Source: Chainalysis; Compiled by: Baishui, Golden Finance
Stablecoins have quietly become a powerful force in the global cryptocurrency market, accounting for more than two-thirds of the trillions of dollars in cryptocurrency transactions recorded in recent months.
Unlike most cryptocurrencies, which often experience wild price swings, stablecoins are pegged 1:1 to less volatile assets such as fiat currencies or commodities to maintain consistent and predictable value.
Globally, stablecoins are gaining momentum as a medium of exchange and store of value, filling the gap left by traditional currencies, especially in regions with currency instability and limited access to the U.S. dollar (USD). Corporates, financial institutions (FIs), and individuals are leveraging stablecoins for a variety of use cases, from international payments to liquidity management to protection against currency volatility. The ability of stablecoins to facilitate faster and more cost-effective transactions compared to traditional financial systems has accelerated their adoption around the world.
As regulatory momentum around cryptocurrencies continues to grow, stablecoins are becoming a focal point in discussions about the technologies that will shape the future of finance.
Stablecoins are programmable digital currencies that are typically pegged 1:1 to a fiat currency such as the U.S. dollar. Stablecoins are primarily issued on networks such as Ethereum and Tron, combining the power of blockchain technology with the financial stability required for real-world use cases of cryptocurrencies.
The launch of Bitcoin in 2009 revolutionized the world’s financial infrastructure by introducing a decentralized, peer-to-peer trading system that eliminated the need for intermediaries. However, its limited supply and speculative trading dynamics led to wild price volatility, making its native token, Bitcoin (BTC), difficult to use as a medium of exchange. Similarly, when Ethereum emerged a few years later, it built on Bitcoin to extend the functionality of cryptocurrencies to programmability through smart contracts. This innovation spurred the rise of decentralized finance (DeFi), but like Bitcoin, Ethereum’s native token, Ether (ETH), has suffered from massive price volatility.
First appearing in 2014, stablecoins combine the technical benefits of blockchain, such as transparency, efficiency, and programmability, with the financial stability required for widespread adoption. By addressing the issue of cryptocurrency price volatility, stablecoins unlock new use cases beyond trading and speculation, appealing to a wide range of cryptocurrency users, both retail and institutional.
Stablecoins maintain their value through a variety of mechanisms designed to ensure price stability.
Fiat-pegged stablecoins are by far the most popular type of stablecoin and are pegged 1:1 to the value of traditional currencies, with the U.S. dollar and the euro (EUR) being the most common benchmarks. These stablecoins derive their stability from reserves held in fiat currencies or equivalent assets, which act as collateral. Examples include Tether (USDT) and USD Coin (USDC), which are pegged to the U.S. dollar, and Stasis Euro (EURS), which is pegged to the euro.
Commodity-pegged stablecoins are pegged to the value of a physical asset such as gold, silver, or other tangible commodities. These stablecoins allow users to gain exposure to commodities without directly owning them. For example, PAX Gold (PAXG) is a stablecoin backed by gold reserves, where each token represents one troy ounce of gold stored in a secure vault. Another example is Tether Gold (XAUT), which similarly offers the stability of being backed by gold.
Crypto-backed stablecoins are backed by reserves of other cryptocurrencies. These stablecoins typically use overcollateralization (i.e., the value of assets held in reserves is greater than the pegged value) to mitigate the inherent volatility of their underlying assets. For example, Dai (DAI) is backed by cryptocurrencies such as ETH and maintained through a system of smart contracts within the MakerDAO protocol. Users deposit collateral to mint Dai, ensuring its stability despite volatility in the collateralized cryptocurrency.
U.S. Treasury-backed stablecoins, such as Ondo’s USDY and Hashnote’s USYC, differ from traditional fiat-backed stablecoins that are backed by cash reserves or liquid assets. Backed by U.S. Treasuries and repurchase agreements, they provide yields directly to holders, essentially acting as tokenized money market funds and attracting investors seeking safety, passive income, and regulatory consistency.
Algorithmic stablecoins maintain their value through a programmed mechanism that adjusts supply based on market demand without relying on direct collateral. Examples of algorithmic stablecoins include Ampleforth (AMPL), which dynamically adjusts its supply to stabilize price, and Frax (FRAX), a partially algorithmic stablecoin that combines collateral with algorithmic adjustments. Ethena’s USDe is a synthetic USD-pegged stablecoin that uses crypto assets and automated hedging to maintain its USD value without directly holding fiat currencies. While these models are innovative, they face challenges in maintaining long-term stability, as seen with the 2022 collapse of TerraUSD (UST), highlighting the risks associated with purely algorithmic stabilization mechanisms.
Outside of the speculative realm, stablecoins play an important role in the cryptocurrency market, providing a reliable medium of exchange, a store of value, and a bridge between TradFi and cryptocurrencies. As important liquidity providers, stablecoins support much of the activity in decentralized finance (DeFi), centralized exchanges (CEX), and cross-border payments.
As we can see below, the stablecoin market has matured globally, replacing BTC as the asset of choice for daily transactions.
Regions such as Latin America and Sub-Saharan Africa are embracing stablecoins as a hedge against local currency instability, providing a more reliable means of trading and hedging. In these regions, retail adoption of stablecoins is primarily due to their use for low-cost remittances, safe savings in currency-volatile regions, and access to DeFi services such as lending and staking.
While stablecoins are growing in popularity among institutions, much of their growth is driven by transfers under $1 million — our benchmark for non-institutional activity — which we examine in our annual Geography of Crypto report. Below, we examine the growth of retail and professional-scale stablecoin transfers from July 2023 to June 2024, compared to the same period last year.
Latin America and Sub-Saharan Africa were the fastest growing regions for both retail and professional-scale stablecoin transfers, increasing by more than 40% year-over-year. East Asia and Eastern Europe followed closely behind, with year-over-year growth of 32% and 29%, respectively.
Meanwhile, markets such as North America and Western Europe saw significant growth in retail stablecoin activity, but at a slower pace, likely due to strong local financial infrastructure, despite the increasing adoption of stablecoins by institutional investors in these regions for liquidity management, settlement, and entry into cryptocurrencies. Notably, Western Europe is home to the second-largest merchant services market in the world, with the UK leading the region with a year-over-year growth rate of 58.4%. Stablecoins dominate these services, consistently accounting for 60-80% of the market share each quarter, as shown in the chart below.
In the Middle East and North Africa, stablecoins and altcoins have captured a larger market share, surpassing traditional dominant assets such as BTC and ETH, especially in Turkey, Saudi Arabia, and the UAE.
Notably, Turkey also leads the world in stablecoin trading as a percentage of GDP.
In East Asia, Hong Kong has seen a surge in interest in stablecoins from potential issuers following the launch of its stablecoin sandbox. Upcoming stablecoin regulation will pave the way for stablecoins to be listed on retail exchanges, which could provide a boost to Hong Kong’s web3 ambitions.
In Central and South Asia, as well as Oceania, stablecoins are widely used for cross-border trade and remittances, bypassing the challenges of traditional banking. Countries such as Singapore have boosted confidence in stablecoins through regulatory frameworks, making them an important tool for both retail and institutional users.
Stablecoins have become a priority for regulators around the world as they are rapidly adopted in the global financial system and play an increasingly important role in a variety of use cases. Governments and regulators are grappling with the challenge of creating a framework that encourages innovation while ensuring consumer protection, financial stability, and compliance with anti-money laundering and counter-terrorist financing (AML/CFT) standards.
The European Union (EU) has launched the Markets in Crypto-Assets Regulation (MiCA), which aims to create a unified crypto-asset framework for crypto-asset issuers and service providers, including stablecoins, within the EU. MiCA represents a significant shift from AML-focused regulation (introduced by the Fifth Anti-Money Laundering Directive) to a comprehensive regulatory framework that establishes prudential and conduct obligations. MiCA focuses on strengthening consumer protection and ensuring market integrity and financial stability. MiCA’s stablecoin framework is effective from June 30, 2024, while the regulation governing crypto-asset service providers (CASPs) will come into force from December 20, 2024. While MiCA is a European regulation applicable to all 27 EU member states, the responsibility for licensing and supervising issuers and CASPs lies with the respective national authorities.
MiCA establishes two different types of stablecoins: (i) asset-referenced tokens (ARTs), which are designed to maintain a stable value by reference to another value or right, or a combination of both, including one or more official currencies, commodities or crypto assets; and (ii) electronic money tokens (EMTs), which are designed to maintain a stable value by reference to the value of an official currency, such as the euro or the dollar. ART and EMT issuers in the EU must obtain the appropriate MiCA license, including publishing a detailed white paper, and comply with strict rules on governance, reserve asset management and redemption rights.
EMTs (which are considered both cryptoassets and funds) are a means of payment, while ARTs are considered a means of transaction, requiring issuers to report transaction activities in greater detail. In addition, ARTs may be subject to issuance restrictions. Major stablecoins, so-called “significant” stablecoins, face stricter regulation, including higher capital requirements and reserve asset obligations, and are directly supervised by the European Banking Authority (EBA) rather than national regulators. While MiCA has the potential to become a global standard, challenges such as unclear national implementation and overlapping classifications serve as a reminder that additional guidance is needed to ensure smooth implementation and adoption.
The Monetary Authority of Singapore (MAS) has finalized the country’s regulatory framework for stablecoins, focusing on single-currency stablecoins (SCS) pegged to the Singapore dollar or any G10 currency in circulation in Singapore. The framework focuses on value stability, capital adequacy, redemption and disclosure to ensure prudential soundness and consumer protection. Stablecoin issuers that meet all the requirements of the framework can apply to be recognized as “MAS-regulated stablecoins.”
Hong Kong is a special administrative region of China with a different legal and regulatory framework than mainland China. This separation allows Hong Kong to develop a progressive regulatory policy around stablecoins and other crypto assets. The Hong Kong Monetary Authority (HKMA) has developed a regulatory framework for stablecoin issuers, acknowledging the rapid development of the digital currency landscape. Even as legislation is nearing completion, the HKMA has launched a sandbox to enable industry stakeholders with compelling use cases to develop and test their business models, facilitating two-way discussions on regulation and risk management. In July 2024, three projects were admitted to the sandbox.
Japan is one of the first countries in the world to establish a regulatory framework for stablecoins. The framework places a high priority on stability and supervision, allowing banks, trust companies, and money transfer service providers to issue fiat-backed stablecoins under strict reserve requirements. Large companies such as Mitsubishi UFJ Financial Group (MUFG) are reportedly exploring stablecoin opportunities, but the market is still in its infancy and no stablecoins are listed on local exchanges or registered with the Electronic Payment Instrument Service Provider (EPISP). Recently, Japan's Financial Services Agency is reviewing stablecoin rules and taking into account international experience.
Stablecoin regulation in the United States is still ongoing, with great uncertainty and controversy. While stablecoins such as USDC and USDT have been widely used for payments and financial services, the lack of a comprehensive regulatory framework has created challenges for both issuers and users. Initiatives to address this include proposed legislation such as the Stablecoin Act of 2023 introduced by the House Financial Services Committee, which seeks to establish clear rules for issuers regarding reserves, transparency, and anti-money laundering (AML) compliance.
While there are currently hundreds of stablecoins in circulation, the majority are issued by Tether, followed by Circle. Other issuers, while having a smaller market share, are actively changing the stablecoin landscape.
Tether (USDT) is the largest stablecoin by market capitalization, accounting for the vast majority of stablecoin supply and providing liquidity for numerous blockchains. Tether’s reserves and financial transparency have been under scrutiny, but the company noted that audits and market stress tests have proven its solid position. Tether holds nearly $100 billion in U.S. Treasuries, with the majority of its assets managed by Cantor Fitzgerald, making its reserve assets comparable to those of major countries. Tether continues to expand its product offerings to include a UAE dirham-backed token and a gold-backed stablecoin, focusing on markets where these assets provide tangible value.
Circle issues USDC, the second-largest stablecoin by market cap. USDC is known for its transparency and attests to its reserves on a weekly basis. Reserves are held in the form of cash and short-term U.S. government Treasuries, providing users with a high level of transparency and assurance.
Paxos issues the Pax Dollar (USDP) and provides infrastructure for PayPal’s stablecoin, PayPal USD (PYUSD), and other stablecoin projects around the world. Paxos emphasizes transparency and trust, adheres to portfolio management guidelines and publishes monthly attestation reports to verify reserves.
PayPal has entered the stablecoin market with PayPal USD (PYUSD), issued in partnership with Paxos. Designed for payments, PYUSD is backed by reserves managed by Paxos and provides regular transparency reports to the public.
Once primarily used for cryptocurrency trading, stablecoins have become versatile tools for everyday use cases, providing broad utility to the crypto-native ecosystem and TradFi.
Stablecoins are the backbone of many DeFi protocols, facilitating lending and yield farming. With no price volatility, they are ideal for liquidity pools, reducing impermanent loss and maintaining efficiency on decentralized exchanges (DEXs). Stablecoins can also enable global financial services, allowing users in economically unstable regions to participate in DeFi markets without being exposed to local currency fluctuations.
Stablecoins are increasingly being used for everyday payments and P2P transfers. Their ability to process transactions quickly and cost-effectively, often with minimal fees, compared to the traditional banking system, makes them an attractive option for users. In P2P transactions, stablecoins offer individuals an easy and secure way to exchange value without the need for an intermediary. This is particularly valuable in regions without access to a reliable banking system.
Cross-border payments and remittances are one of the most transformative use cases for stablecoins. They offer a faster and cheaper alternative to traditional remittance services, which often involve high fees and slow processing times. Migrant workers, who are often unbanked or underbanked, use stablecoins to send money home, and businesses use them to settle international invoices. Stablecoins offer a solution that bypasses the inefficiencies of the traditional financial system, enhancing financial inclusion and reducing friction in cross-border transactions.
For example, sending a $200 remittance from Sub-Saharan Africa is approximately 60% cheaper using stablecoins compared to traditional fiat-based remittance methods, as shown below.
For FX and trade finance, stablecoins enable businesses to transact in globally accepted digital currencies, reducing reliance on intermediaries and reducing risks associated with exchange rate fluctuations. Stablecoins simplify transactions for importers and exporters, providing a stable and transparent medium for international trade, especially in regions where access to foreign exchange is limited.
Stablecoins have become the store of value of choice in regions facing economic instability or high inflation. By pegging their value to an asset like the U.S. dollar, stablecoins offer individuals and businesses a way to maintain purchasing power and protect their assets from local currency fluctuations. This use case is particularly effective in emerging markets, which have limited access to stable financial instruments and a great need for direct access to the U.S. dollar.
Stablecoins often trade at a premium in regions of high inflation, reflecting users’ willingness to pay for stability and faster money movement. Currency instability in emerging markets can lead to significant GDP losses over time, further driving demand for stablecoins.
While stablecoins have gained notable attention for their legitimate use cases, they have also been exploited by high-risk and illicit actors to conduct a variety of illicit activities. Their stability and global accessibility make them an attractive tool for bad actors seeking to circumvent financial controls and avoid detection — although the transparency and traceability inherent in blockchain often make this a poor choice.
While we estimate that less than 1% of on-chain transactions are illegal, stablecoins have been used for activities such as money laundering, fraud, and sanctions evasion. Due to their relatively high liquidity and high acceptance on cryptocurrency exchanges, stablecoins can be used to quickly transfer value across borders without relying on traditional financial institutions.
Sanctions evasion through stablecoins and other cryptocurrencies has gained prominence as countries such as Russia explore alternatives to circumvent Western financial restrictions. Entities in sanctioned regions may use stablecoins to facilitate international trade or transfer funds to entities in non-sanctioned jurisdictions. These activities exploit the anonymous nature of blockchain transactions to obscure the source of funds, often through a complex network of wallets and exchanges. While large-scale sanctions evasion remains challenging due to cryptocurrency market liquidity constraints and the transparency of blockchain transactions, smaller-scale activities, such as fund transfers by sanctioned entities and politically exposed persons, pose security and compliance risks.
Stablecoin issuers have stepped up their efforts to combat financial crime and support law enforcement and regulatory investigations around the world. Issuers such as Tether work closely with global law enforcement agencies, financial crime units, and regulators such as the Financial Crimes Enforcement Network (FinCEN), using Chainalysis to monitor transactions in real time and identify suspicious activity. Most centralized stablecoin issuers also have the power to freeze or permanently delete or “destroy” tokens in wallets associated with confirmed criminal activity, thereby stopping illegal transactions and helping to recover stolen funds.
Stablecoins issued by centralized services, such as USDC (Circle), USDT (Tether), BUSD (Paxos), and TUSD (Techteryx), can be frozen or destroyed by their issuers to comply with regulations or prevent illegal activity. In contrast, decentralized stablecoins such as DAI (MakerDAO), FRAX (Frax Finance), and LUSD (Liquity) are governed by protocols and smart contracts and are therefore not subject to freezing or destruction by any centralized authority. The balance between compliance and user autonomy is an important consideration for decentralized technologies.
Stablecoins not only represent a critical intersection between blockchain and traditional financial systems, but they also open up new avenues for economic participation. Adoption continues to grow across regions and industries, supported by regulatory advances designed to provide clarity and build trust among users and institutions. As frameworks such as Europe's MiCA and guidelines in markets such as Singapore and Japan take shape, stablecoins will gain further legitimacy and integrate into the mainstream financial system.
The future of stablecoins is not without challenges. Regulatory uncertainty in major markets, exploitation by illicit actors, and reserve transparency issues persist, which could undermine market confidence and hinder broader adoption if not effectively addressed. On the other hand, stablecoins offer tremendous opportunities for financial inclusion, especially in underserved regions, and are actively revolutionizing payments, remittances, and trade finance by reducing costs and increasing speed. The role of stablecoins in creating new financial products and streamlining cross-border trade further illustrates their transformative potential.
As regulation and technology continue to advance, stablecoins have the potential to unlock new opportunities, close gaps between economies and enable greater global financial connectivity. Their continued development will play a central role in defining the future of cryptocurrencies and TradFi.
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