Author of the Opinion: Reeve Collins, Co-founder of Tether and Chairman of STBL
Stablecoins have become a universal pillar of the digital market. Trillions of dollars flow through them every month. Globally, they settle transactions, facilitate remittances, and provide a safe haven for on-chain cash. However, despite widespread adoption, the original design has changed little since 2014.
The first generation of stablecoins addressed one problem: how to place a reliable digital dollar on the blockchain. Tether's USDt, along with the later USDC, did just that. Simple, fully reserved, and redeemable, they provided the stability needed for cryptocurrency growth. But they are also static, like dollars locked in a vault. Holders earn nothing, while issuers reap all the benefits. This structure suited the market a decade ago. By 2025, it will no longer be sufficient.
We are now witnessing a decisive shift. If the first wave digitized the dollar, the second wave will financialize it. Earnings are no longer trapped on the issuer's balance sheet. Principal and income are split into two programmable streams.
The digital dollar remains liquid, usable for payments or decentralized finance (DeFi), while the earnings become an asset in their own right, which can be held, traded, staked, or reinvested. A simple payment token transforms into an effective financial tool, a savings instrument for the digital age.
Early evidence has already emerged. Franklin Templeton's on-chain money market fund announces daily income and pays out monthly. BlackRock's BUIDL fund surpassed $1 billion in its first year, distributing dividends entirely on-chain. DeFi protocols now allow borrowers to retain treasury yields while releasing liquidity. These are no longer fringe experiments; they are the beginnings of a financial system where liquidity and income can ultimately coexist.
Stablecoin 2.0 further advances this with a dual-token structure. The system does not embed earnings within the stablecoin but separates them, tokenizing both the dollar and the earnings. One token serves as a consumable digital dollar, while the other represents the income stream from the underlying collateral.
This makes the earnings themselves a currency, transparent and transferable, while the stablecoin remains liquid and usable as cash. Meanwhile, the collateral base is evolving. It is no longer limited to dollars in a bank account but can draw from a diversified basket of high-quality real-world assets now on-chain, including treasury bonds, money market funds, tokenized credit, bonds, and other institutional-grade instruments.
This dual innovation—separating principal from earnings while expanding the range of secure collateral—transforms the static digital dollar into a programmable, community-owned currency with a stronger foundation and broader utility.
The implications are profound. Issuers can create a stablecoin that is consumable like cash while earning returns on the collateral that supports it. Institutions can go beyond simply parking assets in tokenized treasury bonds and instead transform them into dynamic, transparent, and compliant tools that provide liquidity and yield. Governments and enterprises can issue branded stablecoins backed by treasury bonds, money markets, or other high-quality collateral, unlocking new sources of value that traditional fiat currencies can never provide.
Consider a large institution managing hundreds of millions in payments within its ecosystem. When these funds flow through fiat currency, the money moves but generates no incremental income. Using stablecoin 1.0, institutions gain efficiency from the blockchain track, achieving faster settlements, lower costs, and fewer intermediaries, but the economic value still belongs to the issuer rather than to them.
Stablecoin 2.0 completely changes this equation. Now institutions can issue their own stablecoins, decide what collateral supports them, and capture all the earnings from reserves circulating within their network. Every dollar movement becomes both a medium of exchange and a productive asset.
Regulators around the world are moving from pilots to full frameworks. Europe's crypto-asset market regime has gone live with licensed issuers, while Hong Kong and Singapore are opening doors for commercial use.
In the U.S., bipartisan proposals indicate that stablecoin legislation is no longer a question of if, but when. Meanwhile, the largest asset management firms are tokenizing reserves, providing institutions with a way to hold and verify collateral on-chain. These shifts create a foundation of trust and legitimacy, positioning stablecoins as core financial infrastructure.
Just as credit cards reshaped commerce and electronic transactions transformed markets, stablecoins will redefine how money flows and who reaps the rewards.
For consumers, this means holding a digital dollar that ultimately works for the network rather than just for the issuer. For institutions, it means transforming idle balance sheet cash into transparent, compliant, revenue-generating tools. For governments, it means issuing national or corporate currencies that retain value while maintaining sovereignty. For the DeFi ecosystem, it means composable building blocks with built-in yields, powering everything from derivatives to remittances.
The story of stablecoins reflects the story of money itself. The first chapter digitized it.
The second chapter makes it productive, transparent, and programmable. This transformation is underway.
Author of the Opinion: Reeve Collins, Co-founder of Tether and Chairman of STBL
Related: How to Earn Crypto Passive Income Through Yield-Generating Stablecoins
This article is for general informational purposes only and is not intended to be and should not be construed as legal or investment advice. The views, thoughts, and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Original: “Opinion: Second Generation Stablecoins Will Create the New Utility the Industry Needs”
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