A Comprehensive Explanation of Stablecoins: The "Safe Haven" in the Crypto World and a Bridge to Future Finance

CN
3 hours ago

Written by: Nina

Imagine wanting to buy a cup of coffee with Bitcoin, only to find that the price of Bitcoin has skyrocketed or plummeted by 10% within an hour. Would you still dare to use it? At this moment, stablecoins act like supermarket vouchers, with fixed value and ease of use, allowing you to trade in the crypto world with peace of mind.

Stablecoins are cryptocurrencies pegged to fiat currencies like the US dollar, with prices that hardly fluctuate, making them a "safe haven" in the blockchain world. From cross-border remittances to value preservation in investments, the application scenarios for stablecoins are expanding, and in 2025, they frequently made headlines due to the US "GENIUS Act" and news about the Trump family's USD1.

Are stablecoins the true killer application of Web3? How do they operate? Let’s explore this in the following article.

01 The "Past and Present" of Stablecoins

The birth of stablecoins is closely tied to the "pain points" of cryptocurrencies. After the 2008 financial crisis, Bitcoin emerged, but its price was like a roller coaster, soaring to nearly $20,000 in 2017 and then dropping to $3,000 in 2018. This made many people hesitant: they wanted to use cryptocurrencies to buy things but feared the price could drop to zero overnight. In 2014, USDT (Tether) was launched, becoming the first stablecoin pegged 1:1 to the US dollar, completely changing the game.

The core of stablecoins is "stability." By pegging to assets like the US dollar or gold, it ensures that 1 stablecoin ≈ 1 US dollar, with minimal fluctuations. You can use it to exchange for Bitcoin on crypto exchanges or make cross-border transfers, with funds arriving in minutes or even seconds, and transaction fees less than one-tenth of traditional banks. In countries with severe inflation, many people use stablecoins to "store dollars" and preserve their wealth.

The appeal of stablecoins lies in their combination of the advantages of blockchain (speed, low cost, decentralization) and the stability of traditional currencies. By 2025, the global stablecoin market size reached $230 billion, with 99% being dollar-pegged stablecoins, making them the "hard currency" of the crypto market.

02 Types and Operating Mechanisms of Stablecoins

There are various types of stablecoins, but they can generally be divided into four categories, each with its own "method."

1. Fiat-Currency Pegged Stablecoins

These are the most common stablecoins, such as USDT, USDC, and the newly launched USD1 in 2025. Their principle is simple: for every stablecoin issued, the issuer must hold 1 US dollar (or high liquidity assets like US Treasury bonds) as reserves. For example, if you hold 100 USDT, you can theoretically exchange it for 100 US dollars at any time. To ensure transparency, issuers undergo regular audits to prove "the money is sufficient." This type of stablecoin is the most popular due to its low risk, suitable for trading, payments, and other scenarios.

2. Physical Asset Pegged Stablecoins

Some stablecoins are pegged not to the US dollar but to physical assets like gold or silver, such as PAX Gold, where 1 coin equals 1 ounce of gold. This type of stablecoin is suitable for investors who want to invest in gold without holding the physical asset. However, due to the lower liquidity of the gold market compared to the US dollar, these stablecoins are smaller in scale and more often used in specific investment scenarios.

3. Crypto Asset Collateralized Stablecoins

Stablecoins like DAI are generated using cryptocurrencies like Ethereum as collateral. You must lock up Ethereum worth $150 to generate 100 DAI. The advantage is complete decentralization, but the downside is that if the price of Ethereum plummets, the collateral may be liquidated, posing higher risks.

4. Algorithmic Stablecoins

Algorithmic stablecoins do not rely on collateral but maintain price stability through algorithms that adjust supply and demand, such as TerraUSD (UST), which collapsed in 2022. It was once highly anticipated but failed due to design flaws and market volatility, resulting in losses of billions of dollars. Currently, regulators are particularly wary of algorithmic stablecoins, and their market share is nearly zero.

03 Practical Application Scenarios of Stablecoins

Stablecoins are not only popular in the crypto circle but also show their prowess in real life. Here are a few typical scenarios:

The "Pass" for Cryptocurrency Trading

In crypto exchanges, stablecoins are undoubtedly the "pricing king." Open Binance or Coinbase, and you'll find that 80% of trading pairs use USDT or USDC. By June 2024, over 90% of order book trades and 70% of on-chain settlements globally were conducted using stablecoins, making them the lifeblood of the market.

The "Money-Saving Tool" for Cross-Border Payments

Traditional bank cross-border transfers are slow and expensive, with a global average remittance cost of 6.3% (World Bank 2024 data). What about using USDT? The transaction fee is as low as 0.1%, with funds arriving in minutes or even seconds.

Current industry predictions suggest that with high adoption, stablecoins are expected to capture 10% to 20% of the global remittance market share in the coming years.

The "Cornerstone" of DeFi

Decentralized finance (DeFi) is a hot area in crypto, and stablecoins are its core. For example, on Uniswap, you can exchange USDC for other tokens; on Aave, you can deposit DAI to earn interest.
Stablecoins play a foundational role in the DeFi ecosystem, with over 75% of DeFi transactions using stablecoins, making them the true "unsung heroes."

The "Safe Haven" Against Inflation

In high-inflation countries, stablecoins are a "lifeline" for ordinary people. Take Argentina as an example, where the inflation rate soared to 117.8% in 2024, and the peso depreciated severely. Many people used USDT to "store dollars," preserving value and enabling instant transfers. In 2025, the number of stablecoin users in Latin America surged.

The "New Play" in the Real World

In April 2025, Mastercard announced support for USDC payments, allowing consumers to directly use stablecoins to buy coffee and pay bills at participating merchants. This innovation transformed stablecoins from "crypto toys" into real-world payment tools.

04 The Global Craze for Stablecoins in 2025

By 2025, stablecoins are no longer niche items but the focus of global finance. New policies in the US, Hong Kong, and the Trump family's USD1 have put stablecoins in the spotlight.

The US "GENIUS Act": A "Protective Charm" for Stablecoins

On June 18, 2025, the US Senate passed the "Guidance and Establishment of the American Stablecoin National Innovation Act" (GENIUS Act), creating a regulatory framework tailored for dollar-pegged stablecoins.

The act requires issuers to hold 1:1 US dollars or US Treasury bonds, regularly publish audit reports, and comply with anti-money laundering regulations. This makes USDT, USDC, and others more transparent and boosts investor confidence. According to Citigroup, by 2030, the global stablecoin market size is expected to reach $1.6 to $3.7 trillion, and the US will further solidify the dollar's global dominance through stablecoins.

The Trump Family's USD1: Controversy and Ambition

On March 25, 2025, World Liberty Financial (WLFI), supported by the Trump family, launched the dollar-pegged stablecoin USD1, fully backed by US dollars and Treasury bonds, held in custody by BitGo. USD1 targets institutional investors and plans to collaborate with DeFi projects like Sui and Chainlink to challenge USDT's market position.

However, while Trump promotes crypto policies, his family's involvement in USD1 has raised strong concerns about conflicts of interest, with calls for investigations from US senators. Nevertheless, the launch of USD1 has still stirred the market, with trading volume exceeding $1 billion on June 29.

Hong Kong's "Stablecoin Regulation": Asia's "Pioneer"

On May 21, 2025, the Hong Kong Legislative Council passed the "Stablecoin Regulation," which took effect on August 1, establishing a licensing system for stablecoin issuers.

The regulation requires issuers to hold at least HKD 25 million in paid-up capital or equivalent financial resources, must possess high-quality, highly liquid, and low-risk reserve assets, and separate these from the issuer's other assets.

Currently, internet giants JD.com and Ant Group are advocating for the People's Bank of China to approve a stablecoin based on the renminbi and plan to apply for a stablecoin license in Hong Kong, reflecting Hong Kong's strategic advantage as an offshore renminbi center and digital asset regulatory hub.

05 Conclusion

Stablecoins: The "Financial Bridge" of the Future

Stablecoins act like a bridge, connecting the stability of traditional finance with the innovation of the crypto industry. From crypto trading to cross-border payments, from DeFi to inflation resistance, the application scenarios for stablecoins are expanding, making them the "hard currency" of the digital age. In 2025, new policies like the US "GENIUS Act" and Hong Kong's "Stablecoin Regulation" have transitioned stablecoins from "wild growth" to compliance, while the Trump family's USD1 has added to the market's intrigue. In the future, stablecoins may become a part of our daily payments, as convenient as using WeChat or Alipay.

Currently, stablecoins have become the hottest topic, with major companies entering the field. Are stablecoins the true killer application of Web3? What do you think?

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