Stablecoins: From Crypto Sidekick to Center Stage

You have probably heard people say that stablecoins are the future of money, or even the new gold rush – assets that could reshape payments, finance, and the way value moves around the world. Supporters see them as a bridge between traditional finance and blockchain-based markets, while critics view them as a potential source of systemic risk.

This piece focuses on the fundamentals of stablecoins: what they are, who issues them, how large the market is, and how regulators in the European Union and the United States are approaching them.

What Are Stablecoins?

A stablecoin is a type of crypto-asset designed to maintain a relatively stable value by being pegged to an external asset. In most cases, this peg is to a fiat currency such as the U.S. dollar or the euro. Pegging means that the stablecoin is intended to track the value of the reference asset at a fixed ratio – most commonly one-to-one. Unlike Bitcoin or Ethereum, whose prices can fluctuate significantly, stablecoins aim to remain as close as possible to a fixed price, such as 1 USD = 1 stablecoin token.

The objective is to combine the transactional efficiency of blockchain systems with the price stability of traditional money.

They do this by holding reserves backing each token – for example, cash, short-term Treasuries, or other liquid assets – or by using smart contracts and algorithms designed to balance supply and demand. Stablecoins are designed to serve as a medium of exchange, a store of value over short time horizons, and a unit of account within digital financial systems.

What Makes Them “Stable”?

There are a few different mechanisms used to maintain stability:

• Fiat-collateralized: backed directly by reserves of a currency like USD or EUR.

• Commodity-backed: tied to assets like gold.

• Algorithmic: uses code and incentives to maintain a peg without direct asset backing.

Despite the name stable, not all stablecoins have fully maintained their pegs during stress events – which is one reason why regulation has become so important.

The effectiveness of a stablecoin ultimately depends on the quality, transparency, and accessibility of its backing mechanism.

The Big Players in the Stablecoin World

The stablecoin market is highly concentrated. There are two U.S. dollar-denominated stablecoins:

• Tether (USDT) 

• USD Coin (USDC) 

Other stablecoins include Binance USD (BUSD), DAI, and a range of newer entrants, including projects focused on institutional-grade issuance and regulatory alignment, such as Agora Finance’s AUSD.

Despite this growing ecosystem, USDT and USDC continue to account for the vast majority of the market. Tether (USDT) represents roughly USD 184 billion, or 63% of total stablecoin market capitalization, while USD Coin (USDC) accounts for about USD 75 billion, or 26%. Together, they make up nearly 90% of the entire stablecoin market.

How Big Is the Stablecoin Market?

Stablecoins have grown rapidly over the past few years. While their total market capitalization – now exceeding USD 280 billion, or roughly 8% of the overall crypto-asset market – remains small compared with traditional financial systems, their role within crypto markets is significant.

Stablecoins account for a large share of trading activity, acting as the primary liquidity bridge between fiat currencies and other crypto-assets, with a substantial portion of centralized exchange trading conducted against stablecoin pairs.

According to data gathered by the European Central Bank (ECB), U.S. dollar–denominated stablecoins dominate this market, representing around 99% of stablecoin supply in circulation. By contrast, euro-denominated stablecoins play only a marginal role, with total issuance of approximately €395 million. The ECB also notes that increasing regulatory clarity may have contributed to the recent surge in stablecoin demand.

Who Can Issue Stablecoins?

In the early days of stablecoins, projects were often launched by decentralized teams or small firms without formal regulatory oversight. In principle, anyone with the technical capability could create a stablecoin. Today the regulatory landscape has evolved significantly and only authorized entities can issue regulated stablecoins in most major jurisdictions.

These authorized issuers typically include:

• Banks and other licensed financial institutions

• Regulated non-bank firms, such as fintech companies, that meet specific licensing requirements

• Entities that comply with strict standards for reserves, audits, reporting, and consumer protections

Regulatory Developments: EU and United States

European Union

The EU’s Markets in Crypto-Assets Regulation (MiCA) establishes a comprehensive framework for stablecoins across member states. It introduces requirements related to authorization, reserve composition, transparency, and ongoing supervision. The framework is designed to reduce consumer risk and prevent disruptions to financial stability, while allowing regulated innovation to continue.

United States

In the U.S., the Guiding and Establishing National Innovation for U.S. Stablecoins Act (commonly called the GENIUS Act) was signed into law in 2025. The regulatory approach emphasizes full reserve backing, segregation of assets, and oversight by banking or financial authorities.

In parallel, proposed legislation such as the Clarity Act focuses on providing greater regulatory clarity for digital assets more broadly, including the delineation of responsibilities among U.S. financial regulators.

While implementation details continue to evolve, the direction is toward integrating stablecoins into the existing financial regulatory perimeter rather than treating them as unregulated instruments.

Where Next?

Stablecoins are no longer a peripheral innovation. They have become a core component of digital asset markets and an area of active regulatory attention. Understanding their structure and constraints is essential before assessing their broader economic implications.

In the second part of this series, we will examine how stablecoins are used in practice today – across payments, remittances, trading, and decentralized finance – and explore their potential role in the future financial system.