The Rise of Digital Cash

Recently, global USD-pegged stablecoins have expanded against the backdrop of liquidity contraction and regulatory games, with market statistics showing their total market capitalization has surpassed approximately $310 billion, an increase of nearly 70% compared to a year ago, making it one of the few segments in crypto assets that has achieved rapid growth. Among them, USDT and USDC together account for about 80% of the market share, further increasing the concentration at the top, and the market's reliance on a few issuers and jurisdictions is being continuously reinforced. Meanwhile, the functions of stablecoins are also undergoing structural changes, shifting from primarily serving contract hedging, leverage amplification, and "arbitrage" in exchanges to more economically meaningful uses such as cross-border settlement, corporate payments, and on-chain fund pool management, increasingly described by industry media as a new layer of "digital cash." This article will use data and publicly available information as the main thread to dissect the supply-demand drivers, institutional adoption paths, and regulatory tensions behind this growth, discussing its potential impact on the global monetary system and on-chain financial structure.

Landscape and Concentration

From an overall perspective, the current market capitalization of stablecoins is in the range of approximately $310 billion, with a year-on-year growth rate of around 70%, presenting a relatively independent expansion curve against the backdrop of fluctuations in the overall crypto market capitalization. Structurally, USD-pegged stablecoins remain the absolute main players, with USDT and USDC together accounting for about 80% of the stablecoin market, forming a clear oligopoly in terms of trading pair numbers, on-chain liquidity pool sizes, and over-the-counter settlements. A viewpoint from a single source suggests that the market capitalization of USDT alone may be close to 60% of the total stablecoin supply, with the U.S. issuance side potentially accounting for as much as 93% of the stablecoin supply, but these figures await further verification and should be regarded as market observations rather than established facts. The highly concentrated issuance pattern enhances liquidity efficiency and price discovery smoothness on one hand, significantly reducing the exchange costs of mainstream stablecoins across different chains and platforms, while on the other hand, it also adds systemic risks at the credit, compliance, and technical levels: if individual issuers encounter issues with reserve management, legal compliance, or technical operations, the impact could quickly spread globally through exchanges and DeFi protocols. Therefore, the current "top concentration" is becoming a double-edged sword between market efficiency and risk spillover.

Evolution of Application Scenarios

The application scenarios of stablecoins have fundamentally changed in recent years. Initially, they were mainly used by exchanges and high-frequency traders as hedging and leverage tools, providing a unified "benchmark layer" priced in USD between contracts and spot, facilitating rapid position switching within platforms. Today, they have gradually evolved into a neutral settlement medium across chains and platforms, with significantly increased frequency of transfers between public chains and circulation between CeFi and DeFi. Institutional and corporate users are beginning to experiment with incorporating stablecoins into practical business operations such as cross-border settlements, supply chain payments, and cross-entity fund pool management, aiming to shorten settlement times, reduce intermediary costs for cross-border transfers, and build a unified USD liquidity pool among multiple national currencies. This role change has given rise to the concept of a "digital cash layer"—stablecoins serve as an intermediary layer connecting the traditional banking system and the crypto-native world, facilitating high-frequency turnover of funds across different account systems and chains. Industry media such as Cointelegraph have publicly pointed out that stablecoins are transitioning from mere trading tools to a "digital cash layer"; analysts also predict that if large financial institutions more broadly integrate stablecoins in the coming years, the global supply of stablecoins could reach approximately $2 trillion around 2028. It is important to emphasize that this figure is a forward-looking prediction from a single source, rather than an established path, and remains highly dependent on the evolution of the regulatory environment and institutional adoption willingness.

Institutional Adoption and Funding Landscape

With the maturation of product forms and infrastructure, large financial institutions and payment companies are gradually piloting the inclusion of USD-pegged stablecoins into their settlement and liquidity management systems: from early interactions only with crypto-native market makers and exchanges, expanding to more traditional financial institutions and cross-border trade-related entities, the "counterparty circle" of stablecoins is clearly expanding, driving continuous improvement in their depth and breadth in both on-chain and off-chain markets. According to information from a single source, during traditional global liquidity contraction phases such as the Christmas holiday, precious metal prices reached new highs, reflecting a seesaw effect of risk appetite and safe-haven demand; in this process, stablecoins increasingly play the role of a transitional layer connecting risk assets (such as cryptocurrencies) and safe-haven assets: some funds, after withdrawing from highly volatile crypto assets, often first park in stablecoins before flowing into fiat currencies, government bonds, or precious metals. This "buffer layer" attribute not only enhances the long-term and settlement-type proportion of on-chain funds through institutional adoption but also subtly alters the structure of market funding, forming feedback on price volatility, on-chain interest rates, and funding costs. On one hand, more holdings aimed at settlement and fund management can reduce severe price fluctuations caused by short-term speculation; on the other hand, the expansion of stablecoin scale combined with the proliferation of yield-generating products may increase demand for safe short-term assets (such as government bonds, bills, etc.), thereby affecting the pricing basis of yield curves and on-chain lending rates.

Regulatory and Compliance Games

As stablecoins evolve from technical settlement tools within exchanges to a "digital cash layer" usable for cross-border payments and daily transactions, the regulatory boundaries between them and traditional financial and payment systems are becoming increasingly blurred. Regulatory agencies in various countries generally focus on three dimensions: first, anti-money laundering and counter-terrorism financing, requiring stablecoin issuers and service providers to establish complete customer identity verification and transaction monitoring mechanisms; second, reserve transparency, including whether the composition of reserve assets, liquidity, maturity mismatches, and audit frequency are sufficient to support the stablecoin's commitment to pegged assets; third, consumer protection, raising higher requirements for redemption rights, bankruptcy isolation, and disclosure of operational and technical risk information. In the U.S., there are significant disagreements among Congress and regulatory agencies regarding whether stablecoin issuance should be the responsibility of bank-licensed entities or specialized licensed institutions, standards for reserve assets, and the division of regulatory authority at federal and state levels. The pace of legislation and rule-making is inconsistent, and there is much discussion in the public domain about specific bills like GENIUS, but limited public information makes it difficult to form an accurate description of the details of the terms. The tension between compliance pressure and business innovation is reshaping the competitive landscape of the industry: higher licensing and compliance costs, ongoing audit funding, and demands for high-quality reserve assets create natural barriers for small and medium-sized issuers, objectively reinforcing top concentration and allowing a few issuers with sufficient capital strength and compliance capabilities to occupy a larger share of the global market.

On-Chain Ecosystem and Structural Risks

On mainstream public chains like Ethereum, stablecoins have become the foundational "oil" of the DeFi ecosystem: numerous lending protocols, decentralized exchanges, and yield aggregators regard USD-pegged stablecoins as collateral and pricing units. Although precise network distribution data is currently lacking, the industry generally judges that Ethereum, along with several mainstream public chains, collectively carries the vast majority of stablecoin circulation and contract interaction volume, with the underlying liquidity of on-chain finance highly dependent on a few USD-pegged assets. In this landscape, Ethereum co-founder Vitalik Buterin's criticism of the Web3 "walled garden" trend has sparked renewed discussion: when the issuance of stablecoins is highly centralized and closed liquidity circles are built across several chains and ecosystems, the ideal of open finance being "permissionless and composable" is eroded, and multi-chain ecosystems are more likely to form de facto "walls" around the technical and compliance standards of mainstream issuers. From the asset side, leading USD-pegged stablecoins generally allocate most of their reserves to U.S. government bonds, short-term bills, and bank deposits, which means that global on-chain finance is increasingly amplifying its concentrated exposure to a single sovereign credit and a single regional monetary policy. If a particular jurisdiction takes more aggressive regulatory measures or if its government bond market experiences abnormal fluctuations, related risks could quickly transmit to on-chain protocols and other assets through redemption pressure and price deviations. It is important to distinguish that the structural risks currently validated by the market mainly include concentrated issuance, high homogeneity of reserve assets, and exposure to a single currency sovereignty; scenarios such as "sovereign credit shocks triggering large-scale stablecoin de-pegging, leading to systemic failures in DeFi" are more extreme scenario extrapolations rather than facts that have occurred or are bound to occur in reality.

Outlook and Variables

Based on the current market capitalization of approximately $310 billion, a year-on-year growth rate of 70%, and steady institutional adoption, increasing the supply of stablecoins to approximately $2 trillion around 2028 is an optimistic scenario assumption provided by some industry research institutions, rather than a figure that can be regarded as a certain path. Key variables in this growth trajectory include: the speed and degree of coordination in the implementation of regulatory frameworks in major jurisdictions such as the U.S. and the EU, whether the depreciation expectations of emerging market local currencies under inflation and external debt pressures will continue to drive demand for USD-pegged stablecoins, and whether the penetration rate of on-chain settlements in cross-border trade, asset management, and retail payment segments can be further enhanced. In terms of institutional adoption and investment layout, it is crucial to focus on the compliance level of issuers and service providers, reserve transparency and audit frequency, cross-chain compatibility among multiple public chains, and their dependence on a single jurisdiction or single type of reserve asset to assess potential legal and market risks. Whether stablecoins can truly evolve into a globally significant "digital cash layer" largely depends on the industry's ability to find a balance between efficiency, openness, and regulatory safety: maintaining low-cost, low-friction cross-border liquidity advantages while achieving robust standards in reserve management, compliance operations, and technical governance akin to traditional finance, and this game is still ongoing.

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