The total market capitalization of cryptocurrencies has shed nearly $900 billion since a recent market downturn. Yet, in a surprising twist, the total market value of stablecoins has done the opposite. Over the past week, it grew by 1.03%, surpassing $227 billion to reach a new historical peak.
This divergence has left the community wondering: what factors are driving stablecoins to thrive while the broader market struggles?
Understanding the Stablecoin Surge
Sam, the co-founder of Frax Finance, took to Twitter to share a compelling perspective. He suggested that a bear market for crypto is actually a bull market for stablecoins. "Another way to say 'price is going down' is 'the dollar is going up,'" he noted. "In these environments, on-chain dollar issuers will capture the most value, especially with favorable regulation on the horizon."
This sentiment was echoed by CryptoQuant CEO Ki Young Ju. He recently analyzed that the old cycles of altcoin seasons and capital rotation are becoming obsolete. "The Bitcoin-dominated crypto asset rotation, driven by regulation and institutional adoption, is largely over," he stated. "New capital will now flow through stablecoins or widely adopted altcoins—this is completely different from a traditional altseason."
Against a backdrop where both crypto assets and U.S. stocks are experiencing volatility and downward pressure, stablecoins have emerged not just as a safe haven but as a consolidator of dollar dominance. They might be the biggest winners in recent market turbulence.
Regulatory Shifts Paving the Way
A significant driver behind this surge is a changing regulatory landscape. On February 27, U.S. Senator Cynthia Lummis, known for her crypto-friendly stance, spoke at the first hearing of the Senate Banking Digital Assets Subcommittee. She announced, "We are close to achieving a bipartisan legislative framework for stablecoins and market structure."
This was followed by statements from the first-ever White House crypto summit, held recently. Although details were sparse, it was reported that there is a push to receive a stablecoin legislative bill before Congress's August recess. The goal is to advance federal regulatory reforms for cryptocurrencies, all while reaffirming the desire for the U.S. dollar to "maintain its dominant position long-term."
U.S. Treasury Secretary Scott Bessent reinforced this commitment. He promised to leverage digital assets to bolster the dollar's status as the global reserve currency. "We will think deeply about the stablecoin regime," he said. "As directed by President Trump, we will maintain America's position as the world's dominant reserve currency, and we will use stablecoins to achieve that."
These statements highlight concerns about macroeconomic and geopolitical uncertainties. Factors that could reduce foreign demand for U.S. Treasury bonds might drive up yields. Over the past year, the two largest foreign holders of U.S. debt, Japan and China, have been consistently reducing their holdings. To maintain the dollar's global reserve status, ensuring sustained international demand for U.S. Treasuries is crucial.
Stablecoins play a dual role here. By holding U.S. Treasuries as reserve assets, they help keep yields low while simultaneously expanding the global circulation of the U.S. dollar. Stablecoin issuers need to hold sufficient dollar reserves to meet investor redemption demands. Notably, Tether is now one of the largest holders of three-month U.S. Treasury bills.
The total market cap of stablecoins has surged by $50 billion since the recent political shift; Source: DeFiLlama
On the policy front, two key stablecoin bills have been proposed in the U.S.:
- The Stablecoin Transparency and Accountability Act (STABLE Act) from the House of Representatives.
- The American Stablecoin Innovation Guidance and Establishment Act (GENIUS Act) from the Senate.
Both aim to regulate stablecoin issuers through licensing requirements, risk management rules, and mandatory 1:1 reserve backing. They support private, dollar-backed stablecoins and prohibit the issuance of a central bank digital currency (CBDC).
Key Differences Between the Proposed Bills
- Regulatory Oversight: The GENIUS Act allows state-level regulation of issuers until their market cap reaches $100 billion. The STABLE Act permits an opt-out from federal regulation if state rules meet certain standards.
- Reserve Requirements: The STABLE Act allows reserves in Treasury bonds, bank deposits, and central bank reserves. The GENIUS Act also includes money market funds and reverse repurchase agreements.
- Consumer Protection: The GENIUS Act focuses on transparency and enforcement. The STABLE Act mandates one-to-one reserves and bans algorithmic stablecoins.
Stricter regulation could challenge Tether's current dominance. Both bills require monthly audits, asset segregation, and rigorous reporting. This might force exchanges to delist non-compliant stablecoins, similar to the impact of the EU's MiCA regulations. Conversely, these laws would also legitimize stablecoins, attracting institutional adoption while creating barriers for less transparent issuers.
This morning, FOX Business reporter Eleanor Terrett shared on social media, "I'm told an updated version of Republican Senator Bill Hagerty's stablecoin bill—the GENIUS Act—will be released tonight. As of this morning, the Senate Banking Committee still plans to mark up the bill on Thursday."
The new draft reportedly expands reciprocal terms for overseas payment stablecoins. It adds new provisions for reserve requirements, supervision, anti-money laundering (AML) and counter-terrorism financing (CTF) measures, sanctions compliance, liquidity requirements, and risk management standards. The goal is to facilitate international transactions and achieve interoperability with other dollar-denominated payment stablecoins abroad.
The Global Stablecoin FOMO: What Opportunities Lie Ahead?
With clear signals that legislation will be finalized by August, various nations and institutions are racing to adapt and adopt stablecoins.
- On March 10, Thailand's Securities and Exchange Commission classified USDT and USDC as compliant cryptocurrencies. This approval allows for their legal trading within the country, paving the way for their listing on regulated Thai exchanges and enabling broader use in payments.
- On the same day, Japan's cabinet approved proposals to reform laws related to crypto brokerage and stablecoins. According to the Financial Services Agency (FSA), the government approved a cabinet resolution to amend the Payment Services Act. The changes will allow crypto firms to operate as "intermediation businesses," meaning brokers won't need the same licenses as exchanges or wallet operators. The bill also offers stablecoin issuers more flexibility regarding the types of assets backing their tokens.
According to the Financial Times, some of the world's largest banks and fintech companies are rushing to launch their own stablecoins. They aim to capture a share of the cross-border payments market, which they expect to be reshaped by cryptocurrency.
Last month, Bank of America expressed its intent to issue a stablecoin. It joined established payment providers like Standard Bank, PayPal, Revolut, and Stripe in a bid to compete with crypto-native giants like Tether and Circle.
This shift is remarkable, coming just years after regulators heavily opposed Meta's Libra stablecoin project. It is further accelerated by proactive support from the U.S. administration. "It's like selling shovels in a stablecoin gold rush," said Simon Taylor, co-founder of fintech consultancy 11:FS, comparing the trend to a fear-of-missing-out (FOMO) phenomenon.
Traditional Finance Giants Enter the Fray
Several major traditional finance (TradFi) players are actively preparing for stablecoin issuance:
- Standard Chartered: Advancing a project for a Hong Kong dollar-pegged stablecoin.
- PayPal: Plans to expand the issuance of its PYUSD stablecoin in 2025.
- Stripe: Acquired the stablecoin platform Bridge for $1.1 billion.
- Revolut: Exploring the possibility of issuing its own stablecoin.
- Visa: Utilizing stablecoins for payment processing and global settlement.
Previously, an increase in stablecoin supply often preceded rising crypto prices, as these tokens were primarily used as short-term holding vehicles between trades. Today, their utility is expanding beyond speculation.
- SpaceX is using stablecoins for sales receipts in countries like Argentina and Nigeria for its Starlink services.
- ScaleAI uses them to pay international contractors.
For traders and investors, a direct opportunity lies in predicting which blockchain networks major institutions will choose to issue their new stablecoins. Current frontrunners include Ethereum, Base, Tron, and Solana. On February 26, Jesse Pollak, protocol lead for Base, announced plans to launch stablecoins for all global currencies on Base within the year.
It's evident that both the on-chain world and traditional finance are aligning their strategies around U.S. dollar-backed stablecoins. As for a classic altcoin season, it might indeed be a thing of the past, just as the CryptoQuant CEO suggested.
👉 Explore real-time stablecoin analytics
Frequently Asked Questions
What is a stablecoin?
A stablecoin is a type of cryptocurrency designed to maintain a stable value, typically by being pegged to a reserve asset like the U.S. dollar. They combine the instant processing and security of digital assets with the stable value of traditional currency.
Why did stablecoin market cap hit a new high during a crypto crash?
During market downturns, investors often flee volatile cryptocurrencies for the stability of assets pegged to the dollar. Furthermore, anticipated favorable regulations and increasing use cases for cross-border payments and settlements have driven demand, making stablecoins a safe haven and a utility tool.
How do new U.S. bills like STABLE and GENIUS affect stablecoins?
These bills aim to create a federal regulatory framework for stablecoins. They would mandate strict reserve backing, frequent audits, and transparency. This legitimizes the sector for institutional use but could force non-compliant issuers offline, potentially consolidating the market around a few regulated players.
Can I use stablecoins for everyday payments?
Yes, adoption is growing. Companies like PayPal and Visa are integrating them, and they are being used for international trade, remittances, and paying contractors. Their usage is expanding beyond crypto trading into mainstream financial activities.
Which blockchains are most popular for stablecoins?
Ethereum remains the dominant network for stablecoin value, but other chains like Tron (for USDT transfers), Solana (for low-cost speed), and Base (gaining institutional interest) are becoming significant players for issuance and transactions.
What's the difference between USDT and USDC?
Both are dollar-pegged stablecoins. USDT, issued by Tether, is the largest by market cap and is widely used for trading. USDC, issued by Circle, is often perceived as more transparent due to its regular attestations and compliance efforts, making it a preferred choice for many institutions.