In-depth analysis of the origin and ambitions of stablecoins: A blazing fire spreading, gradually entering a favorable situation.

Authors: Song Jiajie, Ren Heyi, Jishi Communication

Abstract

Stablecoins refer to cryptocurrencies that are pegged to the value of various fiat currencies. As assets on the blockchain, the advantage of stablecoins is their ability to deeply integrate with cryptocurrency projects (such as DeFi) at the blockchain infrastructure level, providing excellent network scalability. With traditional financial institutions in regions like the United States and Hong Kong focusing on the RWA sector, the exploration and deepening of stablecoin applications in traditional payment markets have been promoted.

Stablecoins serve as a “pricing tool” for the cryptocurrency market to a certain extent, complementing or even replacing traditional fiat currency trading. Shortly after the emergence of stablecoins, the main trading pairs in the cryptocurrency market became stablecoin trading pairs. Therefore, in terms of trading tools and value circulation, stablecoins act like “fiat currency.” Major exchanges (including DEX decentralized exchanges) primarily use stablecoins such as USDT for Bitcoin spot and futures trading pairs, especially for futures contracts with larger trading volumes. The mainstream exchanges’ perpetual contracts (futures contracts that use US dollar stablecoins as margin) are almost all USDT trading pairs.

USDT is the first batch of stablecoins to be issued, and it is the most widely used stablecoin issued by Tether with full reserve assets pegged to the US dollar. USDT was launched by Tether in 2014 and is pegged to $1 for 1 USDT. USDT became the earliest batch of stablecoins listed on centralized exchanges, and since then it has gradually become the most widely used stablecoin product in the market, mainly used for cryptocurrency spot and futures trading pairs. USDT is a stablecoin backed by U.S. dollar assets, the company says each token is backed by $1 in assets, and Tether provides an auditable balance sheet, which is mainly traditional financial assets such as cash. Since the launch of USDT, the scale has continued to maintain a rapid growth rate, which reflects the actual demand for stablecoins in the market, and the emergence of stablecoins can be described as “inevitable”.

At present, there are three types of ways to achieve this kind of credit transfer: centralized institutions issue stablecoins with sufficient reserve assets, issue stablecoins based on blockchain smart contract collateral crypto assets, and algorithmic stablecoins. For stablecoins, USDT, a stablecoin issued by a centralized institution, is dominant; The mechanism of the second type of overcollateralization and the third round of algorithmic stablecoins is not intuitive to a certain extent, and users often cannot directly feel the intrinsic value anchoring logic of their stablecoin products, especially when the price of cryptocurrencies fluctuates violently, and the results of users’ actions on the liquidation mechanism cannot be expected intuitively, and these factors limit the development of the latter two.

RWA has become an important engine driving the development of the cryptocurrency market, and traditional financial institutions are also actively adopting stablecoins, promoting the use of stablecoins in the traditional payment market. Taking the tokenized U.S. Treasury market as an example, the leading fund BUIDL was launched in collaboration between BlackRock and Securitize, while BENJI was launched by Franklin Templeton, indicating that traditional financial institutions’ embrace of RWA is gradually becoming a trend.

The regulation of stablecoins is gradually progressing. Currently, stablecoins are in a phase of development while simultaneously adapting to regulation. Although there have been doubts during their development, the entry of BTC into the mainstream capital market is expected to accelerate the development of stablecoins.

Risk Warning: The development of blockchain technology may not meet expectations; uncertainty in regulatory policies; the implementation of Web 3.0 business models may not meet expectations.

1. Core Concepts

Stablecoins were born in the “reckless” world of Web 3.0 and were used as a fiat currency pricing tool for trading cryptocurrencies in the early days. With the growth of the cryptocurrency market, stablecoins have become an indispensable fundamental tool for exchanges, DeFi, and RWA ecosystems. A key to the success of stablecoins is the ability to gain the trust of the market, which involves the stablecoin’s credit delivery mechanism. Stablecoins are not only a rigid need in the Web3.0 world, but also a bridge between them and the real economic world. Stablecoins, connecting two worlds.

This article analyzes the birth, development, and current status of stablecoins, as well as the mechanisms of stablecoins, and looks forward to the current opportunities for stablecoins.

2. The Inevitability of Stablecoins: Bridging Traditional Finance and Web 3.0

2.1 The underlying demand for stablecoins: On-chain “fiat currency” tools

The so-called stablecoin refers to a cryptocurrency whose value is pegged to various fiat currencies (or a basket of currencies), intuitively speaking, a stablecoin is a cryptocurrency that maps the value of real-world fiat currency to the account number on the blockchain (i.e., cryptocurrency), in this sense, stablecoin is a typical RWA (Real World Assets, real-world asset tokenization); As an asset on the blockchain, the advantage of stablecoins is that they can be deeply integrated with cryptocurrency projects (such as DeFi) at the blockchain infrastructure level - such as DeFi operations such as on-chain exchange or combination of other cryptocurrency assets on the chain for staking, while traditional fiat currencies are not on the blockchain and cannot obtain on-chain scalability.

In the early days of the development of the cryptocurrency market, users mainly traded Bitcoin and fiat currency on centralized exchanges (CEXs) or OTC markets - Bitcoin is an asset stored on the blockchain, while fiat currency relies on traditional bank accounts. In the early days of cryptocurrency development, as countries became more and more regulated on exchanges, bank fiat accounts were more susceptible to regulatory restrictions. Under the special background conditions in the early days, the demand for stablecoins pegged to the value of fiat currencies gradually emerged - the formation of trading pairs for bitcoin (or other cryptocurrency assets) with stablecoins, which is detached from the traditional financial account system. More importantly, cryptocurrencies are assets based on blockchain accounts, and if the trading pairs they are denominated in are also based on blockchain accounts, then the convergence and interoperability between ledgers is possible - while traditional fiat currencies are not on the blockchain.

In other words, cryptocurrency assets like Bitcoin do not interact with fiat currency accounts, and smart contracts cannot operate on fiat currency accounts, which is detrimental to the scalability of the network. Therefore, based on the need for integration and interoperability, the market requires that all assets be represented as digital accounts on the blockchain. Additionally, due to the high volatility of cryptocurrencies failing to meet the three major characteristics of money: store of value, medium of exchange, and unit of account, users find it difficult to retain or exit their investments in the crypto world, which has stimulated the demand for low-volatility stable currencies.

To some extent, stablecoins act as a “pricing tool” in the cryptocurrency market, which is a supplement to or even an alternative to traditional fiat currency transactions. Soon after the birth of stablecoins, the most important trading pairs in the cryptocurrency market were stablecoin trading pairs, so stablecoins played the role of “fiat currency” in terms of trading tools and value circulation. As shown in Figure 2, similar to mainstream exchanges such as Binance, Bitcoin spot and futures trading pairs are dominated by various stablecoins such as USDT, especially futures contracts with larger trading volumes, and mainstream exchange forward contracts (futures contracts with USD stablecoins as margin, such as perpetual contract Futures) are almost all USDT trading pairs.

Tether USD (USDT) is one of the first stablecoins to be issued, launched by Tether Corporation in 2014, with 1 USDT pegged to $1. USDT became the earliest batch of stablecoins listed on centralized exchanges, and since then it has gradually become the most widely used stablecoin product in the market, mainly used for cryptocurrency spot and futures trading pairs. USDT is a stablecoin backed by U.S. dollar assets, the company says each token is backed by $1 in assets, and Tether provides an auditable balance sheet, which is mainly traditional financial assets such as cash. Other stablecoin projects issued during the same period include BitUSD, NuBits, etc. Since the launch of USDT, the scale has continued to maintain a rapid growth rate, which reflects the actual demand for stablecoins in the market, and the emergence of stablecoins can be described as “inevitable”.

Since USDT meets the actual demand of the market, since 2017, stablecoins have been favored by the cryptocurrency market as mainstream cryptocurrency trading platforms have launched USDT trading pairs (spot and futures contracts). Whether the early stablecoins can effectively peg the value of the corresponding fiat currency has become the most worrying issue for the market. The market has been skeptical about the creditworthiness of companies like Tether in the early days because they failed to provide convincing, compliance-audited balance sheets. In order to solve the problem that the USDT transition relies on the credit of centralized institutions such as companies, in 2017, MakerDAO issued a decentralized, multi-asset collateralized stablecoin DAI based on smart contracts, which is over-collateralized by the crypto assets managed by smart contracts, and relies on the smart contract system to achieve the stability of its price and the US dollar, allowing users to mint without permission. As of May 3, 2025, DAI has issued more than $4.1 billion, ranking fifth among all types of stablecoins (the new stablecoin USDS issued by MakerDAO is not counted here).

The emergence of DAI is a milestone event; decentralized stablecoins differ from products backed by the credit of centralized institutions (such as USDT) in terms of credit transmission. Moreover, it is a native product of the DeFi system—DAI itself is an RWA product under DeFi staking. Therefore, decentralized stablecoins like DAI are not only adopted on centralized exchanges but are also an indispensable part of the RWA ecosystem’s industrial chain—commonly referred to as part of the “Lego puzzle.”

With the widespread and in-depth application of stablecoins, centralized exchanges have begun to venture into their own stablecoin products, typical examples being USDC led by Coinbase and BUSD led by the exchange giant Binance.

Since 2019, with the development of DeFi projects, stablecoins have been widely used in DeFi systems (lending markets, decentralized exchange markets). To pursue a more decentralized approach and a better integration with DeFi infrastructure, algorithmic stablecoins that adjust value stability based on smart contract algorithms have started to become active in the market. This is based on DAI, utilizing the algorithmic mechanisms of smart contracts to achieve credit transfer between stablecoins and fiat currencies, with major products currently including USDe, among others.

Although the cryptocurrency industry pursues sufficient decentralization, the stablecoin market (mainly USD stablecoins) is still dominated by USDT and USDC, which are stablecoins issued based on the collateral/reserve assets of central institutions, and occupy an absolute monopoly state. As shown in Figure 4, as of May 3, 2025, the number one USDT is more than $149 billion, the second largest USDC is more than $610, and the third largest USDe is less than $5 billion. USDT and UDSC, two centralized stablecoins, are in an absolute dominant position. USDe, a blockchain smart contract algorithm stablecoin, ranks third, with a scale of about $4.7 billion. USDS and DAI, the stablecoins issued based on blockchain smart contracts collateralized assets, ranked fourth and fifth, with a scale of about $4.3 billion and $4.1 billion, respectively.

At present, the main use of stablecoins is in the cryptocurrency market, because the mainstream pricing method in the cryptocurrency market is to denominate stablecoins. With the bull market in the cryptocurrency market over the past year, the issuance of stablecoins (mainly US dollar stablecoins) has grown rapidly, as shown in Figures 5 and 6, with the issuance size exceeding $240 billion as of May 3, 2025. At present, USDT and USDC account for 61.69% and 25.37% respectively. It is worth noting here that decentralized stablecoins have not shown enough advantages, and from the perspective of practical applications, USDT and USDC, which are stablecoins in the mode of reserving traditional financial assets, have become absolute dominants. There are many influencing factors, and the rapid development of RWA is related to the adoption of USDT and USDC, which will be further analyzed later.

2.2 It is not only a pricing tool but also a bridge between Web 3.0 and the traditional financial market.

In the DeFi lending market, stablecoin assets such as USDT are commonly used as collateral/lending assets, not only for deposit savings, but also as a kind of crypto asset - it can not only mortgage crypto assets such as Bitcoin/ETH to borrow stablecoins, but also can be used as collateral to borrow other crypto assets. For example, the AAVE project, which ranks first in DeFi lock-up assets, has three of the top six market size projects in the lending market for US dollar stablecoin lending, of which USDT, USDC, and DAI rank second, third, and sixth respectively.

In both the trading market and the DeFi lending market, stablecoins are somewhat similar to currencies or notes issued by private institutions. Due to the characteristics of blockchain infrastructure, stablecoins have the potential for different clearing speeds, integration, and scalability compared to traditional financial markets. For example, stablecoins can be quickly and seamlessly switched between various DeFi projects (such as exchanges, lending markets, leveraged products, etc.) with just a few clicks on a mobile device, whereas fiat currencies cannot circulate as quickly in traditional financial markets.

The convergence of the Web 3.0 world represented by cryptocurrencies and the real economic world is the general trend, and RWA is an important driving force in the process of this integration - because RWA more directly maps the assets of the display world to the blockchain. From a broad perspective, stablecoins are one of the most basic RWA products, pegging fiat currencies such as the US dollar to the blockchain. For traditional financial market users, stablecoins and RWA are the bridge to the cryptocurrency market. For traditional financial institutions that want to enter the Web3.0 world, stablecoins are an important position, and with stablecoins, they can swim in the Web3.0 world for asset allocation conversion. In turn, investors who hold crypto assets can convert into traditional financial assets or buy commodities through stablecoins, returning to traditional financial markets. On April 28, 2025, payment giant Mastercard announced that Mastercard allows customers to spend in stablecoins and merchants to settle in stablecoins. The use of stablecoins began to spread back to traditional economies and societies.

2.3 Three Models of Stablecoin Credit Transmission

The numbers in a bank account represent the user’s fiat currency deposits, which are guaranteed by the rules of traditional economic society. Stablecoins attempt to transfer the value of fiat currency to on-chain account numbers, and the credit transfer involved requires a method different from that of banks, which is a very critical core issue of stablecoin credit. Overall, there are currently three types of methods to achieve this credit transfer: centralized institutions issuing stablecoins with fully reserved assets, issuing stablecoins by collateralizing crypto assets based on blockchain smart contracts, and algorithmic stablecoins.

For stablecoins, USDT, a stablecoin issued by a centralized institution, is dominant; This kind of product model has a simple logic, with the help of the credit transmission model of the traditional economic market, which is easy for users to understand and operate, and is the most logical choice in the early development stage of the stablecoin field. The mechanism of the second type of overcollateralization and the third round of algorithmic stablecoins is not intuitive to a certain extent, and users often cannot directly feel the intrinsic value anchoring logic of their stablecoin products (that is, beginners do not accept its logic very well), especially when the price of cryptocurrencies fluctuates violently, users can not intuitively expect the results of the liquidation mechanism - during the period of violent fluctuations in the price of crypto assets, the liquidation mechanism will lead to some irrational results in the market, and these factors limit the development of the latter two.

2.3.1. Relying on traditional economic markets to convey credit: USDT

Centralized institutions issue stablecoins with sufficient reserve assets, and credit transmission is completely dependent on the traditional economic market. As the simplest stablecoin model, the stablecoin is anchored 1:1 with the fiat currency through a centralized institution that fully reserves assets and issues the corresponding amount of stablecoins on the blockchain (the issuer bears the responsibility of issuing and redeeming stablecoins), that is, the centralized institution acts as the credit endorsement body. An effective audit of the issuer’s balance sheet is required, which is usually dominated by traditional market Treasuries, cash, etc., and to a lesser extent, cryptocurrencies such as Bitcoin. Through one-to-one collateral escrow, this model ensures that users can redeem the equivalent amount of collateral from the issuer, ensuring the price stability of stablecoins. However, in the same way, this model also relies heavily on the secure custody of collateral, which involves multiple details such as the compliance of the project party, the compliance of the custodian, and the liquidity of the collateral.

In order to ensure that the product is widely used, USDT is issued on multiple blockchains including Omni, Ethereum, Tron, Solana, etc. In the early stage of scale development, factors such as liquidity and the market’s questioning of its balance sheet, coupled with market volatility, caused USDT to occasionally de-peg (and sometimes have a premium) in the early stage. However, these special circumstances are temporary, and USDT’s peg to the US dollar has been relatively successful on the whole, and we believe that there is no lack of strong demand factors in the market, after all, USDT is a rigid product for the cryptocurrency market.

In response to questions about its reserve assets and solvency, Tether has now made public a complete and valid audit report. According to the audit report of an independent institution, the total assets of Tether’s USDT division on March 31, 2025 were about $149.3 billion, which is consistent with the size of the USDT issued by Tether. A closer look at the balance sheet shows that 81.49% of the reserve assets are cash, cash equivalents and other short-term deposits, mainly U.S. Treasuries, which ensures the soundness of its balance sheet and fully considers liquidity measures to deal with redemptions. Interestingly, it also has $7.66 million in bitcoin reserves in its assets, which is not a small amount, but it fully reflects the fact that bitcoin (and by extension, other cryptocurrencies) can be used as a reserve asset for issuing stablecoins. In short, the composition of the USDT reserve is diversified, taking into account both liquidity and allocation.

As the issuer of USDT, Tether has achieved a total profit of more than $13 billion in 2024, while the actual company has only about 150 employees. During the Fed’s rate hike cycle, U.S. Treasuries contributed to Tether’s core profits. Of course, there will also be a fee for the redemption of USDT. As a compliant company responsible for issuing and redeeming stablecoins, Tether’s model is currently the most sought after in the market. We believe that USDT’s early entry into the market and its first-mover advantage in both the centralized exchange (CEX) and DeFi era, while relying on companies with credit endorsement from traditional public audits to issue stablecoins is also an important reason for its acceptance by both the traditional financial market and the Web 3.0 market.

2.3.2. Decentralized stablecoins issued by collateralized assets can also gain market trust.

Based on the blockchain smart contract to mortgage crypto assets, the issuance of stablecoins under excess reserves can also gain market trust. Crypto assets are pledged to smart contracts, which lock on-chain crypto assets and issue a certain amount of stablecoins, because on-chain crypto assets do not naturally maintain price stability against the US dollar, so there is a risk of price fluctuations in the collateral assets. In order to achieve the price stability and redemption of stablecoins, this type of stablecoin realizes credit transmission in an over-collateralized mode - that is, the value of the collateralized crypto assets exceeds the amount of the issued stablecoin, and when the market fluctuates (especially the price of the collateralized assets falls), the blockchain smart contract liquidates the collateral assets (and purchases stablecoins at the same time) to ensure the redemption ability of the stablecoin. The largest and most typical of this model is USDe and DAI - USDe is based on DAI, issued based on the new Sky protocol, which can be considered an upgraded version of DAI (the two can be freely exchanged 1:1 without restrictions). In 2024, MakerDAO changed its name to Sky Ecosystem and launched a stablecoin product called USDS, where crypto assets that can be staked can be generated under the control of the Sky Protocol through a smart contract called Maker Vault. A drop in the price of the collateral will lead to the risk of insufficient collateral value, and the protocol will sell the collateral (i.e., buy DAI) according to the set parameters to support the value of DAI pegged 1:1 to the US dollar.

In terms of the composition of collateral assets, as of May 5, 2025, the main collateral for USDS is ETH tokens, accounting for over 92%.

How to ensure the stability of DAI? In other words, ensuring that DAI holders can be redeemed is the core of DAI’s stable anchoring. Under market fluctuations, if the price of the pledged crypto assets falls, there is a risk that the collateral assets cannot be redeemed for redemption of the issued DAI, and the vault will liquidate and auction the collateral assets according to the agreement of the contract procedure, and the liquidation will be carried out by redeeming DAI. This mechanism is similar to the margin mechanism of futures contracts, where open positions are liquidated early when the margin is insufficient. The Sky protocol has designed a corresponding auction price mechanism to ensure that the value of the vault’s collateral assets can be redeemed into the circulating DAI, that is, to ensure the “stability” of the price of DAI.

2.3.3. Algorithmic Stablecoins: Fully trust the blockchain algorithm, currently with a smaller scale.

USDT is the company’s sufficient reserve of auditable assets, while USDS/DAI is the collateral and redemption mechanism of assets through blockchain smart contracts, and the latter’s liquidation mechanism pricing and treasury governance are not completely decentralized. Driven by the demand for fully decentralized stablecoins from native users of decentralized finance, mechanisms that rely entirely on algorithmic mechanisms to achieve stablecoin value anchoring have emerged, that is, products that maintain stablecoin price stability in the trading market through algorithms have emerged one after another. The price stabilization mechanism of such algorithmic stablecoins is generally similar to the algorithmic-controlled market arbitrage/hedging mechanism, which theoretically ensures that the stablecoin remains anchored, but the practice is still in its early stages, and it is not uncommon for the price level to be de-anchored. The size of algorithmic stablecoins is still small. Compared with the second type, algorithmic stablecoins rely entirely on decentralized smart contract algorithms and basically do not require human intervention. As an innovative track, algorithmic stablecoins have historically seen several different arbitrage/hedging mechanisms, but on the whole, there are not many projects that have successfully operated for a long time.

At present, the representative of algorithmic stablecoins is USDe, which ranks third in terms of scale, and is issued by the Ethena protocol. Broadly speaking, whitelisted users deposit crypto assets such as BTC, ETH, USDT, or USDC to the Ethena protocol, mint the equivalent of the stablecoin USDe, and the protocol establishes short positions on the CEX exchange to hedge the price fluctuations of their reserve assets and keep the value of the issued stablecoin stable. This approach is similar to the hedging mechanism in commodity futures, which is an automated, neutral hedging strategy that is fully algorithmically controlled.

3. RWA: An important application area for stablecoins at present

Since the beginning of this year, the price of Bitcoin has experienced a certain decline, leading to a downturn in the cryptocurrency market, while the RWA market has maintained a good upward trend. According to data from rwa.xyz, as of May 6, the scale of RWA has exceeded 22 billion USD, and it has shown a continuous growth trend this year. In terms of scale growth, it seems to be unaffected by the decline in Bitcoin prices. From the composition of RWA, private credit and tokenization of U.S. Treasury bonds have contributed significantly to the scale and growth.

RWA has become an important engine driving the development of the cryptocurrency market, which cannot be separated from the active participation of traditional financial institutions. Taking the tokenized U.S. Treasury market as an example, the leading fund BUIDL was launched in collaboration by BlackRock and Securitize, while BENJI was launched by Franklin Templeton, indicating that the embrace of RWA by traditional financial institutions has gradually become a trend.

RWA, as a sector with certain growth potential, has a clear demand for stablecoins. RWA refers to bringing real-world assets on-chain, and USDT serves as a bridge connecting the real world with the Web 3.0 world.

3.1 Under the trend of RWA institutionalization, the important role of stability is highlighted.

Although RWA was born in the reckless world of Web 3.0, it has now shown a certain trend of “institutionalization” - especially the Bitcoin ETF has strengthened the recognition of Web 3.0 by traditional financial institutions and the market, which is a natural trend. Take Ondo, for example, an American blockchain technology company with a mission to accelerate the Web 3.0 process in the traditional world of wealth by building platforms, assets, and infrastructure that bring financial markets on-chain. Recently, the company announced the launch of Ondo Nexus, a new technology initiative designed to provide real-time liquidity to third-party issuers of tokenized U.S. Treasuries. That said, Ondo Nexus provides redemption and exchange services for tokenized treasuries, enhancing the liquidity and utility of tokenized treasuries while building the infrastructure for the broader RWA asset class. Its clients include Franklin Templeton, WisdomTree, Wellington Management and Fundbridge Capital, while leveraging existing relationships with BlackRock, PayPal and others to provide 24×7 liquidity. In addition, on February 12, the company announced a strategic partnership with World Liberty Financial (WLFI), backed by Donald Trump Jr. (son of U.S. President Trump), to bring traditional finance on-chain by promoting the development of RWA. RWA has accelerated into the era of “institutionalization”.

With Ondo Nexus, investors in tokenized government bonds from collaborating issuers will be able to seamlessly redeem their RWA assets with various stablecoins, enhancing the liquidity and utility of the entire ecosystem, increasing the investability of RWA assets, and boosting confidence in the liquidity of on-chain assets. In 2024, the total locked value of the company’s tokenized government bond category RWA assets will exceed 30 billion USD, achieving good results.

With the support of traditional financial institutions, Ondo has gained good liquidity support, which plays a crucial role in attracting clients from the traditional financial market, as many of these clients’ assets are not on-chain.

4. Traditional payment markets leverage stablecoins: payment, earning interest

Stablecoins serve as a bridge between Web 3.0 and the real world, with a dual role: not only do real-world assets go on-chain through stablecoins, but the applications of stablecoins are also penetrating the real-world market. What we can expect is that the application of stablecoins in cross-border payments will be promising, and as an asset similar to a shadow “fiat currency,” if users can earn interest from holding stablecoins, it will be another significant breakthrough.

The use of stablecoins by traditional payment institutions such as Mastercard is not new, and this is an active struggle for Web3.0 financial flows by traditional financial institutions. Since DeFi systems provide a way for crypto assets to earn interest, which is an advantage for on-chain assets, traditional financial institutions are also looking for higher attractiveness when it comes to earning interest. Payment giant PayPal is ramping up efforts to grow its stablecoin PYUSD market, and recently the company is preparing to start offering 3.7% interest on balances to US users who hold PYUSD, and the program will launch this summer, allowing users to earn interest while storing PYUSD in PayPal and Venmo wallets. PYUSD can be used through PayPal Checkout, transferred to other users, or exchanged for traditional US dollars.

As early as September 2024, PayPal officially announced that it would allow payment partners to use PayPal USD (PYUSD) to settle cross-border remittances through Xoom, allowing them to take full advantage of the cost and speed advantages of blockchain technology; In April of that year, the company allowed its U.S. Xoom users to use PYUSD to send money to friends and family overseas without paying transaction fees. Xoom is a PayPal service that is a pioneer in digital money transfers, providing fast and easy money transfers, bill payments and mobile phone top-ups to friends and family in around 160 countries around the world.

In other words, stablecoins are starting to be adopted by traditional payment markets, and generating interest is an important means of attracting customers.

On May 7, 2025, Futu International Securities announced the official launch of cryptocurrency deposit services for assets such as BTC, ETH, and USDT, providing users with Crypto + TradFi (traditional finance) asset allocation services. Recently, Meta, three years after abandoning the Libra/Diem project, is in talks with several cryptocurrency companies regarding the application of stablecoins, exploring cross-border payments for creators to reduce costs. Traditional financial/internet institutions are starting to lay out cryptocurrency asset services, sharing Web 3.0 financial traffic, which is an inevitable trend.

Of course, cryptocurrency projects are also actively expanding into traditional financial markets. On April 1, local time in the United States, Circle, the issuer of stablecoin USDC, has filed a Form S-1 with the Securities and Exchange Commission to apply for listing on the New York Stock Exchange under the ticker symbol CRCL. Circle reported $1.7 billion in stablecoin-related business revenue by the end of 2024, accounting for 99.1% of total revenue. Circle is expected to become the first stablecoin issuer to go public in the U.S. market. If Circle is successfully listed, it will further promote the development of the U.S. stablecoin market, and accelerate the acceptance of stablecoins by traditional financial users, especially institutional users, after all, the traditional users of stablecoins are still from the cryptocurrency market.

5. How should stablecoins be regulated?

Cryptocurrency was born in a hurry, and as a new thing, its development has been accompanied by regulatory games. Taking the U.S. market as an example, the Securities Regulatory Commission (SEC), the Commodity Futures Trading Commission (CFTC), the Financial Crimes Enforcement Agency (FinCEN) is responsible for anti-money laundering (AML), terrorist financing (CFT), and the Office of the Comptroller of the Currency (OCC) (responsible for the supervision related to the national banking business) and other regulatory authorities have the willingness and cases to regulate cryptocurrencies. Regulators are also striving to strengthen their dominance over cryptocurrency regulation. However, at present, there are no mature regulations, and each department is implementing supervision in accordance with the existing regulations or the understanding of its own department, and in the process of development, cryptocurrency projects often face regulatory intervention and legal actions from regulators. For example, Tether, the issuer of USDT, faced accusations from the New York State Attorney General’s Office in the early days that it had problems such as opaque operation and deception of investors. After a 22-month investigation, the New York State Attorney General’s Office announced in February 2021 that it had reached a settlement with Tether, whereby Tether paid a $18.5 million fine and was barred from providing products and services to New York State citizens. There are many similar accusations from regulators against crypto projects or platforms, which is the reality of crypto regulation at the moment – the lack of a sufficiently adequate legal framework keeps cryptocurrencies in a grey area.

With the approval of the Bitcoin spot ETF for listing in the United States, the cryptocurrency market has not only gained greater development in terms of market size, but also gained more positive attitudes in terms of regulation. Represented by the United States, the regulatory attitude towards cryptocurrencies is generally positive. The White House held the cryptocurrency summit for the first time on March 7, and many industry professionals, including the CEO of coinbase and the founder of MicroStrategy (MSTR), were invited to participate. President Trump said at the summit that the U.S. federal government will support the development of cryptocurrencies and digital asset markets represented by Bitcoin, and he supported Congress in passing legislation to provide regulatory certainty for cryptocurrencies and digital asset markets.

The most important thing for stablecoin regulation in the U.S. is the GENIUS Act, which requires that stablecoins must be backed by liquid assets such as U.S. dollars and short-term Treasury bonds, which involves establishing a legal framework for the issuance of stablecoins in the United States. The U.S. Senate held a key vote on the GENIUS stablecoin bill on May 8, local time, but unfortunately the bill failed to pass. From the perspective of USDT, the most popular stablecoin, its reserve assets are mainly US dollars and treasury bonds, which are relatively close to the requirements of the bill, but there is still a big gap between the two major stablecoins like DAI and USDe, which are still very far from the requirements of the GENIUS Act. Echoing this, prior to this, the U.S. Securities and Exchange Commission (SEC) issued an announcement guidance on April 4 local time, stating that stablecoins that meet certain conditions are recognized as “non-securities” under the new guidelines and exempt from transaction reporting requirements. The SEC defines such “compliant stablecoins” as tokens that are fully backed by fiat reserves or short-term, low-risk, high-liquidity instruments that can be redeemed in U.S. dollars at a 1:1 ratio. The definition explicitly excludes algorithmic stablecoins that maintain a US dollar peg through algorithmic or automated trading strategies, leaving uncertainty about the regulatory status of algorithmic stablecoins, synthetic US dollar assets (RWAs), and interest-bearing fiat tokens.

Currently, although stablecoins are making inroads in the market, there is still no complete and clear legal framework to support them. This is a reflection of the current state of cryptocurrency regulation—cryptocurrencies, differing from any previous financial or technological innovations, face unprecedented regulatory challenges.

From a practical point of view, stablecoins are the simplest cryptocurrency. Considering the relationship with fiat currencies, stablecoins can penetrate the payment space, and they are the cryptocurrencies that regulators pay the most attention to. Not only the U.S. regulators are paying attention, but other regions such as Hong Kong are also accelerating the regulation of stablecoins. On February 27 this year, the relevant Bills Committee of the Legislative Council of Hong Kong, China was scrutinizing the Stablecoin Bill. The head of the Hong Kong Monetary Authority, ( ) digital finance, Ho Wangzhe, said that he expects the Legislative Council to pass the bill this year, after which the Hong Kong Monetary Authority will issue regulatory guidelines on how the regulator interprets the law, including the details of supervising the conduct of business with issuers, and will implement a system in due course to open the application of licenses for interested participants. On April 22, Shen Jianguang, vice president and chief economist of JD.com, said that JD.com has entered the “sandbox” test stage of stablecoin issuance in Hong Kong, China. This is also a positive response of Hong Kong enterprises to the supervision, indicating that the Hong Kong market has a certain demand expectation for stability.

In short, the current status quo of stablecoins is that they are in the stage of first application and at the same time running in with regulation. In any case, the application requirements and business logic of stablecoins are basically mature, and the regulatory policies of the authorities of the United States and Hong Kong, China will only play a role in regulating the development of stablecoins, and provide a clearer business development logic for traditional financial institutions.

6. Risk Warning

Blockchain technology research and development is not meeting expectations: The blockchain-related technologies and projects underlying Bitcoin are in the early stages of development, posing the risk of research and development falling short of expectations.

Uncertainty of regulatory policies: During the actual operation of blockchain and Web3.0 projects, multiple financial, internet, and other regulatory policies are involved. Currently, regulatory policies in various countries are still in the research and exploration stage, and there is no mature regulatory model, so the industry faces the risk of uncertainty in regulatory policies.

The implementation of Web3.0 business models is below expectations: The infrastructure and projects related to Web3.0 are in the early stages of development, posing risks of business model implementation falling short of expectations.