Foreword

Although the total market value of cryptocurrencies has evaporated by nearly $900 billion since Trump took office, and altcoins have entered the deep bear market, the total market value of stablecoins has been hitting record highs. According to DefiLlama, the current total market capitalization is $230.45 billion, an increase of $2.3 billion in the past seven days. The market value of stablecoins has increased by 56% compared to the same period last year. In the overall market capitalization, Tether's $USDT stablecoin dominated with a market capitalization of nearly $144 billion, accounting for 62.6%, followed by Circle's $USDC with a market capitalization of $59 billion.

Stablecoin is a cryptocurrency designed to maintain relatively stable value and is designed to minimize the high volatility inherent in the crypto asset market. Unlike traditional cryptocurrencies such as Bitcoin, the value of a stablecoin is often pegged to some stable asset, such as the US dollar, the euro or gold. This feature makes it a key tool in the cryptocurrency ecosystem.

In the context of volatile downward trend of crypto assets and US stocks, the rise of stablecoins against the trend is considered to be a manifestation of consolidating the hegemony of the US dollar. At the first White House crypto summit, Trump expressed his hope to receive a stablecoin legislation bill before Congress recession in August to advance federal regulatory reforms on cryptocurrencies, and reiterated his hope that the dollar would "maintain dominance in the long term."

In addition to the United States, other regions, including Hong Kong, Japan and Thailand, are working hard to adopt stablecoin. On July 18 last year, the Hong Kong Monetary Authority announced the "sandbox" of stablecoin issuers; on March 10 this year, the Securities and Exchange Commission of Thailand has identified the stablecoins USDT and USDC as compliant cryptocurrencies; on the same day, the Japanese cabinet announced that it would approve the proposal to reform laws related to crypto brokerage and stablecoins, allowing crypto companies to operate as "intermediary businesses".

According to the Financial Times, some of the world's largest banks and fintech companies are eager to launch their own stablecoins, aiming to seize the cross-border payment market share they expect will be reshaped by cryptocurrencies. For example, JD.com, Yuanbic Innovation Technology and Standard Chartered Bank are promoting the Hong Kong dollar stablecoin project; PayPal issues stablecoin PYUSD; Stripe acquires Bridge stablecoin platform; Revolut explores the possibility of stablecoin issuance; Visa uses stablecoinDeposit currency for payments and global business.

With the stablecoin layout of major regions, banks and fintech companies, the crypto market may usher in a previous stablecoin bull market.

Classification of stablecoins

Stablecoins can be divided into fiat currency staking stablecoins, crypto asset staking stablecoins, algorithmic stablecoins and emerging stablecoins according to their collateral type.

Fiat-Share Coined Stable Coins

Fiat-Share Coined Stable Coins are backed by fiat currencies (such as US dollars, euros) as reserves and are usually issued at a ratio of 1:1, that is, each dollar-share Coined Stable Coin (such as $USDT or $USDC) corresponds to one dollar stored in the issuer's bank account.

USDT is a stablecoin issued by Tether and is pegged to the US dollar 1:1. USDT is currently the most valuable stablecoin and one of the largest trading volume cryptocurrencies.

USDC is a stablecoin issued by Centre Consortium, jointly established by Circle and Coinbase, pegged to the US dollar 1:1. USDC has performed well in compliance and transparency and is favored by institutional investors.

FDUSD is issued by FD121 Limited, a subsidiary of Hong Kong-based financial company First Digital Limited, and is 1:1-linked to the US dollar. The Binance Address is the primary holder of FDUSD.

PYUSD is a stablecoin launched by digital payment giant PayPal in partnership with Paxos. It is completely backed by US dollar deposits, U.S. Treasury and cash equivalents and can be bought and sold for 1 $PYUSD on PayPal for $1.

Cryptocurrency-solidified stablecoins

Cryptocurrency-solidified stablecoins use other crypto assets as collateral. The representative project is Sky (formerlyIt is USDS (formerly DAI) of MakerDAO, which is mainly collateralized by Ethereum. Due to the volatility of the cryptocurrency itself, such stablecoins usually require over-collateralization (usually 150% to 200%) to maintain stability.

USDS is a decentralized stablecoin issued by Sky that maintains its peg to the US dollar by over-solidating crypto assets. USDS is currently the third largest stablecoin with market value and the largest decentralized stablecoin with market value. Its price stability mechanism is controlled by contracts, so it is also more censor-resistant.

GHO is a stablecoin that users deposit assets under the AAVE protocol for over-collateralization. Founded on Ethereum in 2017, AAVE is currently the largest decentralized lending agreement. For AAVE, the launch of GHO directly enhances the competitiveness of the overall AAVE to a great extent.

crvUSD is a native stablecoin of the Curve protocol. It issues US dollar stablecoins through over-collateralization, and its operating mechanism is similar to Sky. Curve is a decentralized exchange (DEX) that specializes in providing stablecoin usage that manages liquidity through automated market makers (AMMs).

sUSD is a stablecoin minted by Synthetix, a synthetic asset protocol on Ethereum and Optimistic. It mainly stakes SNX, the native token of the Synthetix protocol, with a staking rate of 400%. sUSD Higher mortgage rates can cope with extreme market risks and maintain system stability.

Algorithmic Stablecoin

Algorithmic Stablecoin is an algorithm-based stablecoin. It mainly uses algorithms to maintain price stability, and does not require collateral or only partial collateral. However, in practice, since there is no sufficient collateral behind the algorithmic stablecoins, it is very easy to have a "death spiral" when facing risks such as insufficient market liquidity and black swan events. The last famous algorithmic stablecoin project, Terra (LUNA), had a peak market value of US$40 billion, and it went back to zero for a day.

Terra's mechanism is to use 1 $UST and 1 dollar valueThe $LUNA is redeemed and regulates the supply and demand of $UST in the market through arbitrage behavior in the market to maintain anchorage. When the price of 1 $UST is less than USD, the arbitrageur can exchange 1 $UST for $1 equivalent $LUNA; correspondingly, when the price of 1 $UST is greater than USD, the arbitrageur can exchange 1 $UST for $1 equivalent $LUNA.

Terra's fuse is the large-scale selling of $UST (giant whale escapes/malicious short selling). Based on the mechanism of algorithmic stablecoins, a large amount of minted $LUNA flows into the market, and $UST is recycled and destroyed. The large amount of release of $LUNA caused the currency price to fall, and the market further panics, lack of confidence in $UST, which triggered a large-scale selling of $UST, which led to a dean of the value of $1. The price of $LUNA continues to fall, and finally $LUNA and $UST both returned to zero.

Algorithmic stablecoin hopes to mint a native stablecoin that is completely regulated by code. Due to its human game characteristics and the mechanism of "printing money out of thin air" are more like a social experiment. Similar algorithmic stablecoin projects include Frax and USDD. Both projects later transformed into fully (or over-solid) stablecoins. The algorithmic elements have expired. It can be said that Terra's collapse has basically declared the failure of the algorithmic stablecoin social experiment.

Emerging stablecoins

Emerging stablecoins are generally combined with fiat currency collateral, cryptocurrency collateral and algorithmic adjustment. Currently, the projects with high attention on the market include USDe and USD0.

USDe is an emerging synthetic dollar stablecoin launched by Ethena Labs. USDe uses Delta hedging strategy and a minting-redemption mechanism to achieve stability with the US dollar 1:1 link. Users mint USDe through the Ethena front-end with various assets that convert them into ETH LSTs on the back-end such as stETH, mETH and wbETH, and then deposit them as collateral into the custodian while creating ETH short positions on the centralized exchange. This hedging creates a U.S. dollar position based on which USDe is issued. USDe Collateral longs and shorts both generate returns. The returns of spot longs come from Ethereum pledge yield, and the returns of futures shorts come from the funds and basis earned by derivative positions, which will be distributed to qualifying.Users who stake USDe.

USD0 is the cornerstone of the Usual ecosystem, and it is the world's first real-world asset (RWA) stablecoin to aggregate multiple U.S. Treasury tokens. Unlike stablecoins such as USDT and USDC, the biggest selling point of USD0 is to provide a highly secure and decentralized structure through short-term US Treasury bonds and repurchase agreements. Users can pledge USD0 to mint bond token USD0++, and become USD0++ holders can share interest on the lowest RWA assets. On January 10, 2025, due to the official modification of the USD0++ redemption rules, the two types of redemption changed from 1:1 guaranteed redemption to conditional (1:1, but the withdrawal requires burning part of the income) and unconditional (the guaranteed exit ratio is 0.87:1), which caused users to panic and escape, causing USD0++ to dean.

Whether it is the Delta neutral strategy adopted by USDe or the short-term US Treasury mortgage adopted by USD0, it provides a way to generate interest rates for stablecoins. Before this, a large number of stablecoins did not pay interest to users, which is also the largest source of income for stablecoin projects such as USDT and USDC. However, with the emergence of emerging stablecoins such as USDe and USD0, it will become the norm for stablecoins to provide users with interest, similar to Yu'ebao on-chain.

Stablecoins and new payments

Although the current payment field is still dominated by intermediaries that control high fees, in fact, stablecoins have become the biggest breakthrough in the payment field. In 2024, the payment settlement volume of stablecoins reached about US$5.6 trillion, 20 times its payment settlement volume in 2020. The on-chain stablecoins have 20 million addresses active transactions every month, and more than 120 million addresses hold non-zero stablecoin balances.

As the use of stablecoins expands rapidly around the world, especially in emerging markets, it has had a significant impact on traditional financial infrastructure, especially in the field of global payments. Current payment channels and information transfer protocols such as ACH, SEPA and SWIFT constitute a global payment network. These intermediaries enable us toLarge-scale transactions are carried out across regions and time zones, and ensuring relatively smooth payments, but at the same time, it brings high intermediary fees and several days of settlement time. Stablecoin and blockchain technology provide a new payment path that simplifies payment clearing process, making payments fast, cheap and easy to access.

In fact, stablecoins are already the most economical way to transfer money (USD), and there are many practical application scenarios. For example, Nigerian individuals and businesses use stablecoins (such as USDT or USDC) to send money to relatives or business partners abroad, which not only saves the cumbersome processes of the banking system, but also avoids high foreign exchange exchange and transfer fees. Similarly, Indonesia's small and medium-sized enterprises use stablecoins for cross-border trade payments, improving transaction efficiency and increasing profit margins by reducing intermediary fees.

As the cornerstone of stablecoin payment, the underlying blockchain is naturally vigorously developing stablecoin payment. Different blockchain platforms provide different speeds, costs and security, which directly affects the user's experience and the use of stablecoin. Judging from the stablecoin transaction volume, Ethereum, Tron and Binance Chain rank among the top three, but from the development roadmap of the public chain, the high-performance Layer1 Solana, Base backed by Coinbase and the emerging RWA public chain Pharos all regard payment as the core strategic direction.

Summary

Statecoins represent important innovations in the cryptocurrency field. They not only solve the volatility problem of crypto assets, but also provide new possibilities for the global financial system, especially in the global payment field, which has been increasingly widely used.

Looking forward, stablecoins will play an increasingly important role in the digital financial ecosystem. Regulators’ attitudes towards stablecoins will be a key factor in their development. Central banks and financial regulators in various countries are paying close attention to stablecoins and gradually developing corresponding regulatory frameworks.

Behind the regulation, we actually see the fact that the biggest opportunity for cryptocurrencies may not be to regard them as cryptocurrencies, but to regard them as a new set of payment methods. In this round of stablecoin bull market, we will see how stablecoins swallow the traditional payment market.