Background

The Evolution of Stablecoins

Early Development

Stablecoins first emerged in the mid - 2010s to address the volatility of cryptocurrencies. Tether (USDT), launched in 2014, was a pioneering stablecoin pegged to the US dollar. It enabled traders to hold stable - value assets without converting to fiat, thus making crypto trading more efficient and laying the foundation for the stablecoin market.

Expansion and Diversification

As blockchain and crypto ecosystems grew, so did the variety and uses of stablecoins. Initially used for crypto - to - crypto trading, stablecoins began to be adopted for other financial activities. In 2018 - 2019, projects like TrueUSD (TUSD) and USD Coin (USDC) emerged, offering more transparent and regulated issuance methods. These stablecoins, backed by fiat reserves in audited bank accounts, bolstered trust and stability.

Meanwhile, other types of stablecoins appeared. Euro - pegged stablecoins such as EUR - S and EURT, and GBP - pegged ones like Binance GBP (BGBP) were launched to meet regional needs. Commodity - backed stablecoins like Tether Gold (XAUT) and PAX Gold (PAXG), backed by physical gold, provided a new stable and inflation - hedging option for investors.

Recent Growth and Mainstream Adoption

Due to the increasing demand for stable digital assets, the stablecoin market has seen remarkable growth in recent years. By 2023, the total market cap of stablecoins surpassed $150 billion. Now, stablecoins are used not only for trading but also for cross - border payments, remittances, DeFi, and as a store of value. Major financial institutions and corporations are exploring their potential to enhance payment systems and financial services.

In 2024, the market cap of the top 10 fiat - pegged stablecoins rose 35.4% from $119.1 billion to $161.2 billion as of August. Tether (USDT) remains dominant with a market cap of $114.4 billion (70.3% of the total), followed by USDC and DAI at $33.3 billion and $5.3 billion respectively. The market cap of commodity - backed stablecoins reached $1.3 billion as of August 1, 2024, with XAUT and PAXG making up 78% of this market cap.

The rise of stablecoins has also caught the attention of central banks. Countries are actively exploring and testing CBDCs. For example, the UAE central bank's dirham - backed AE Coin represents a trend of integrating stablecoins into traditional banking systems. CBDCs and stablecoins are expected to co - evolve and complement each other, driving the digital currency ecosystem's development.

Regulators' Attitudes

The global regulatory landscape is evolving to support stablecoin adoption. The UK and Japan are adjusting their legislation. The EU's MiCA framework is managing stablecoin issuance, and Japan's Payment Services Act is setting operational and reserve requirements. These efforts aim to provide a clear and safe framework for stablecoin development, protecting consumers and maintaining financial stability. In the US, regulatory authorities are also closely monitoring the stablecoin market. The Federal Reserve and other agencies are working on relevant policies and regulations to ensure stablecoin stability and transparency while promoting financial innovation.

Payment Trend

Stablecoin payments are gaining traction as a more efficient and cost - effective alternative to traditional payment systems. In 2024, Singapore registered $1 billion worth of stablecoin payments, a figure expected to grow. Stablecoin payments are being used in cross - border transactions, remittances, and e - commerce, offering faster settlement and lower fees.

Visa's head of crypto, Cuy Sheffield, highlighted that stablecoin - linked cards will be a key opportunity in 2025. Wallets are expected to issue more such cards, and Visa plans to expand its capabilities to enable issuers to settle directly with it using stablecoins. This will enhance the convenience and accessibility of stablecoin payments in daily life. BitPay's chief market officer, Bill Zielke, noted that stablecoins accounted for at least a quarter of the volume on the crypto payments platform in 2024, with USDC transactions averaging over $5,000. He anticipates this trend will continue into 2025 as stablecoins further solidify their role in global commerce and business - to - business payments.

The growth of stablecoin payments is driven by their technical advantages and increasing acceptance in the business community. The rise of regulated stablecoins is also driving payment adoption. Tether's profitability in 2024, gaining $5.2 billion in Q1 by placing reserves in US Treasury bonds, shows the viability of regulated stablecoins. Traditional financial institutions are increasingly exploring stablecoin adoption, and the emergence of local - currency - pegged stablecoins indicates a trend toward integrating stablecoins into traditional banking systems. This integration will provide users with more convenient and efficient payment options while promoting financial market development.