How do stablecoins change crypto finance? A comprehensive analysis of this trillion-dollar market

The Logic Behind the Rise of Stablecoins

Stablecoins are the most pragmatic invention in the cryptocurrency world. Simply put, stablecoins are a class of crypto assets that use certain anchoring mechanisms to keep price fluctuations within a reasonable range. Compared to the rollercoaster prices of Bitcoin and Ethereum, stablecoins offer a relatively predictable store of value.

To understand why stablecoins are so important, imagine you are a coffee shop owner. Today, you receive a payment of 1 Bitcoin from a customer, valued at $5,000 at the time. But 24 hours later, due to market volatility, the same Bitcoin might only be worth $3,000 or surge to $8,000. This uncertainty makes it impossible for merchants to accept cryptocurrencies as a daily settlement tool. Stablecoins address this pain point.

In 2014, Tether launched the first stablecoin USDT, followed by MakerDAO (2015), Paxos and Gemini (2018). By 2020, during the DeFi wave, various stablecoins emerged like mushrooms after rain, forming today’s massive market worth over a trillion dollars.

The Four Main Categories of Stablecoins and Their Characteristics

Based on underlying assets, stablecoins are roughly divided into four camps, each with advantages and disadvantages:

Fiat-Collateralized Stablecoins

This is the most dominant category in the market. Issuers deposit real fiat currencies such as USD, EUR, HKD into banks or trust accounts and issue corresponding crypto tokens on a 1:1 basis. USDT, USDC, TUSD, BUSD are typical examples. The advantage is maximum stability; the downside is reliance on centralized institutions, facing risks of asset freezing or regulatory intervention.

Crypto-Asset Collateralized Stablecoins

These stablecoins are not backed by fiat but are generated through collateralized crypto assets like BTC, ETH. DAI, MIM, sUSD are representatives. Due to the high volatility of crypto prices, issuers usually require collateralization ratios exceeding 100% (e.g., collateralizing $150 worth of ETH to generate $100 stablecoins). Smart contracts automatically liquidate collateral when ratios fall below thresholds, ensuring stablecoin value. These are more decentralized but users bear liquidation risks.

Commodity-Backed Stablecoins

Using gold, silver, or other commodities as reserve assets. PAXG, XAUT are typical examples. Suitable for hedging inflation, but liquidity is often lower, with limited trading depth.

Algorithmic Stablecoins

The most innovative but also the riskiest category. Algorithmic stablecoins do not rely on physical collateral but maintain price stability through dynamic supply adjustments. AMPL, USDD have been examples, but TerraUSD (UST) in 2022’s collapse fully exposed the fragility of this type.

How Stablecoins Drive Crypto Finance

Stablecoins may seem simple, but they are the lifeblood of the crypto financial ecosystem. Their core value lies in three aspects:

Payments and Settlements

Stablecoins are inherently suitable for cross-border remittances. Traditional bank wire transfers may take 3 to 7 days and incur high fees. Using stablecoins, transfers can be completed within minutes globally, with fees as low as a few cents. This is especially meaningful for regions like Southeast Asia and Africa with underdeveloped financial infrastructure.

Risk Hedging

Crypto markets often see daily swings exceeding 10%. During panic or Bitcoin crashes, investors can quickly convert assets into stablecoins to avoid further devaluation. Stablecoins become a “safe harbor” for investors amid market storms.

DeFi Infrastructure

The entire DeFi ecosystem is built on stablecoins. Users can collateralize crypto assets to borrow stablecoins, deposit stablecoins to earn interest, or trade various assets with stablecoins. MakerDAO, Aave, Compound and other leading DeFi protocols heavily depend on stablecoin liquidity. Even in decentralized exchanges, stablecoins are the primary trading pairs, providing low slippage trading experiences.

Current Market Landscape and Development Challenges

Market Size

As of August 5, 2025, the total global market cap of stablecoins exceeds $268.18 billion, showing continuous growth. Over 90% is still dominated by USD-pegged stablecoins, but the share of multi-currency stablecoins is rising.

Regulatory Acceleration

Over 50 jurisdictions have introduced or revised regulations related to stablecoins, becoming a focus of global policy. The US “GENIUS Act” ( took effect in July 2025 ) allowing licensed institutions to issue payment stablecoins; Hong Kong’s “Stablecoin Ordinance” is the world’s first comprehensive legislation targeting fiat-backed stablecoins; the EU’s MiCA framework, the UK’s “Financial Services and Markets Act,” and Singapore’s MAS licensing system are all being rapidly developed. Regulation will be a key factor in the survival of stablecoins.

Core Challenges

Despite market prosperity, stablecoins face multiple challenges:

• Excessive centralization risk: Major stablecoins like USDT and USDC are fully controlled by issuing entities, with potential for freezing or censorship
• Lack of transparency in reserves: USDT has long lacked full audits, leading to ongoing doubts about its actual reserves
• Over-reliance on USD: The global stablecoin market is overly dependent on USD pegs, exposing non-USD users to exchange rate and geopolitical risks
• High compliance costs: Different regulatory policies across countries require issuers to invest heavily to navigate complex legal environments

Future Blueprint for Stablecoins

The Era of Multi-Currency

The current “USD dominance” is being challenged. Experiments like Hong Kong’s mBridge cross-border CBDC, Japan’s JPY stablecoins (e.g., GYEN), and pilot projects of local currency stablecoins in Brazil and Argentina reflect countries’ emphasis on financial sovereignty. The future stablecoin market will evolve into a “multi-currency, multi-region, multi-center” landscape.

Expanding Use Cases

Stablecoins are no longer limited to trading pairs. In high-inflation countries, stablecoins are becoming an alternative savings method to fiat. In RWA (Real-World Asset Tokenization), stablecoins serve as a core bridge for capital inflows and outflows, used for tokenized bonds, real estate, and securities settlement. In cross-border payments, stablecoins are viewed as a potential challenger to SWIFT.

Technological Advancements

Expansion of multi-chain ecosystems, smart contract optimization, zero-knowledge proofs, and privacy tech will enhance trust and flexibility in stablecoin usage.

Regulation and Compliance as Filters

In the future, only stablecoins approved by regulators in various countries will survive long-term. Non-compliant projects will be gradually phased out, leading to a “survival of the fittest” industry.

How to Participate in the Stablecoin Market

For investors, stablecoins may have minimal price fluctuations but still offer arbitrage opportunities.

Short-term Trading Strategies

Although stablecoins have limited volatility, they can be traded similarly to forex. If you hold a large amount of USDC and observe a short-term dip in the USDT/USDC trading pair, you can buy USDT, wait for the price to rebound, and sell for profit. This requires sharp market intuition and quick execution, suitable for experienced traders. Be aware of black swan events—rare but impactful—such as stablecoin de-pegging events, which are often unpredictable once they occur.

Yield Farming Strategies

A more stable approach is earning yields through staking or providing liquidity. During the initial launch of new stablecoin projects, issuers often offer attractive yields to attract funds. Participating at this stage can yield substantial returns. However, it’s essential to assess project risks and avoid chasing high yields blindly.

In summary, stablecoins are evolving from mere “hedging tools” to core infrastructure of crypto finance. Whether for daily payments, investment hedging, or DeFi operations, stablecoins have become indispensable. As global regulation frameworks improve and multi-currency ecosystems mature, the next growth phase of the stablecoin market remains vast.