What are stablecoins and their impact?

In crypto’s early years, traders had no stablecoin to shelter in during downturns. When Bitcoin and altcoin prices fell, everything moved together, with nothing on-chain to mirror the stability of the US dollar. What began as an experiment just over a decade ago has since grown into the backbone of crypto finance.

Tether (USDt) was first launched on October 6, 2014 and introduced the first widely adopted dollar-parity token. It filled a required gap in the crypto market and laid the foundation for what would become blockchain’s most widely used application.

In 2025, stablecoins sit at the heart of digital finance, processing volumes that run into the trillions of dollars annually. Unlike Bitcoin or Ethereum, whose values swing sharply, stablecoins are designed to hold steady against currencies like the US dollar or the euro. 

Stablecoins offer themselves as a smoother crypto trading bridge between traditional banking and decentralized networks. Dante Disparte, Chief Strategy Officer and Head of Global Policy at Circle, put it simply: “Stablecoins have become the killer app of blockchain.”

What is a stablecoin?

A stablecoin is a digital token on a blockchain whose value is designed to maintain parity with another asset, usually a fiat currency such as the US dollar. In 2014, Tether (USDT) pioneered the first fiat-backed model, with tokens issued against reserves held off-chain. MakerDAO introduced DAI in 2017 as a decentralized stablecoin collateralized by Ethereum.

Over the years, several algorithmic stablecoins have also emerged. These maintain their dollar parity by automatically expanding or contracting supply through a paired token. However, this type of architecture carries significant risks, and many have failed to maintain their peg to the dollar. TerraUSD (UST), launched by Terraform Labs and backed by its link to the LUNA token, met this fate in 2022 when it broke away from the dollar.

Despite stablecoin differences, all experiments share the same goal: to create a synthetic currency that holds steady value against traditional fiat currency and functions like money on a blockchain.

The emergence of Tether and Circle

Tether (USDT), launched in 2014, became the first stablecoin to achieve mass adoption. It enabled exchanges and traders to move dollar-like tokens at speed, avoiding the delays of traditional banking and soon established itself as the default trading pair across much of the crypto market. As of September 2025, USDT is backed primarily by US Treasury bills, cash equivalents and other high-quality assets. With a market capitalization of $187 billion as of December 2025, USDT remains the largest and most liquid stablecoin by far.

Circle's USD Coin (USDC) was announced on May 15, 2018 and launched that September. From inception, USDC was positioned as a more transparent and regulated alternative to Tether. USDC is backed by cash and short-term U.S. Treasury securities, with reserves held at regulated US financial institutions. Circle provides monthly attestations from independent accounting firms and daily reserve reporting. As of December 2025, USDC carries a market capitalization of $73 billion.

Stablecoin use cases

Stablecoins offer a range of use cases that leverage stability along with the speed and low transaction fees inherent to cryptocurrencies:

• More efficient cross-border payments

• Access to savings in US dollars for people all over the world

• A base currency for trading

• Settlement layer for DeFi protocols

According to Bloomberg, stablecoins transaction volume has reached $33T in 2025. While substantial, this amount only represents a fraction of the value of daily transfers processed by legacy infrastructure. That said, stablecoin transactions have risen by 30 times over the last five years, from €523B in 2020.

How are stablecoins regulated?

Stablecoin regulation is evolving rapidly across major jurisdictions, with Europe leading the way. Understanding these frameworks helps investors assess issuer credibility and long-term viability.

Europe: MiCA regulation

The Markets in Crypto-Assets Regulation (MiCA) became fully applicable in December 2024, making the EU the first major jurisdiction with comprehensive stablecoin rules. MiCA classifies stablecoins into two categories: E-Money Tokens (EMTs) pegged 1:1 to a single fiat currency, and Asset-Referenced Tokens (ARTs) backed by multiple assets.

Key provisions:

• EMT issuers must be authorised as electronic money institutions or credit institutions

• Reserves must be held in liquid assets and segregated from issuer funds

• Regular disclosure of reserve composition and redemption policies required

• Non-compliant stablecoins are being delisted from EU exchanges—ESMA directed platforms to restrict non-MiCA compliant stablecoins by end of Q1 2025

United States: The GENIUS act

The GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins Act), passed in July 2025, provides the first federal regulatory framework for stablecoins in the US.

Key provisions:

• Stablecoins must be backed 1:1 by cash or short-term U.S. Treasuries

• Issuers must provide regular public disclosures of reserves and redemption policies

• Reserves must be held in segregated custody at regulated institutions

• Issuers are classified as financial institutions under AML/CFT laws

The GENIUS Act has yet to be implemented: regulators will have to do so by July 18, 2026, at the latest. 

United Kingdom: An emerging framework

The UK is developing its stablecoin regime through parallel workstreams from the FCA and Bank of England. In December 2025, the FCA published consultations on stablecoin issuance and cryptoasset regulation, with final rules expected in 2026. Full implementation is scheduled for October 2027.

How to get exposure to the stablecoin economy

Will stablecoins prove to be blockchain technology's 'killer app'? The growth of the total supply of tokens pegged to the US dollar, reaching $305B as of 31 December 2025, suggests this may indeed be the case. So how can investors capitalise on this trend, given most stablecoins don't deliver a return?

The primary opportunity comes from the protocols that generate fees from settling transactions, as the greater the utility of their native tokens, the higher their value. Blockchains like Solana, Ethereum, Tron, and Arbitrum all process significant stablecoin volumes.

Solana, for example, is well-positioned to build its share of the stablecoin sector, primarily due to the network's speed—particularly relevant for cross-border payments which can take up to five days through traditional infrastructure. Solana had processed over $1T worth of stablecoin transactions in 2025, 3% of the total volume.

Conclusion

Stablecoins today embody programmable, borderless digital dollars operating around the clock. They sit at the core of digital finance, powering payments, DeFi and cross-border transfers at scale. What began in 2014 with Tether's dollar-parity token has matured from experimental tools into critical market infrastructure.

By extending U.S. dollar liquidity into emerging markets and digital economies, stablecoins not only serve traders and payment firms but also reinforce dollar hegemony itself. From once-fragile experiments to the blockchain's most adopted application, stablecoins have emerged as the true killer app of blockchain technology.