The Rise of Stablecoins: Catalysts of a New Era in Digital Finance

Author: Renmin University Institute of Financial Technology

The technological core and evolution path of stablecoins

Stablecoins, as emerging digital financial tools, have served as a bridge between cryptocurrency assets and the traditional financial system since their inception. Their fundamental mission is to provide a low-volatility digital value carrier through a value anchoring mechanism, serving both decentralized finance (DeFi) and being able to integrate into mainstream payment, settlement, and financing scenarios in traditional finance.

According to Deloitte's report "2025: The Year of Payment Stablecoins", payment stablecoins (PSC) are "digital currencies based on a 1:1 fiat reserve, with instant redemption capabilities, and not legally classified as securities". This form of asset is rapidly expanding globally, becoming an indispensable trading intermediary in the cryptocurrency market, while gradually penetrating into the real economy sectors such as cross-border payments and supply chain settlements. Roland Berger defines stablecoins as "digital value units based on blockchain distributed ledger technology, anchored to high credit assets, characterized by low volatility and high transparency", emphasizing their decentralized and programmable attributes as a potential restructuring force for global capital flows.

Stablecoins integrate the advantages of traditional currencies and digital technology: transactions are recorded on a blockchain, and value is anchored by holding high liquidity assets such as cash and government bonds, achieving high transparency, low intermediary costs, and high capital flow speed, providing new ideas for the construction of digital financial infrastructure in emerging markets.

Stablecoins can be divided into three categories based on their collateral models and value maintenance methods: fiat-collateralized (supported by cash, short-term government bonds, and other highly liquid assets at a 1:1 ratio or over-collateralized), crypto-collateralized (maintained by over-collateralization of crypto assets), and algorithmic (not relying on real asset collateral, maintaining pegs through supply and demand algorithms). Table 1 compares the three types of models and their risk cases:

The report by Roland Berger and Deloitte points out that stablecoin technology has evolved through three stages.

Phase 1: Function as a Medium of Exchange (2015-2020). During this phase, stablecoins were primarily used to serve cryptocurrency exchanges as hedging tools and for fund settlement.

Phase Two: Payment and Settlement Infrastructure (2021-2024). With the optimization of on-chain technology, stablecoins have begun to be applied in scenarios such as cross-border payments and supply chain settlements. According to Roland Berger data, the average cost of cross-border transfers of USDC on the early version of the Ethereum chain was $12 per transaction, with a transfer time of about 10 minutes. After the optimization of the Base chain, the current cost has been reduced to $0.01 per transaction, and the transfer time has been shortened to 5 seconds.

Phase Three: Financial System Integration (2025-Present). Starting in 2025, stablecoins are gradually being incorporated into mainstream financial infrastructure, becoming an important tool for inter-institutional fund transfers, corporate financial settlements, and cross-border trade payments.

The important value of stablecoins lies not only in anchoring fiat currencies and reducing volatility but also in the financial innovation potential brought by programmability. Combined with smart contracts, stablecoins can support features such as conditional payments, fund custody, and profit sharing, promoting the upgrade of financial products from static contracts to dynamic cash flows.

Global market landscape and the impact on traditional banks

In the past five years, stablecoins have transitioned from fringe tools to mainstream financial infrastructure. According to data from Bain, Roland Berger, and Deloitte (2025), the global circulating market value of stablecoins has increased from less than $2 billion in 2019 to over $200 billion by early 2025. By 2025, USDT (Tether) and USDC (Circle) accounted for over 85% of the stablecoin market. Tether primarily serves emerging markets, with high liquidity assets like U.S. Treasury bonds in its reserves amounting to $116 billion, representing 58% of global stablecoin reserves. USDC, benefiting from compliance and transparency, is widely used in developed markets such as the EU and Singapore, with reserves exceeding $50 billion.

In terms of regional distribution, the acceptance of stablecoins is particularly prominent in emerging markets and high-inflation economies. Taking Turkey as an example, due to the continuous depreciation of the local currency, the proportion of residents using stablecoins (mainly USDT) for asset preservation and cross-border payments has been steadily increasing, with USDT holders accounting for 34% of the country's total population in 2024. A similar phenomenon is also seen in countries like Nigeria and Argentina, where the amount of remittances received through stablecoins has significantly increased. In Nigeria, the total amount of cross-border remittances received through stablecoins reached 20 billion USD in 2024, accounting for over 30% of the country's total remittances.

The rapid development of stablecoins has brought systemic challenges to the traditional banking system, particularly in the following aspects: First, deposit outflow. Stablecoin wallets and non-custodial accounts, as alternative value storage methods, are gradually siphoning off what were originally bank demand and savings deposits. Second, pressure on payment business income. The low cost and high efficiency characteristics of stablecoins directly impact traditional payment channels such as SWIFT. It is estimated that about $30 billion in annual transaction fee income is being eroded from banks. The banks' response strategies mainly include the proactive launch of stablecoins, the construction of on-chain settlement networks, and collaboration with stablecoin issuers.

Analysis of Ecological Participants and Profit Models

The core participants of stablecoins are the issuing institutions, whose business models and reserve management methods directly determine the credibility and market acceptance of stablecoins. By early 2025, the global stablecoin market has formed a dual oligopoly pattern dominated by Tether (USDT) and Circle (USDC). Their profit model mainly comes from the following aspects: First, the income from reserve assets. The large-scale U.S. Treasury bonds, repurchase agreements, deposits, and other assets held by the issuer can generate considerable interest income. Taking Tether as an example, its investment income from U.S. Treasury bonds and equivalent assets in 2024 reached billions of dollars, becoming its core profit source. Second, transaction fees and commissions. Third, profit from cooperative ecosystems. Ecosystem commissions and clearing shares formed in cooperation with payment platforms, banks, and wallet service providers. Nevertheless, the sustainability of their profit model still highly depends on the safety of reserve assets, market trust, and changes in regulatory conditions.

In the stablecoin ecosystem, custodians and payment infrastructure play a bridging role that connects reserve assets, on-chain assets, and end users. The main functions include: custodial services for reserve assets, ensuring asset security and high liquidity; providing on-chain asset custody and key management services; supporting payment networks, merchant settlement, and clearing services. Traditional financial institutions are gradually participating more deeply in this segment to hedge against the impact of stablecoins on their business while sharing in the industry dividends.

The stablecoin ecosystem is gradually presenting a profit pattern of "multi-layer collaboration + micro-profit high frequency." Although the income from reserve assets remains the core profit source for issuers, with the strengthening of regulations, rising compliance costs, and increasing market competition (such as traditional banks entering the market), the profit model for stablecoin issuers will face three major challenges:

First, the interest rate spread is narrowing. The volatility of reserve asset returns and the downward cycle of interest rates will compress the profit margins of stablecoins. Second, compliance costs are rising. For instance, the EU's Markets in Crypto-Assets Regulation (MiCA) increases operational costs due to monthly CPA audits and daily disclosure requirements for reserves. Third, ecological share is being squeezed. Banks and payment giants are launching their own stablecoins and on-chain settlement solutions to compete for market share. Deloitte pointed out in its report that "the future profit model of stablecoins must shift from a simple reserve interest logic to a diversified model of data value-added, ecological synergy, and financial innovation; otherwise, it will be difficult to maintain long-term competitiveness."

Main Risks and Governance Framework

The main risks of stablecoins are reflected in the following four aspects: First, decoupling and liquidity risk. If reserve assets depreciate or liquidity tightens, it can easily lead to decoupling and large-scale redemptions, impacting the financial market. Second, technological security risk. Stablecoins that rely on blockchain and smart contracts face the risk of hacking attacks. The 2024 cross-chain bridge vulnerability incident resulted in losses of $1.8 billion, becoming a serious security incident. Third, bank runs and market shocks. When the reserve structure is opaque, it is easy to trigger a wave of redemptions due to panic or rumors. In 2023, USDC experienced $3.8 billion in redemptions in one day due to the Silicon Valley Bank incident, and the price briefly fell to $0.87. Fourth, regulatory arbitrage. Different countries have varying regulations, allowing issuers to evade supervision by exploiting gray areas. Tether has faced regulatory pressure from multiple countries due to the high proportion of commercial paper in its reserve assets.

To address these "systemic risks," the report suggests that stablecoin governance needs to be advanced in a layered manner, forming a multi-dimensional collaborative protection system of "regulatory layer - financial institutions - technical layer." On the regulatory front, efforts should be made to promote the unification of global regulatory standards, implement reserve asset disclosure, cross-border data sharing, and stress testing (referencing the experiences of the EU MiCA and the UK's FCA regulatory sandbox). At the financial institution level, commercial banks can defend against deposit outflow risks through self-issued stablecoins (such as JPM Coin) while simultaneously promoting on-chain settlement innovations; payment platforms (like Visa) should also integrate stablecoin settlement layers to enhance competitiveness in cross-border business. On the technical front, there should be strengthened third-party auditing of smart contracts and the establishment of cross-chain bridge insurance mechanisms; promote the development of anti-MEV (Maximum Extractable Value) protocols to prevent on-chain transaction front-running and manipulation risks.

Global regulatory dynamics

The rapid development of stablecoins has sparked global regulatory attention, with countries striving to find a balance between encouraging financial innovation and managing risks. Since 2023, the United States, European Union, Singapore, and the United Arab Emirates have successively introduced regulatory frameworks to standardize key aspects such as reserve management, issuance qualifications, and information disclosure. Institutions like Deloitte believe that clear regulations are a necessary condition for stablecoins to transition from the fringe to the mainstream financial system.

(1) The US GENIUS Act

As a global financial innovation center, the United States serves as a model for regulatory pathways. The proposed "GENIUS Act" (General Examination of New Issuance of United Stablecoins Act) aims to unify national standards for stablecoin regulation and address the fragmentation of state and federal oversight. Key points include: 1. Issuance qualifications: Non-bank institutions and bank subsidiaries can issue, with federal approval required for scales exceeding $10 billion. 2. Reserve requirements: 100% high liquidity assets (U.S. Treasury ≥ 80%), with monthly audits. 3. Redemption and disclosure: T+1 redemption, mandatory monthly CPA reports, and pilot real-time disclosures. 4. Regulatory jurisdiction: OCC regulates national issuers while retaining state license approval authority. However, challenges include conflicts between state and federal jurisdictions, disputes over reserve transparency, and bans on interest for payment-type stablecoins, which may raise concerns in the industry about constraints on innovation and rising compliance costs.

(II) EU MiCA Framework

The EU's Markets in Crypto-Assets Regulation (MiCA) will take effect in 2024, establishing a full lifecycle regulatory framework. The main requirements include: firstly, issuers must be licensed credit or payment institutions; secondly, reserve assets must have high liquidity and be audited daily; thirdly, real-time reserve disclosure is mandatory, with violations subject to removal (Tether has already been delisted by some platforms). The MiCA model has successfully promoted transparency and standardization in the industry, but it has also significantly raised the entry barriers for the industry.

(3) Asia and Middle East Pilot

Economies such as Singapore and the UAE have chosen to advance stablecoin management through a "regulatory sandbox + flexible regulation" approach. Singapore's MAS regulatory requirements stipulate that stablecoin issuers must primarily reserve AAA-rated assets and accept monthly information disclosures and redemption commitments. It emphasizes encouraging financial innovation to advance alongside regulation. The Central Bank of the UAE has approved policies for commercial banks to pilot the issuance of AED stablecoins for local retail payment scenarios, establishing an application model for local currency stablecoins in consumer payments and microfinance.

The experiences of these countries indicate that phased and sectoral pilots during the early stages of regulation help balance innovative development with risk control.

Future Development Paths and Strategic Insights

Currently, stablecoins are evolving from auxiliary tools for trading crypto assets to an important component of global financial infrastructure, having a profound impact on payment systems, cross-border capital flows, banking, and monetary policy. The report points out that the future of stablecoins will be jointly driven by technological innovation, regulatory improvement, and the adaptability of the financial system, accelerating applications in high value-added areas such as corporate payments, cross-border settlements, and supply chain finance, promoting the upgrade of the global payment system with low cost and high efficiency advantages.

As the regulatory system gradually improves, stablecoins that do not meet reserve and transparency requirements will be eliminated from the market, accelerating the industry's compliance process. At the same time, stablecoins are expected to achieve interoperability with Central Bank Digital Currencies (CBDCs), jointly undertaking global payment and settlement functions. The development of technical standardization and reserve transparency will promote the comprehensive integration of stablecoins into the global financial system.

However, the development of stablecoins also faces multiple challenges. On one hand, the innovative capacity of stablecoins in payment and financial services is limited by stringent regulations, making the balance between innovation and safety a key focus for regulators in various countries. On the other hand, although their efficient payment and near-instant settlement improve cross-border payment efficiency, they also amplify the speed of financial risk transmission. Furthermore, the large-scale pegging of stablecoins to US dollar assets exacerbates "digital dollarization", putting pressure on the stability of emerging market currencies and the independence of monetary policy.

For emerging economies such as China, the development of stablecoins brings three insights: First, pilot projects should be conducted in closed scenarios such as cross-border e-commerce, regional trade, and offshore settlement to accumulate experience; second, it is essential to promote a balance between technology and compliance, enhance reserve transparency and on-chain security, and facilitate interoperability and mutual recognition between the digital yuan and controllable stablecoins; third, actively participate in global governance mechanisms such as the BIS and IMF to jointly promote the formulation of digital finance regulations and strive for the interests and voice of more developing countries.