It has been more than ten years since the birth of stablecoins, but it was not until recently that Circle, one of its major issuers, was listed on the New York Stock Exchange and its stock price soared eightfold in more than ten days, attracting widespread attention from investors. This article aims to introduce investors to the “magic” capabilities of stablecoins.
What is a stablecoin?
Simply put, a stablecoin is a cryptocurrency and a private currency whose currency value is linked to a stable asset such as a certain legal currency (such as the U.S. dollar), and has the characteristics of stable currency value. As of June 2025, the global stablecoin market value is approximately US$250 billion, and there are more than 200 stablecoins on the market, and this number continues to grow.
USDT (Tether) is currently the largest stablecoin, with a market value of more than 150 billion US dollars, occupying approximately 60% to 62% of the market share. USDT has been issued since 2014 and is pegged to the US dollar at a ratio of 1:1. It can be circulated on multiple mainstream blockchains such as Ethereum, Solana and Tron.
USDC (USD currency) is the second-largest stablecoin in terms of market value. Its market value will reach approximately US$61.5 billion to US$61.7 billion in 2025, with a market share of nearly 23% to 25%. USDC is issued by Circle, which is known for its compliance and transparency and is favored by institutional investors. The United States has the largest number of stablecoin projects, including USDC, USDP, TUSD, etc., and its regulatory system is relatively complete.
At present, the market has formed an "oligopoly" structure dominated by USDT and USDC, which together account for more than 85% of the stablecoin market. Most mainstream stablecoins are issued using a legal currency reserve model, and their reserve assets are mostly cash, U.S. Treasury bonds and short-term reverse repurchase agreements to support currency value stability.
In terms of international regulation and innovation, the U.S. Congress is accelerating legislation and promoting a series of legal processes that are beneficial to the crypto-asset industry, paving the way for the integration of digital assets and traditional finance. Hong Kong, China, has also passed the Stablecoin Bill to establish a robust and comprehensive regulatory framework and encourage institutional innovation through the "Stablecoin Sandbox" model. The European Union is formulating regulations to regulate crypto asset markets such as MiCA, and puts forward higher compliance requirements for stablecoins.
New tools for high returns on capital
Compared with other investment tools, stablecoin investment has the following significant advantages:
First, liquidity advantage. Coinbase Wallet users can obtain an annualized rate of return of approximately 4.7% by holding USDC, and the funds remain highly liquid and can be accessed at any time. This is more flexible than traditional time deposits or bond investments and meets investors' needs for financial freedom.
Second, income stability. The current pledge yield range of USDC on different platforms is 1.16%~10.88%, which is much higher than the low interest rate of traditional bank deposits, bringing investors a more attractive income option.
Third, technological convenience. Relying on blockchain technology, stablecoin investment realizes 24/7 transactions, global transfers and automated income distribution. Taking Coinbase Wallet as an example, USDC income is automatically paid through the Base Layer 2 network every month without a lock-up period. It supports multiple blockchain networks such as Base, Ethereum and Polygon, which greatly facilitates user operations.
Other platforms such as Binance offer annualized returns of up to 10.88% and adopt a flexible staking mechanism. Some decentralized financial platforms (DeFi) such as Trader Joe's specific USDC liquidity pool yields even as high as 211.52%, but high returns are often accompanied by higher risks, and investors need to weigh them carefully.
According to the above framework, the author compiled the following table to help investors fully understand the different profit opportunities and potential risks of stablecoins in the DeFi ecosystem.
The invisibility cloak that moves assets anonymously
Stablecoins enable rapid on-chain transfer of funds around the world, often within minutes, making traditional cross-border fund tracking increasingly difficult. This characteristic of stablecoins makes them widely used to bypass global financial restrictions, including tax evasion, underground gambling, fraud, and other illegal activities.
The latest data shows that stablecoins have become the preferred tool for circumventing traditional financial supervision and money laundering in cryptocurrency activities. In 2024, stablecoins will account for 63% of all cryptocurrency money laundering activities, and have replaced Bitcoin as the main tool for anonymous asset transfers. This is mainly due to the stable currency value and wide acceptance, making it an ideal means to transfer and hide illegal funds.
The biggest challenge in implementing financial regulation of stablecoins is tracking the ownership of funds and their movement. The core feature of blockchain is "pseudonymity" rather than complete anonymity. This means that although the transaction data is open and transparent, the address on the chain is not directly related to the user’s real identity, making it difficult to track the source and flow of funds. Especially against the background that criminals are constantly developing new money laundering techniques, which further increases the difficulty of identification.
For example: Cross-chain bridges: are increasingly used to transfer funds between different blockchains to obfuscate payment paths; privacy coins, such as Monero (XMR), provide stronger anonymity and are preferred by some users; “Peel chains”, which split large amounts of funds into a series of small, difficult-to-trace transactions; virtual currency mixers (Mixers): a common tool for hiding the source and destination of transactions.
Many decentralized finance protocols make heavy use of stablecoins. The lack of a centralized regulator provides additional opportunities for bad actors to use these platforms to launder money. Although various countries and industry organizations have been actively promoting "know your customer" and "anti-money laundering" regulations, requiring stablecoin issuers and exchanges to strengthen identity verification and transaction monitoring, due to their cross-border nature, fast transaction speed, and deep integration with DeFi, the implementation of these regulatory measures still faces many challenges.
To sum up, although regulatory agencies and blockchain analysis companies are continuously strengthening their ability to combat illegal financial activities, the rapid, global and pseudonymous characteristics of cryptocurrency, coupled with the evolving means of money laundering, have indeed made this field a "financial regulatory gray area" that requires continued strengthening of regulatory governance.
Efficient chain with low transaction costs
Stablecoins play a unique role in the cryptocurrency world due to the fact that their prices are pegged to a specific stable asset, such as the U.S. dollar. Not only do they provide the convenience of digital assets, they also circumvent the shortcomings of violent fluctuations in traditional cryptocurrencies (such as Bitcoin, Ethereum). Therefore, stablecoins can be regarded as “efficient chains with low transaction costs” in many aspects, especially in the following aspects.
First, the transaction speed is fast and uninterrupted 24/7.
Traditional bank transfers, especially international remittances, often take hours or even days to clear and are subject to bank working hours, holidays, etc. Stablecoin transactions are built on blockchain technology. As long as the network is not congested, transactions can be completed almost instantly no matter when and where. For example, a foreign trade company located in China needs to pay a payment to a US supplier. If it is transferred through a traditional bank wire, it may take 2 to 5 working days, and may be delayed due to time differences and bank processing time. But if both parties accept payment in stablecoins such as USDT or USDC, the payment can be sent from the digital wallet in China to the digital wallet of the US provider within minutes, with no time limit. In addition, suppose a multinational enterprise needs to allocate funds urgently at night or on weekends to deal with emergencies. The traditional banking system cannot meet the immediate demand, but the use of stable coins can transfer funds anytime and anywhere.
Second, transaction fees are low, especially compared to international remittances.
Although the blockchain transaction itself will generate "Gas fees" (network fees), this fee is usually much lower than the SWIFT fees of traditional bank international remittances, intermediary bank fees or third-party payment platform fees. For large transactions, the relative cost advantage of stablecoins is particularly obvious. For example, if a freelancer in Hong Kong provides services to customers in the United States, if the customer pays through PayPal or traditional bank transfer, he may be charged a handling fee of 3% to 5% or even higher, and there will also be a large exchange rate conversion loss. If payment is made through USDT, the gas fee for a single transaction may be only a few to more than ten dollars when the Ethereum network is not severely congested. On more efficient blockchains such as Tron or Solana, the fee may be as low as a few cents. For a payment of hundreds or thousands of dollars, the transaction cost is extremely low. Although stablecoin payments are not yet popular at the retail level, in some cryptocurrency-native communities or specific scenarios, the fees for using stablecoins for small payments are lower than some credit card fees.
Third, it is censorship-resistant and permissionless.
Stablecoin transactions are conducted on a permissionless public blockchain, meaning anyone can send and receive stablecoins without approval from a bank or financial institution. This provides an important alternative for some users in areas subject to strict capital controls or inadequate financial infrastructure. For example, in some countries, individuals or companies are subject to strict restrictions on transferring funds abroad. Through stablecoins, it is theoretically possible to bypass these restrictions and conduct international capital flows under the premise of compliance.
Fourth, stability and predictability.
Compared with more volatile cryptocurrencies such as Bitcoin, stablecoins have extremely small price fluctuations, making them a more reliable unit of account and value storage, significantly reducing the risks of currency price fluctuations for both parties to the transaction. If a business accepts Bitcoin as a means of payment, significant fluctuations in the price of Bitcoin between the time it is received and the time it is converted into fiat currency could cause the business to incur losses. If you use stable currencies such as USDT or USDC, after the company receives the payment, its value is almost the same as the US dollar, thus effectively avoiding exchange rate risks.
Fifth, new financial instruments to serve high-value, long-term industrial projects.
Stablecoins provide a new financial tool for high-value, long-term industrial projects, and are particularly suitable for project management involving many participants and complex capital chains. Based on the programmable payment and smart contract technology of stablecoins, fund allocation at each stage of the project can be automatically linked to the contract agreement, and payments are automatically made according to progress nodes, thereby effectively reducing trust costs and default risks. Multinational participants can realize the free flow of global funds through stablecoins, avoid the high costs and delays of traditional cross-border settlements, and improve financial security and compliance with on-chain transparent supervision. This brings a more efficient and controllable funding operation model to long-term projects.
Although stablecoins also face regulatory challenges, some centralization risks, and on-chain network congestion leading to rising handling fees, their fast, low-cost, and permissionless characteristics of global transactions make them an efficient tool that cannot be ignored in the current financial field. Especially in scenarios such as cross-border payments, international settlements, and circumvention of traditional financial barriers, the advantages of stablecoins have become increasingly apparent.
(The author is a professor of economics at the University of Maryland)
