Original title: Stablecoins: Depegging, fraudsters and decentralization
Original author: Merav Ozair
Original source: https://cointelegraph.com/
Translated by: Daisy, Mars Finance
With the entry of large banks and payment giants, stablecoins are regaining momentum, but issues such as their stability, regulatory framework, and centralization and fraud risks remain unresolved.
Stablecoins are everywhere these days – and this time, the frontrunners are “traditional” financial institutions. Bank of America and Standard Chartered are considering launching their own stablecoins, joining JPMorgan Chase, which launched JPM Coin (later renamed Kinexys Digital Payments) to provide trading services for institutional clients on its blockchain platform Kinexys (formerly Onyx).
Mastercard plans to work with crypto startup Bleap Finance to bring stablecoins to the mainstream, with the goal of enabling direct consumption of stablecoins on the chain (without exchange or intermediaries) and seamlessly connecting blockchain assets to Mastercard's global payment network.
In early April 2025, Visa joined the USDG stablecoin alliance, becoming the first traditional financial institution to join the alliance. In late March 2025, Intercontinental Exchange (ICE), the parent company of the New York Stock Exchange, announced that it was studying the application of USDC stablecoins and US Yield Coin in its derivatives exchanges, clearing houses, data services and other markets.
Why are stablecoins gaining popularity again?
Regulatory clarity and market acceptance
Recent actions by European and American regulators have provided clearer guidelines for the use of cryptocurrencies. The U.S. Congress is considering legislation to establish formal standards for stablecoins to increase the confidence of banks and fintech companies.
The EU (Crypto Asset Market Regulation Act) requires domestic stablecoin issuers to comply with certain financial standards, including special reserve requirements and risk mitigation measures. The UK financial authorities plan to formulate stablecoin usage rules through public consultation to further promote their popularity.
The Trump administration's Executive Order No. 14067 (Strengthening the United States' Leadership in Digital Financial Technology) clearly "supports and promotes the development of global legal dollar-collateralized stablecoins" and "prohibits the establishment, issuance, circulation and use of central bank digital currencies (CBDCs) in the United States." After the decree was issued, Trump's World Liberty Financial Company immediately launched a stablecoin called USD1, marking the advent of an era dominated by dollar-anchored stablecoins.
Do we need more stablecoins?
Current Status of Stablecoin Ecosystem
Most of the more than 200 stablecoins currently in existence are pegged to the U.S. dollar. Two established stablecoins dominate: Tether (USDT), launched in 2014, and USDC, launched in 2018, lead the market with 65% and 28% of market capitalization respectively—both of which use a centralized fiat currency collateral model.
The third is the newcomer USDe, which was launched in February 2024, accounting for about 2% of the market share. Its operating mechanism is unique: price anchoring is achieved through crypto market derivatives. Although it runs on the Ethereum DeFi protocol, it still has centralized characteristics because it relies on centralized exchanges to hold derivative positions.
Three core mechanisms of stablecoins
Centralized fiat currency collateral: A centralized company holds reserve assets in a bank/trust (currency) or vault (gold) and issues tokens (i.e. stablecoins) corresponding to the assets.
Decentralized crypto-asset collateral: backed by other decentralized crypto-assets. For example, MakerDAO’s DAI stablecoin, although anchored to the US dollar, fully embodies the decentralized nature, and no single entity controls its issuance.
Decentralized and uncollateralized: The supply of tokens is controlled through smart contract algorithms to maintain value stability. To some extent, this is similar to the operation of central banks, which also do not rely on reserve assets to maintain currency stability. The difference is that central banks such as the Federal Reserve will publicly formulate monetary policies based on clear parameters, and the identity of the issuer of legal currency provides credibility for their policies.
Decoupling risks and fraud traps
Stablecoins are supposed to remain stable. Their original purpose was to overcome the natural volatility of cryptocurrencies. Maintaining stability requires two major conditions: (1) anchoring to a stable asset; and (2) having an effective mechanism to maintain the anchor.
If the stablecoin is anchored to volatile assets such as gold or electricity, it is difficult for it to be a low-risk option. For example, USDe maintains its anchor to the US dollar through Delta hedging, and it uses futures long and short positions to generate an annualized return of 27% - much higher than the average return of 12% of other US dollar stablecoins. However, derivative positions themselves have high-risk attributes, which runs counter to the original design of stablecoins.
In the more than ten years of stablecoin development, there has been no major decoupling crisis except the Terra incident. The collapse of Terra was not due to insufficient reserves or mechanism defects, but the result of fraud and manipulation.
TerraUSD (UST) originally designed an arbitrage mechanism between UST and LUNA tokens: destroying LUNA can generate UST. To attract traders to participate, the Terra team provides a 19.5% staking income (i.e. deposit interest) through the Anchor protocol. Such a high interest rate is obviously unsustainable - borrowers must pay the same or higher interest rate for lenders to get a 19.5% return. Analysis in January 2022 showed that the Anchor protocol was already in a loss-making state. In the lawsuit against the founder of Terraform Labs, one of the key accusations was that the Anchor protocol was actually a Ponzi scheme.
In March 2025, Galaxy Digital reached a $200 million settlement with the New York Attorney General for its undisclosed conflicts of interest in promoting LUNA tokens. In January of the same year, Terra founder Do Kwon was found guilty of securities fraud and faced multiple charges in the United States, including wire fraud and commodity fraud. If regulators want to prevent similar incidents, they should focus on how to prevent fraudsters from issuing or manipulating stablecoins.
Decentralization: Rekindling the Original Purpose of Bitcoin
Most stablecoins use a centralized asset-collateralized model controlled by companies. This may lead to misappropriation of customer funds or false claims of sufficient reserves. To prevent such behavior, regulators need to closely monitor and formulate securities-like regulations.
Centralized stablecoins are contrary to the concept of blockchain and the original intention of Bitcoin. When Bitcoin was first created, it was envisioned as a decentralized payment platform that was not controlled by companies, banks or governments - a decentralized mechanism governed by the people.
If stablecoins adopt a centralized model, they should be subject to the same regulation as other centralized assets. Perhaps now is the time to rekindle the original intention of Bitcoin in a more "stable" way: develop algorithmic decentralized stablecoins that are not controlled by any company, bank or government, and truly revive the core spirit of blockchain.
