralized custody and asset management.

• regulatory scrutiny: These assets blur the line between crypto and regulated investment products, potentially drawing future oversight.

Yield-bearing stablecoins offer businesses and investors a way to park capital in stable assets without sacrificing returns, and they deepen the financial utility of crypto. As RWA tokenization accelerates, expect yield-bearing stablecoins to become a dominant force across corporate treasury, remittances, and DeFi. But long-term success will hinge on two things: robust risk management and smart regulatory navigation.

As stablecoins continue to scale, regulators are paying close attention. Jurisdictions like the U.S. and EU are working on stablecoin-specific frameworks to address risks around reserve transparency, systemic exposure, and consumer protection. The goal is to bring oversight to an asset class that’s quickly becoming systemically relevant.

A key tension lies in compliance vs. decentralization. Many stablecoins include “freeze authority”—a feature that allows issuers to block or recover funds when required by law. While this helps with regulatory alignment, it introduces centralized control into systems originally designed to be open and permissionless.

At the same time, governments are developing Central Bank Digital Currencies (CBDCs)—state-issued digital currencies that could complement or compete with stablecoins. CBDCs may offer efficiency and financial inclusion, but they also raise concerns about surveillance, data privacy, and user autonomy.

Going ahead, it’s important to strike a balance: regulation that encourages stability and trust—without limiting innovation or concentrating control in too few hands.

Behind the rise of stablecoins lies a deeper story—not just about technology, but about the systems that support (or stifle) it. While the infrastructure is evolving fast, the capital and policy environment often lags behind.

Much of today’s venture capital still plays it safe—backing predictable models like SaaS or fintech clones, rather than betting on foundational blockchain innovations. There’s a widespread reluctance to fund deep-tech or infrastructure-layer projects, especially those that challenge legacy systems. The same goes for large corporations, which often acquire late-stage, distressed startups instead of backing early-stage innovation.

This short-term mindset is a major roadblock. Stablecoins—and blockchain at large—won’t reach their potential without alignment across capital, ecosystem intent, and policy direction. Innovation needs long-term commitment: bold investors, forward-looking regulators, and corporate leaders willing to take real risks.

Without that alignment, the danger isn’t failure—it’s stagnation. And in a space moving this fast, standing still is falling behind.

Stablecoins have come a long way from being a crypto workaround for volatility. Today, they’re quietly powering everything from remittances and e-commerce to DeFi and treasury management. But their real potential is still unfolding.

As the global financial system evolves, we’re likely to see the emergence of a multi-currency stablecoin landscape—one where digital euros, pesos, rupees, and naira exist alongside dollar-backed assets. This shift will unlock more inclusive, localized financial ecosystems, particularly in emerging markets.

At the same time, stablecoins are set to become the core infrastructure for the tokenized economy. From real estate and equities to commodities and collectibles, RWAs are being brought on-chain. Stablecoins will serve as the settlement layer, enabling seamless, programmable transactions that operate at internet speed.

And as DeFi continues to mature, stablecoins are positioned to become its liquidity backbone—not just a bridge between tokens, but a foundational layer enabling smart contracts, lending protocols, DAOs, and beyond.

The future of finance is being built now—and stablecoins are poised to become the default settlement layer for a tokenized, programmable, and globally accessible financial system.

DeFi roundup:

The U.S. SEC has clarified that stablecoins backed one-to-one by liquid, high-quality assets will not be classified as securities—removing the need for registration and signaling a more measured approach to crypto regulation.

The GENIUS Act proposes clear U.S. regulations for stablecoins, requiring full reserves, audits, and compliance—aiming to balance innovation with oversight and strengthen the dollar’s role in digital finance.  

Stablecoins are revolutionizing cross-border payments by enabling near-instant, low-cost transfers without intermediaries—now surpassing Visa and Mastercard in annual transaction volume, with over $200 billion in market cap despite ongoing regulatory challenges.

top DeFi tweets:

@cdixon likens stablecoins to WhatsApp for money—swapping legacy payment rails for low-fee, instant, borderless transfers, and laying the foundation for a composable, permissionless financial layer native to the internet.

@VersanAljarrah points out that gold is on the move again, just as the U.S. focuses on stablecoin regulation. Central banks are still buying gold—likely to protect against fiat risks, manage debt, and prepare for big changes in the global financial system.

@yb_effect highlights the enterprise case for stablecoins: Companies like SpaceX and Scale AI use them to move money globally—faster and cheaper than banks—while treasury teams use them to earn higher yields than traditional savings accounts, thanks to Treasury-backed stablecoins.

reflections-

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