Cryptocurrencies are notorious for their volatility.
However, a distinct type of digital asset — stablecoins — offers a more predictable and reliable alternative. As digital finance continues to evolve, understanding stablecoins is becoming increasingly important.
Read on to learn about the growing importance of stablecoins and their impact on the financial industry.
What are stablecoins?
Stablecoins offer a way to bridge the gap between the crypto world and the traditional financial system. They can be used in trading, remittances and as a less volatile store of value within the crypto space.
They are also used to buy other cryptocurrencies.
While cryptocurrencies like Bitcoin (BTC) and Ether (ETH) are known for their volatility, stablecoins are designed to minimize price volatility by pegging their value to a stable asset, most commonly the US dollar; however, stablecoins can be pegged to anything of value such as other fiat currencies, commodities such as gold or silver or other cryptocurrencies.
Some stablecoins use algorithms to maintain stability. These are known as non-collateralized stablecoins. They achieve price stability through a system of smart contracts and algorithms, adjusting supply in response to demand.
One of the most beneficial aspects of stablecoins is their ability to enable direct peer-to-peer transfers, facilitating faster and cheaper cross-border transactions compared to traditional methods like bank wires. They also eliminate international transaction fees. This makes them a practical choice for individuals sending money internationally and makes them especially useful for businesses making frequent cross-border payments.
Stablecoins enabling new financial products and services
Given these advantages, traditional financial institutions have adopted stablecoins into their operations, integrating the decentralized realm of cryptocurrencies with the established financial system.
JPMorgan Chase (NYSE:JPM) was among the first major traditional financial institutions to adopt stablecoins, launching JPM Coin on the Ethereum blockchain in February 2019.
It is worth noting that while JPMorgan CEO Jamie Dimon has criticized Bitcoin in the past, referring to it as a “pet rock” at the World Economic Forum in January 2024, he has also been a supporter of blockchain technology.
JPM Coin was initially designed for internal transfers between JPMorgan’s institutional clients but has seen growth and expansion since its launch in 2019. The bank’s blockchain platform, Kinexys (formerly Onyx), has tripled its staff since 2020 to support the development and expansion of the JPM Coin and other blockchain-based services.
In September 2021, JPM Coin expanded into commercial use, and JPMorgan has been actively exploring new applications for the stablecoin, particularly in the realm of securities trading.
PayPal Holdings (NASDAQ:PYPL) also introduced its own stablecoin, PYUSD, on the Ethereum blockchain in August 2023. It’s designed to be used for everyday transactions and can be held, transferred and used for online purchases from businesses that accept it. While adoption is still ongoing, PYUSD was a step toward integrating stablecoins into traditional financial platforms. In a recent development highlighting PYUSD’s growing acceptance, FV Bank announced on January 9 that it now supports PayPal’s PYUSD stablecoin for direct deposits and outbound payment options.
Data included in ARK Invest’s Big Ideas 2025 report reveals considerable growth in stablecoin use.
As of December 2024, stablecoins accounted for 35 to 50 percent of on-chain digital asset transaction volume, with US dollar-pegged stablecoins dominating the supply.
In that month alone, transaction volume for 11 blockchains, including top performers Solana, Tron, Ethereum and Base reached US$2.7 trillion, with an average daily volume of US$270 billion. For the year, annualized transaction volume totaled US$15.6 trillion, more than that of Mastercard (NYSE:MA) and Visa (NYSE:V).
How stablecoins are shaping the future of finance
The stablecoin market is dominated by Tether’s USDT and Circle’s USDC. As of writing, USDT holds 62.87 percent of the US$225.86 billion stablecoin market cap, while USDC holds 24.79 percent.
Tether’s USDT is primarily issued on the Ethereum and Tron blockchains, with US$66.81 billion and US$62.27 billion in circulation, respectively, as of writing.
On February 13, Fortune reported that stablecoin trading platform Plasma was seeking capital to develop a new blockchain for USDT, raising US$24 million in a funding round led by venture firm Framework Ventures with participation from Bitfinex, PayPal co-founder Peter Thiel and Tether CEO Paolo Arduino. Co-founder Paul Faecks told Fortune that the new blockchain will be built on the Bitcoin network and will attract users by offering zero-fee USDT transactions.
Circle’s USDC is issued primarily on the Ethereum and Solana networks, with US$34.23 billion in circulation on Ethereum and US$9.09 billion on Solana. USDC’s circulation on Solana contributed significantly to an overall increase in Solana’s stablecoin supply, which doubled in January, according to data from Artemis Analytics.
Highlighting institutional adoption, Circle partnered with BlackRock (NYSE:BLK) in late 2023 to enable institutional investors to access USDC through BlackRock’s BUIDL fund.
Circle’s USDC stablecoin supply surged in recent weeks, adding more than US$10 billion to its market cap between mid-January and mid-February 2025. This growth was seen as a positive sign for crypto markets as it indicated increased demand for stablecoins. The company’s latest State of the USDC Economy report, released on January 14, showed USDC circulation increased by 78 percent year-over-year in 2024. USDC is also the first stablecoin approved to continue operating in Value Referenced Crypto Asset regulations, ensuring its availability on registered Canadian crypto platforms.
Another innovative option is Ethena Labs’ USDe. A relatively new entrant, called USDe, launched in February 2024. It quickly gained traction, reaching a total issuance of US$2 billion within two months.
As of this writing, total issuance stands at US$5.87 billion, according to data from DeFiLlama.
USDe is backed by cryptocurrency assets, making it inherently decentralized, although it does utilize centralized exchanges for some of its operations. It’s primarily backed by Ether (ETH) but added Bitcoin in April 2024.
Unlike most stablecoins, USDe is designed to generate yield for its holders through various strategies involving its collateral assets. Holders can also profit from its “delta neutral” hedging strategy, which uses long and short positions on Ether and derivatives to stabilize USDe.
YLDS is another yield-bearing stablecoin, the first of its kind to be approved by the US Securities and Exchange Commission (SEC), which classifies it as a security. This US dollar-pegged token, built on the Solana blockchain, provides a 3.85 percent yield with daily interest accrual by investing its reserves in securities similar to those held by prime money market funds. It’s offered by Figure Certificate Company, a subsidiary of Figure Markets
Evolving legislation and stablecoin regulation
Regulatory changes have had a significant impact on stablecoin offerings, with exchanges like Binance facing challenges and adjusting their policies accordingly.
Binance’s stablecoin, BUSD, was once a major player in the stablecoin market, but regulatory intervention from the New York Department of Financial Services in 2023 significantly impacted its role and market share.
However, the regulatory environment surrounding cryptocurrencies, including stablecoins, has experienced a noticeable shift under President Donald Trump’s administration.
As one of his first major executive actions after taking office, Trump signed an executive order titled “Strengthening American Leadership in Digital Finance Technology” on January 23, establishing the President’s Working Group on Digital Assets Markets, to be chaired by his AI and crypto czar David Sacks. Other top-ranking government members, including chairs of the SEC and the Commodity Futures Trading Commission, will also serve.
The focus of the order is to support digital assets in the US, including the development of dollar-backed stablecoins.
During a February 4 press conference, Sacks said the group’s priority is passing the first major legislative effort to regulate stablecoins — Senator Bill Hagerty’s (R-T) GENIUS Act, introduced earlier that day — through the House of Representatives and the Senate.
“Stablecoins really have the potential to ensure American dollar dominance internationally,” he told the crowd.
The proposed legislation outlines regulations for stablecoin issuance and the oversight of both issuers and tokens by state or federal regulators. Issuers with over US$10 billion in stablecoins would need to comply with regulations set by the Federal Reserve and the Office of the Comptroller of the Currency. State regulators would oversee issuers below that threshold or those who secure a waiver to operate under state supervision.
Representatives Bryan Steil (R-WI), chairman of the House Financial Committee’s Subcommittee on Digital Assets, and Congressman French Hill (R-AR) also introduced stablecoin legislation in the form of a discussion draft of the STABLE Act on February 6.
That same day, during an interview with the Atlantic Council, Federal Reserve Governor Christopher Waller said that US-pegged stablecoins “will broaden the reach of the dollar across the globe and make it even more of a reserve currency than it is now.” Waller added that state regulators should work with banks and nonbanks who want to issue their own stablecoins, ensuring compliance with regulations.
However, the governor also expressed concern about the risks surrounding stablecoins, such as de-pegging events and fragmentation of the stablecoin ecosystem.
During a hearing held on February 11, Republicans sought a new regulatory framework, rejecting the “regulation by enforcement” approach favored by the previous SEC Chairman Gary Gensler, which many industry advocates say stifled innovation in the crypto industry.
According to Fox Business reporter Eleanor Terrett, Tether has been working with lawmakers to shape stablecoin policy, highlighting the industry’s growing interest in collaborating with regulators to establish clear guidelines that support innovation while addressing potential risks.
Looking ahead
Stablecoins are not just a bridge but a launching pad.
As they continue to evolve amidst regulatory shifts and technological advancements, stablecoins are poised to redefine how we transact, invest and interact with the global economy.
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Securities Disclosure: I, Meagen Seatter, hold no direct investment interest in any company mentioned in this article.
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