Author: Jsquare Research Team
Stablecoins are evolving from crypto speculation tools into a new category of digital financial infrastructure. By August 2025, the total stablecoin market capitalization exceeded $271.4 billion. However, more important than scale is the differentiation in their composition, yield mechanisms, and application scenarios.
We believe the market is undergoing a decisive shift: from dollar tokens that simply seek liquidity to composable, interest-bearing settlement assets that directly connect to real-world cash flows and enterprise systems.
Stablecoin Market Size
Stablecoins have broken out of the confines of the crypto sandbox. Supply growth is primarily driven by emerging institutional tokens such as USDT, USDC, and PayPal USD (PYUSD). Stablecoins now handle more annual on-chain settlement volume than Visa and Mastercard combined—reaching $27.6 trillion in 2024 alone. What began as a convenience token pegged to the US dollar has evolved into a mature, yield-bearing, full-chain cash layer. Regulators, payment networks, and treasurers are increasingly treating stablecoins with the same standards as bank money. Circle's successful IPO in June 2025, raising $624 million and valuing it at $6.9 billion, underscores the market's confidence in regulated stablecoin issuers. As of August 2025, the total supply of stablecoins in circulation reached $269.5 billion. USDT dominated with $154.4 billion (57.3%), followed closely by USDC with $65.8 billion (24.4%). Other major stablecoins include USDe ($10.5 billion), DAI ($4.1 billion), and USDS ($4.8 billion). Emerging or smaller stablecoins such as FDUSD, PYUSD, and USDX each hold less than 1% of the market. This concentration reflects both the dominance of traditional issuers and the pressure on emerging stablecoins to differentiate themselves through regulatory compliance and strategic integration with financial infrastructure. Stablecoins are transforming into yield engines. With money market rates expected to exceed 4% in 2024, issuers are tokenizing U.S. Treasury bonds and passing on the coupon income to holders. Currently, the market capitalization of tokenized Treasury bonds exceeds $5.8 billion, maintaining a quarterly growth rate exceeding 20% despite significant interest rate fluctuations. A wider range of RWA (Real World Asset) tokens—including short-term credit, accounts receivable, and even real estate shares—has pushed the total on-chain RWA market capitalization to $35 billion, with analysts predicting it will exceed $50 billion by year-end. The difference in 2024 lies not only in scale growth, but also in the direct pegging of on-chain returns to real-world assets (RWAs). A year ago, holding stablecoins was simply about preserving capital; now, it's possible to earn an annualized yield (APY) of 4-10% through the following structures: sUSDe (Ethena): Generates income through delta-neutral derivatives and basis trading, with a market capitalization of $3.49 billion. USDM (Mountain): Tokenized short-term Treasury bonds via a Bermuda-regulated wrapper, with a market capitalization of $47.8 million. USDY (Ondo): Tokenized short-term government bonds, market capitalization $636 million. Plume Yield Tokens: Cross-chain distribution of money market fund (MMF) returns, market capitalization $235 million. (Source: Coingecko, June 17, 2025) We believe this sector deserves significant attention. Over $5.8 billion in tokenized government bonds are currently in circulation, and the size of interest-bearing stablecoins is compounding at over 25% per quarter. These assets blur the lines between stablecoins, money market funds, and tokenized fixed income products. By the second quarter of 2026, interest-bearing stablecoins will account for over 15% of the total stablecoin supply (currently approximately 3.5%). These are no longer simply native DeFi products; instead, they prioritize compliance and support composability as underlying assets, deeply integrated into the RWA ecosystem. Where the Smart Money Flows: Three Trends Shaping the Next Generation of Stablecoin Leaders 1. Enterprise Integration PYUSD is more than just a marketing gimmick—this $952 million stablecoin is already deeply integrated into the Venmo wallet, supporting merchant rewards. JPMorgan Chase's digital token (JPM Coin) even settles over $1 billion in transactions daily within treasury systems. With the accelerated integration of stablecoins into ERP systems, payroll, and digital banking architectures, we expect this sector to grow tenfold. 2. Full-chain Interoperability Blockchain fragmentation once constrained industry development, but protocols like LayerZero, Axelar, and CCIP are addressing this challenge through full-chain functionality. The next generation of mainstream stablecoins will achieve native full-chain functionality: "Once minted, universally accepted." 3. Regulatory Certifications Build a Moat Certifications such as MAS certification and MiCA approval have become key differentiators in the stablecoin market, creating a real distribution advantage, particularly in B2B and corporate funding flows. Tokens issued by compliant issuers will command a trust premium in the secondary market. 4. Improving Infrastructure Maturity In the CeFi sector, Stripe's $1.1 billion acquisition of Bridge Network demonstrates the traditional payment giant's commitment to developing stablecoin channels. In the DeFi ecosystem, liquidity hubs such as Curve, stablecoin exchange pools, and collateralized lending platforms have significantly improved capital efficiency. As the ecosystem matures, stablecoins are becoming deeply embedded in all levels of the financial system, becoming a more trusted and well-functioning infrastructure. The Regulatory Arbitrage Window Is Closing Until 2023, stablecoin issuance remained in a regulatory gray area. Now, this window is rapidly closing, with the latest regulatory landscape as follows: United States (GENIUS Act) – On July 18, 2025, the GENIUS Act officially came into effect, marking a new era in the regulation of US dollar stablecoins. This bill, along with the 2025 Digital Asset Market Clarity Act (CLARITY Act), clarifies that compliant payment stablecoins are non-securities, aiming to provide regulatory certainty, strengthen consumer protection, and enable the United States to remain competitive in the global digital asset market. Key points of the bill include: 100% reserve requirement: Stablecoins must be fully backed at a 1:1 ratio by cash and short-term U.S. Treasury securities. Reserve assets must not include high-risk assets (cryptocurrencies or credit assets are prohibited), and rehypothecation is prohibited except for specific liquidity needs. Transparency and Certification Mechanism: Issuers must publish audited reserve reports monthly; the CEO/CFO must personally certify the accuracy of these reports. Bankruptcy Protection Provisions: Stablecoin reserves are held in independent custody; holders' redemption rights take precedence over other creditors (similar to bank deposit protection mechanisms). Profit Ban: Algorithmic stablecoins (such as UST) and fractional reserve models are prohibited; only fully collateralized "payment stablecoins" are recognized; and interest payments to holders are prohibited (to avoid being deemed securities). The GENIUS Act, through its stringent reserve and transparency requirements, is expected to boost consumer confidence and promote wider adoption of stablecoins. A clear regulatory framework will also attract greater institutional participation, solidifying the United States' global leadership in digital asset regulation.
GENIUS Act policy link https://www.whitehouse.gov/fact-sheets/2025/07/fact-sheet-president-donald-j-trump-signs-genius-act-into-law/
EU (MiCA Regulation) - The EU's Markets in Crypto-Assets Regulation (MiCA) implements the following provisions:
Licensing and regulatory requirements: Only licensed electronic money institutions or credit institutions may issue fiat-backed stablecoins (EMTs); the European Banking Authority (EBA) is responsible for supervising "important" stablecoins; EUR/USD stablecoin issuers must hold an electronic money license or banking qualifications
MiCA regulation link: https://www.esma.europa.eu/esmas-activities/digital-finance-and-innovation/markets-crypto-assets-regulation-mica
UK regulatory framework—— The UK regards stablecoins as regulated payment tools. The core regulations include:
Reserve requirements: Only fiat currency is allowed to fully collateralize stablecoins; reserve assets must be highly liquid assets such as bank deposits/short-term government bonds
Income ban: It is prohibited to pay interest to holders; the income from reserve assets belongs to the issuer (used for operating costs)
Innovation orientation: Banks and licensed institutions are encouraged to issue payment stablecoins; focus on developing application scenarios such as cross-border remittances/micropayments
FCA regulatory guidance link: https://www.fca.org.uk/publications/consultation-papers/cp25-14-stablecoin-issuance-cryptoasset-custody
Singapore (MAS regulatory framework)—— The Monetary Authority of Singapore (MAS) has introduced a tiered regulatory scheme:
Flexible licensing regime: Stablecoin issuers with an issuance volume of less than S$5 million may choose to operate under a general Digital Payment Token License; those exceeding this threshold must apply for a Major Payment Institution License and comply with specific stablecoin regulations.
1:1 peg to high-quality assets: Reserve assets are limited to cash, cash equivalents, or AAA-rated short-term sovereign bonds; government bonds maturing within three months of the issuing country of the anchored currency are accepted as reserves.
Redemption guarantee mechanism: Users enjoy a 1:1 guaranteed redemption right (completed within five business days); unreasonable redemption fees are prohibited.
The newly added Stablecoin Issuing Services License in March 2025 allows companies to focus on stablecoin business, exempting them from the regulatory burdens associated with digital payment tokens. MAS clarified in Q2 2025 that stablecoin issuers must be banks or non-bank financial institutions registered in Singapore.
MAS policy details https://www.mas.gov.sg/news/media-releases/2025/mas-clarifies-regulatory-regime-for-digital-token-service-providers
Hong Kong (Proposed Regulatory System) - Hong Kong's Stablecoin Ordinance will take effect on August 1, 2025. The core contents include:
Full reserve requirement: the market value of reserve assets must be ≥ the face value of the circulating stablecoin; limited to Hong Kong dollar cash, bank deposits and Hong Kong and US government bills/bonds
HKMA mandatory license: all stablecoins issued/promoted in Hong Kong (including foreign currency-pegged ones) must be licensed; Ant Group has announced that it will apply for a license
Standard Chartered Bank, Animoca Brands, and Hong Kong Telecom (HKT) have established a joint venture to issue a Hong Kong dollar stablecoin for cross-border payments. This regulation aims to connect with the digital RMB pilot program and strengthen Hong Kong's status as an international financial center.
HKMA Regulatory Guidance https://www.hkma.gov.hk/eng/news-and-media/press-releases/2025/07/20250729-4/
United Arab Emirates (UAE) Regulatory Framework - The Central Bank of the United Arab Emirates (CBUAE)'s "Payment Token Services Regulations," which came into effect in June 2025, established a regulatory framework for stablecoins and classified them as "payment tokens." Taking the dirham-anchored compliant stablecoin AE Coin as a representative case, the framework emphasizes reserve protection and transparency. Core terms:
Local stablecoin issuance: Only licensed institutions registered in the UAE can issue dirham-pegged stablecoins; full reserves must be maintained and subject to regular audits
Foreign stablecoin restrictions: Only allowed to be used in virtual asset transactions; prohibited for local payments to maintain the sovereignty of the dirham
Anti-money laundering compliance: Issuers and custodians must implement strict KYC; establish a transaction monitoring system to meet AML/CFT requirements
Digital dirham (CBDC) plan: Central bank digital currency may reshape the payment ecosystem; state-led digital payment system gives priority to development
The framework has enhanced confidence in local stablecoins such as AE Coin through strict reserve requirements, but restricting foreign stablecoins may inhibit the overall development of the crypto market.
Full text of the CBUAE regulations https://rulebook.centralbank.ae/en/rulebook/payment-token-services-regulation
Japan's Stablecoin Policy - Japan's 2025 amendment to the Payment Services Act (PSA) established a world-leading stablecoin regulatory system, officially recognizing stablecoins as payment tools from May 2025. Innovation highlights:
Flexible reserve requirements: The reserve asset ratio of trust-type stablecoins is relaxed to 50%; holding of low-risk assets such as Japanese and US short-term government bonds is allowed
New intermediary license: Establishment of the "electronic payment tool/crypto asset service intermediary" category; Exemption of capital requirements for asset custody intermediaries
Bankruptcy protection mechanism: Drawing lessons from the 2022 FTX Japan incident; Requirement for exchanges to retain assets in Japan
Enhanced transparency: Issuers are required to complete Financial Services Agency registration; on-chain transaction data must comply with AML/CFT review
This policy is expected to promote the popularization of trust-type stablecoins. The new intermediary model can reduce transaction costs, and the domestic asset retention requirement significantly improves the security of user funds.
Japan's stablecoin policy details https://law.asia/japan-crypto-stablecoin-regulations-2025/
South Korea's stablecoin policy
In 2025, South Korea is actively promoting its stablecoin policy, focusing on legalizing won-pegged stablecoins and incorporating them into the regulatory framework to enhance economic autonomy and compete in the global digital financial market. Under the leadership of President Lee Jae-myung, the ruling Democratic Party of Korea is promoting the Digital Asset Basic Act and related bills to establish a legal framework for private companies to issue stablecoins, aiming to reduce reliance on US dollar stablecoins such as USDT and USDC. Key policy points:
Legalization of Korean won stablecoins: Legislation to lift the ban on Korean won stablecoins; Allow private enterprises to issue them under strict supervision; Aim to promote domestic digital transactions and reduce capital outflows
Capital requirements: Issuers must maintain a minimum capital of 500 million to 1 billion won (approximately US$360,000 to US$720,000); Prevent underfunded operators from disrupting the market
Reserves and transparency: 100% reserve requirement (1:1 anchoring); Regular disclosure of reserve audit reports; Alignment with the US GENIUS Act and the EU MiCA standards
Regulatory system: Dual supervision by the Financial Services Commission (FSC) and the Bank of Korea (BOK); Strengthening the coordination mechanism for foreign exchange risk management
Support for the digital asset ecosystem: Supporting legislation includes provisions for security token offerings (STOs) and crypto ETFs; the goal is to establish South Korea as an Asian digital financial hub. The policy is expected to be completed by the end of 2025 and could make South Korea the first country in Asia to establish a complete stablecoin regulatory system. Details of South Korea's stablecoin policy: https://coinedition.com/south-korea-new-stablecoin-regulation/ GENIUS Act – The US Stablecoin Standard The GENIUS Act is of particular importance as it has the potential to become a global regulatory standard. Key Impacts:
High-risk stablecoin suppression
Differentiating between regulated tokens (such as PayPal USD, Circle USDC)
May force offshore/algorithmic stablecoins (such as USDT, crvUSD) to withdraw from US exchanges
Uncertainty in income distribution
Stablecoin: Digital Eurodollar (Digital Stablecoins are quietly recreating the transformation of the Eurodollar in the 1970s—they are becoming offshore, interest-bearing, dollar-denominated settlement systems that are not controlled by sovereign monetary authorities. However, unlike Eurodollars, stablecoins are programmable, composable, and globally interoperable. This combination of technological innovation and regulatory clarity makes stablecoins a "light-sovereign," dollar-like, programmable cash infrastructure. With appropriate regulatory design, stablecoins could become the most scalable form of financial globalization since SWIFT. The Evolution of Use Cases: Stablecoins were initially optimized for crypto-native functions: market-neutral trading, collateral staking, and cross-exchange arbitrage. This phase is coming to an end. The new era will focus on real-world applications: Emerging Market Savings and Payments: In economies with high inflation, US dollar stablecoins are becoming a digital alternative to bank deposits. Accessing US dollars through stablecoins is often more reliable than relying on the local banking system.
Cross-border Remittances: Migrant workers in the Philippines, Nigeria, and Mexico have begun using stablecoins to bypass traditional remittance corridors with high fees and slow settlement times.
Tokenized Cash Equivalents: In developed markets, regulated stablecoins like USDC and sUSDe will resemble tokenized money market funds, offering annualized returns of 4-8% while maintaining intraday liquidity and programmable interfaces for fintech platforms. What the Future of Stablecoins Look Like: Future stablecoins will not only be cryptoassets but also programmable, interest-bearing, API-interoperable cash equivalents that can operate across blockchains and jurisdictions. They will function similarly to tokenized money market funds, but designed for trust-minimized and instant transfers. As regulatory frameworks improve and enterprise adoption accelerates, we believe stablecoins will evolve from digital wrappers around the US dollar to a globally interoperable cash infrastructure, potentially challenging SWIFT's position as the global settlement layer for the internet's native currency. About Jsquare: Jsquare is a research- and technology-driven investment firm focused on driving mass adoption of blockchain and enabling future alpha opportunities in Web3. We currently manage over $200 million in assets and operate a dedicated $50 million limited partner fund. We prioritize post-investment services, leveraging both Web2 and Web3 resources to empower our portfolio.
Jsquare Website: https://www.jsquare.co/
Jsquare X account: https://x.com/JSquare_co
Jsquare LinkedIn: https://www.linkedin.com/company/jsquare-co/
Anais
Catherine
Kikyo
Weatherly