Stablecoin Business Models, Global Impact, and Evolving Regulations

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Stablecoins represent a pivotal innovation at the intersection of traditional finance and the digital asset ecosystem. By combining the technological advantages of crypto assets with the value stability of fiat currencies, they have emerged as a crucial bridge between these two worlds. This analysis delves into their operational frameworks, growing influence, associated risks, and the regulatory responses taking shape globally.

Understanding Stablecoin Fundamentals and Operational Models

The Role of Stablecoins in the Digital Asset Pyramid

To grasp the essence of stablecoins, it's helpful to view them within the broader "crypto asset pyramid." This spectrum encompasses a range of blockchain-based assets, from Central Bank Digital Currencies (CBDCs) and stablecoins to tokenized real-world assets (RWA) and more volatile cryptocurrencies like Bitcoin. As one moves down this pyramid, the external value support diminishes and price volatility increases.

Stablecoins occupy a unique middle ground. They leverage the decentralization, efficiency, and programmability of blockchain technology while maintaining a stable value pegged to a reserve asset, typically a fiat currency like the U.S. dollar. This dual nature has propelled them to constitute approximately 7.5% of the total crypto asset market capitalization. They serve as the primary gateway between the volatile crypto market and the traditional financial system.

Crucially, stablecoins have solved the incentive problem for market participants, creating a Pareto improvement:

There are four primary types of stablecoins: fiat-collateralized, crypto-collateralized, commodity-collateralized, and algorithmic. Among these, fiat-collateralized stablecoins are the dominant form.

The Reality of "Decentralization" in Stablecoin Operations

A common misconception is that stablecoins are entirely decentralized. While their transactions often occur on decentralized public blockchains, their issuance and custody are predominantly centralized processes.

Consider the operational model of a major stablecoin like USDT:

  1. Users deposit fiat currency into the issuer's (Tether's) bank account.
  2. The issuer creates an equivalent amount of USDT and places the reserve funds into custody for investment.
  3. Users then utilize USDT for various transactions.
  4. To redeem funds, users return USDT to the issuer's account.
  5. The issuer destroys the returned USDT and disburses the corresponding fiat currency to the user.

This model highlights that the core functions—issuance, custody, and reserve management—are centralized. The investment income generated from the reserve assets is the primary revenue source for the issuer. For instance, in 2024, 99% of Circle's (issuer of USDC) revenue came from reserve investment income.

Resolving Key Debates Through Business Model Analysis

Several debates surround stablecoins, which can be clarified by examining their actual business model:

In essence, stablecoins are a hybrid of crypto assets, third-party payment systems, and money market funds, leveraging the technologies and functions of each.

Evolving Use Cases and Market Trends of Stablecoins

Accelerated Growth and Mainstream Adoption

The stablecoin market has entered a phase of explosive growth. As of June 2025, the total market capitalization has surged to over $261 billion, dominated by dollar-denominated stablecoins which account for approximately $253 billion of this value. The number of active stablecoin wallets has also surpassed 616 million annually. Projections from Citi Research suggest that with supportive regulatory clarity, the market could reach $1.6 trillion by 2030 under a baseline scenario, and potentially up to $3.7 trillion in an optimistic scenario.

A key indicator of mainstream adoption is the consistent decline in the average transaction size. Over a 12-month period, the average payment was $4,560. This dropped to $4,260 over three months and further down to $3,380 over a single month. This trend signals a shift from large-scale crypto investment settlements towards smaller, everyday transactions like cross-border trade and retail payments.

Surveys, including one by VISA across Brazil, India, Indonesia, Nigeria, and Turkey, confirm that stablecoins are now widely used for货币替代 (currency substitution), payment for goods/services, cross-border remittances, and payroll. Data from Fireblocks indicates that payment companies' share of stablecoin transaction volume is expected to grow from 16% to 50% within a year. Retail giants like Walmart and Amazon have also announced explorations into launching their own stablecoins.

The Drive Towards Compliance and Traditional Finance Integration

The regulatory landscape is rapidly evolving, driving a strong trend toward compliance. Following the lead of the EU, Singapore, and the UAE, over 20 major countries, including the UK, South Korea, Australia, and Turkey, are advancing stablecoin and crypto asset legislation, spurred by developments in U.S. policy in 2025.

Market preference is shifting towards highly compliant and transparent stablecoins. This is evidenced by the changing market shares of the two largest players. USDC, known for its higher compliance standards, has seen its market share grow from around 20% to approximately 25% in 2025, while USDT's share has declined from about 70% to 64%.

Integration with traditional finance is accelerating in three ways:

  1. Expansion of Payment Scenes: Stablecoins are being used for real estate and oil payments in the UAE, while retailers like Metro Department Stores in Singapore and SPAR are piloting stablecoin payments.
  2. Payment Giants Entering the Fray: PayPal and Stripe have launched stablecoin payment services. Card networks Visa and Mastercard are collaborating with crypto exchanges like Kraken, 👉 Explore more strategies for digital asset integration, and Crypto.com to enable stablecoin payments for daily consumption. Mastercard is also developing a "Multi-Token Network."
  3. Traditional Banks Joining In: JPMorgan Chase has rebranded its JPM Coin into the blockchain payment platform Kinexys for institutional cross-border payments and forex settlement. Other major banks, including Bank of America, Citi, and Wells Fargo, are reportedly discussing a joint stablecoin venture. A May 2025 Fireblocks survey found that 90% of payment and financial institutions are either already using or planning to deploy stablecoins.

Catalyzing the Tokenization of Real-World Assets (RWA)

Stablecoins are acting as a catalyst for the rapid growth of real-world asset (RWA) tokenization. Although still in its early stages with a market size of just over $24 billion and around 210,000 investors, the RWA market has grown by 260% in the past 12 months.

Interest from major global financial institutions is soaring, driven by the potential for reduced costs, increased efficiency, and lower settlement risks. A notable example is BlackRock, which, through the Securitize Markets platform, has tokenized U.S. Treasury and repo agreements, offering daily dividends to investors. Its on-chain transaction volume exceeded $1 billion by March 2025.

The Impact of Stablecoins on the Global Monetary System

Reinforcing the U.S. Dollar's Dominance

The stablecoin market exhibits a "double 95%" structure: over 95% of stablecoins are fiat-collateralized, and within that category, over 95% are pegged to the U.S. dollar. USDT and USDC alone command about 90% of the total market share. The proportion of dollar-backed stablecoins far exceeds the dollar's share in global foreign exchange reserves (57.8% at the end of 2024) and international payments (49.1%).

The reinforcement mechanism lies in the reserve assets. As of March 2025, Tether held approximately $120 billion in U.S. Treasuries (directly and indirectly), representing about 80% of its reserves. Circle held over $55.5 billion in U.S. Treasuries, accounting for more than 92% of its reserves. A Citi report from April 2025 predicted that by 2030, stablecoin issuers could hold over $1.2 trillion in U.S. Treasuries—more than any single foreign country.

This creates a "new dollar cycle":

  1. Dollars are used to purchase dollar-backed stablecoins.
  2. These stablecoins are used globally for crypto trading, cross-border trade, and financial settlements.
  3. The reserve backing these stablecoins is invested in U.S. Treasuries and other dollar assets, channeling funds back into the U.S. economy.

This cycle counteracts the weakening trend of the traditional dollar cycle and strengthens the international status of the dollar. U.S. policy, such as the January 2025 executive order on digital assets, explicitly aims to promote "the development and growth of legitimate, lawful dollar-backed stablecoins." Proposed legislation like the Genius Bill, which would mandate stablecoin reserves be invested in U.S. dollar products and restrict foreign issuers, underscores a strategy to ensure U.S. dominance in both the currency and issuer dimensions of the stablecoin market.

A Potential New Tool for Renminbi Internationalization

The internationalization of the Chinese renminbi (RMB) has progressed but still lags behind China's share of global trade. As of December 2024, the RMB's share in international payments was 3.75%, compared to China's 10.4% share of global imports and 14.6% share of exports. The gap with the U.S. dollar's nearly 49% share remains vast.

While projects like the "CBDC Bridge" offered a new channel, the departure of the BIS to support the U.S.- and EU-led Agora project highlights the need for new, consensus-driven approaches.

An offshore RMB stablecoin could serve as a powerful new tool. It could help mitigate the current "unilateral" nature of RMB internationalization—where its use is often confined to trades involving Chinese entities—by leveraging the innate global and neutral attributes of stablecoin technology. It can coexist with a CBDC, as demonstrated by the Hong Kong Monetary Authority's (HKMA) Project Aurum, which tested a hybrid system involving both a wholesale CBDC and CBDC-backed stablecoins.

A gradual, controlled development model is recommended:

Global Regulatory Evolution and Future Challenges

Addressing Governance Challenges and Risks

The governance challenges and risks associated with stablecoins are becoming clearer.

Macro-level challenges include:

Micro-level risks encompass:

The Shift Towards Supportive Regulation Led by the U.S.

U.S. policy has shifted markedly towards "supporting innovation." The Trump administration established a Presidential Working Group on Digital Assets and is pursuing a strategy that supports stablecoins/crypto assets, explores a strategic Bitcoin reserve, opposes a U.S. CBDC, and backs permissionless blockchain innovation.

U.S. banking regulators (FDIC, OCC, Fed) have relaxed requirements for banks engaging in crypto activities. The new SEC chairman has pledged a more "rational" approach to digital asset regulation. This U.S. pivot has had a global ripple effect, encouraging other nations to seek a balance between fostering innovation and maintaining financial stability.

The Emerging Five-Pillar Regulatory Framework

A consensus regulatory framework is crystallizing around five core pillars:

  1. Function and Scope: Regulators primarily support regulated fiat-backed stablecoins (payment stablecoins), often treating them under existing digital payment laws. Algorithmic stablecoins are generally not recognized. Jurisdictions differ on allowing foreign stablecoins domestically, with large economies like the EU restricting them to protect monetary sovereignty. Transaction volume caps may also be imposed.
  2. Issuer Licensing: Licensing stablecoin issuers is a global norm. Many jurisdictions allow regulated banks to become issuers, applying the more rigorous existing bank regulatory framework to this new activity. Issuers are typically prohibited from paying interest to holders or engaging in lending, aligning with regulations for third-party payment providers.
  3. Ongoing Operational Oversight: The principle of "same activity, same risk, same regulation" is applied. Capital, liquidity, and risk management requirements akin to those for payment institutions or banks are implemented. Local实体 presence and management are often required to ensure regulatory oversight can be effectively enforced.

  4. Reserve Management and Transparency: This is a critical focus area. Rules mandate:

    • Regular, public audits of reserves by licensed firms.
    • Holding reserve assets in the same currency as the stablecoin to avoid mismatch and forex risk.
    • Restricting investments to high-liquidity, high-credit-quality assets like government bonds.
    • Clear requirements for redemption mechanisms and timelines, including creditor hierarchy in case of issuer bankruptcy.
  5. AML/CFT Supervision: Regulators are applying Financial Action Task Force (FATF) standards, transplanting AML/CFT rules from traditional finance to stablecoin issuers and crypto service providers. Strict enforcement of the "Travel Rule"—which requires transmitting originator and beneficiary information for transactions above a threshold (e.g., $1000/€1000)—is becoming standard practice to combat illicit finance.

Forward-Looking Regulatory Questions

Three overarching questions will shape future regulatory dialogue:

  1. Decentralized Finance (DeFi) Regulation: How can the principle of "same business, same risk, same regulation" be effectively applied to increasingly decentralized and autonomous financial protocols in the long term?
  2. Embedded Supervision: Should regulators themselves leverage blockchain and DLT technology to monitor transactions in real-time directly on the ledger, moving towards a model of "embedded" or technology-native supervision?
  3. Global Coordination: How can national regulators and international standard-setting bodies overcome the fundamental tension between "globalized business operations and nationalized governance frameworks" to create effective cross-border supervision for decentralized finance?

Frequently Asked Questions

What is the main difference between a stablecoin and a cryptocurrency like Bitcoin?
The primary difference is value stability. Stablecoins are designed to maintain a stable value by being pegged to a reserve asset like the U.S. dollar. Cryptocurrencies like Bitcoin are not backed by any asset and their value is determined purely by market supply and demand, leading to high volatility. Stablecoins prioritize being a medium of exchange, while cryptocurrencies often act as a speculative store of value.

How do stablecoin issuers actually make money?
Issuers generate revenue primarily from the interest earned on the reserve assets that back the stablecoins in circulation. For example, when users deposit dollars to mint USDC, Circle invests those dollars in secure, interest-bearing assets like U.S. Treasury bills. The yield from these investments constitutes the issuer's main income stream.

Are my funds safe if I hold a stablecoin?
Safety depends on the issuer's transparency and compliance. It's crucial to use stablecoins from reputable issuers who provide regular, audited proof that their coins are fully backed by sufficient reserves. Regulations are increasingly demanding this transparency. However, unlike bank deposits, stablecoins are not typically covered by government deposit insurance schemes, so there is inherent risk.

Can stablecoins be used for everyday purchases?
Yes, this is a rapidly growing trend. Major payment companies like PayPal and Visa are integrating stablecoin payments. Furthermore, retail giants and various online merchants are beginning to accept stablecoins for payments, especially for cross-border transactions where they offer speed and cost advantages over traditional systems.

What is the difference between a CBDC and a stablecoin?
A Central Bank Digital Currency (CBDC) is a digital form of a country's fiat currency, issued directly by the central bank and representing a direct liability on its balance sheet. A stablecoin is typically issued by a private company and is a liability of that company, though it is backed by reserves. CBDCs are sovereign money, while stablecoins are private money instruments.

Why is the U.S. dollar so dominant in the stablecoin market?
The U.S. dollar's dominance in global finance and trade creates natural demand for dollar-denominated digital assets. Its perceived stability and the deep, liquid market for U.S. Treasury securities—which serve as the ideal reserve asset—make it the preferred anchor for stablecoins. This creates a reinforcing cycle that strengthens the dollar's position.