Imagine you want to buy a cup of coffee with Bitcoin, but find that Bitcoin's price has surged/dropped by 10% within an hour; would you still dare to use it? At this point, stablecoins are like supermarket vouchers, with fixed value and ease of use, allowing you to trade with peace of mind in the crypto world.
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 investments, the application scenarios for stablecoins are expanding, and in 2025, they frequently made headlines due to news like the US (GENIUS Act) and the Trump family's USD1.
Is stablecoin the real killer application of Web3? How does its operating mechanism work? Let's explore this in this article.
01
The 'past and present' of stablecoins
The birth of stablecoins is inseparable from the 'pain points' of cryptocurrencies. After the 2008 financial crisis, Bitcoin emerged, but its price fluctuated like a roller coaster, soaring to nearly $20,000 in 2017 and then dropping to $3,000 in 2018. This deterred many people: wanting to use cryptocurrency to buy things but fearing the price could plummet overnight. In 2014, USDT (Tether) emerged as 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 very little fluctuation. You can use it to exchange for Bitcoin on cryptocurrency exchanges, or transfer funds across borders, arriving in minutes or even seconds, with transaction fees less than one-tenth of traditional banks. In some countries with severe inflation, many people use stablecoins to 'stock up on US dollars' to preserve their wealth.
The charm 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 had reached $230 billion, with 99% being US 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 'features'.
1. Fiat currency-pegged type
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 instance, if you hold 100 USDT, in theory, you can exchange it for 100 US dollars at any time. To ensure transparency, issuers are regularly audited to prove 'the funds are sufficient'. These stablecoins are the most popular because they carry low risk and are suitable for trading, payments, and other scenarios.
2. Physical asset-backed type
Some stablecoins are not pegged to the US dollar but to physical assets like gold and silver, such as PAX Gold, where 1 coin equals 1 ounce of gold. These stablecoins are suitable for investors who want to invest in gold but do not want to hold physical gold. However, due to the lower liquidity of the gold market compared to the US dollar, these stablecoins are smaller in scale and are used more for specific investment scenarios.
3. Crypto asset-backed type
Stablecoins like DAI are generated using cryptocurrencies like Ethereum as collateral. You must first lock up Ethereum worth $150 to generate 100 DAI. The benefit is complete decentralization, while the downside is that if the price of Ethereum plummets, the collateral may be liquidated, posing a higher risk.
4. Algorithmic stablecoins
Algorithmic stablecoins do not rely on collateral but maintain price stability through algorithmic adjustments of supply and demand, such as TerraUSD (UST), which collapsed in 2022. It was once highly anticipated but collapsed due to design flaws and market volatility, resulting in hundreds of billions in losses. Now, regulators are particularly vigilant about algorithmic stablecoins, and their market share is almost zero.
03
Practical application scenarios of stablecoins
Stablecoins are not only popular in the crypto world but also play a significant role in real life. Here are a few typical scenarios:
The 'pass' for cryptocurrency trading
In cryptocurrency exchanges, stablecoins are undeniably the 'pricing king'. Opening Binance or Coinbase, 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 used stablecoins, making them the lifeblood of the market.
A 'money-saving tool' for cross-border payments
Traditional banks have slow and expensive cross-border transfers, with a global average remittance cost of up to 6.3% (World Bank 2024 data). Using USDT? Transaction fees are as low as 0.1%, with funds arriving in minutes or even seconds.
Currently, the more common prediction in the industry is that, under high adoption, stablecoins are expected to capture 10% to 20% of the global remittance market 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 cornerstone role in the DeFi ecosystem, with over 75% of DeFi transactions utilizing stablecoins, making them the genuine 'unsung heroes'.
Inflation-resistant 'safe haven'
In high-inflation countries, stablecoins are a 'lifeline' for ordinary people. Taking Argentina as an example, the inflation rate soared to 117.8% in 2024, with severe depreciation of the peso, leading many to use USDT to 'stock up on US dollars', preserving value while allowing for transfers at any time. In 2025, the number of stablecoin users in Latin America grew significantly.
New 'playground' in the real world
On April 21, 2025, Mastercard announced support for USDC payments, allowing consumers to directly use stablecoins to buy coffee and pay bills at participating merchants. This innovation has transformed stablecoins from 'crypto toys' into real-world payment tools.
04
The global craze for stablecoins in 2025
By 2025, stablecoins are no longer a niche item but the focus of global finance. New policies in the US and Hong Kong, along with the Trump family's USD1, have put stablecoins at the forefront.
The US (GENIUS Act): The 'protective talisman' for stablecoins
On June 18, 2025, the US Senate passed the (Guidance and Establishment of the National Stablecoin Innovation Act) (GENIUS Act), tailoring a regulatory framework for US dollar stablecoins.
The bill requires issuers to hold $1 or US Treasury bonds on a 1:1 basis, 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's forecast, by 2030, the global stablecoin market size will reach $1.6 to $3.7 trillion, and the US will further strengthen the global hegemony of the dollar 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 USD1 stablecoin, fully backed by US dollars and US 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 pushes for crypto policies, his family’s involvement in USD1 has sparked strong conflict-of-interest doubts, with calls from US senators for investigations. Nevertheless, the launch of USD1 still excited the market, with trading volume surpassing $1 billion on June 29.
Hong Kong (Stablecoin Ordinance): Asia's 'leader'
On May 21, 2025, the Hong Kong Legislative Council passed the (Stablecoin Ordinance), which officially took effect on August 1, establishing a licensing system for stablecoin issuers.
The ordinance requires issuers to have at least HKD 25 million in paid-up capital or equivalent financial resources, to hold high-quality, highly liquid, and low-risk reserve assets, and to separate these from the issuer's other assets.
Currently, internet giants JD.com and Ant Group are advising the People's Bank of China to approve a stablecoin based on the Chinese yuan and plan to apply for a stablecoin license in Hong Kong, reflecting Hong Kong's strategic advantages as an offshore yuan center and a regulatory hub for digital assets.
05
Summary
Stablecoins, the 'financial bridge' of the future
Stablecoins are 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 of stablecoins are expanding, making them the 'hard currency' of the digital age. In 2025, new policies from the US (GENIUS Act) and Hong Kong (Stablecoin Ordinance) led stablecoins from 'wild growth' to compliance, and the Trump family's USD1 added more intrigue to the market. In the future, stablecoins may become part of our everyday payments, as convenient as using WeChat or Alipay.
Currently, stablecoins have become all the rage, with major players entering the field; are stablecoins the real killer application of Web3? What do you think?
