As major banks and payment giants enter the market, stablecoins are regaining momentum, but issues of stability, regulatory frameworks, and centralization and fraud risks remain unresolved.
Today, stablecoins are ubiquitous - and this time, the leaders are "traditional" financial institutions. Bank of America and Standard Chartered are considering launching their own stablecoins, joining JPMorgan's ranks. The latter previously launched JPM Coin (later renamed Kinexys Digital Payment), providing transaction services for institutional clients on its Kinexys blockchain platform (formerly Onyx).
Mastercard plans to push stablecoins into the mainstream with crypto startup Bleap Finance, aiming to enable direct on-chain spending of stablecoins (without exchange or intermediaries), seamlessly integrating blockchain assets into Mastercard's global payment network.
In early April 2025, Visa joined the Global US Dollar Network (USDG) stablecoin alliance, becoming the first traditional financial institution to join. In late March 2025, Intercontinental Exchange (ICE), parent company of the New York Stock Exchange, announced that it is exploring the application of USDC stablecoin and US Yield Coin in its derivatives exchange, clearing house, and data services markets.
Why are stablecoins regaining favor?
Clearer Regulation and Market Acceptance
Recent actions by European and American regulators have established clearer guidelines for cryptocurrency use. The US Congress is considering legislation to establish formal standards for stablecoins to boost confidence among banks and fintech companies.
The EU's Crypto Assets Market Regulation Act requires domestic stablecoin issuers to comply with specific financial standards, including dedicated reserve requirements and risk mitigation measures. UK financial authorities plan to develop stablecoin usage rules through public consultation to further promote their adoption.
Trump's Executive Order 14067 on "Strengthening American Leadership in Digital Financial Technologies" explicitly "supports and promotes the development of globally legitimate US dollar-backed stablecoins" while "prohibiting the establishment, issuance, circulation, and use of central bank digital currencies (CBDC) within the United States". Following the order, Trump's World Liberty Financial company immediately launched a stablecoin called USD1, marking the arrival of an era dominated by US dollar-anchored stablecoins.
Do we need more stablecoins?
Current Stablecoin Ecosystem
Among the existing 200+ stablecoins, most are pegged to the US dollar. Two veteran stablecoins dominate the market: Tether (USDT), launched in 2014, and USDC, introduced in 2018, lead with 65% and 28% market capitalization respectively - both using a centralized fiat collateralization model.
The third-place newcomer is USDe, launched in February 2024, occupying about 2% market share. Its operational mechanism is unique: achieving price anchoring through crypto market derivatives. Although running on an Ethereum DeFi protocol, it still has centralized characteristics due to its reliance on centralized exchanges holding derivative positions.
Three Core Stablecoin Mechanisms
- Centralized Fiat Collateralization: Centralized companies hold reserve assets in banks/trusts (currency) or vaults (gold) and issue corresponding asset tokens (stablecoins).
- Decentralized Crypto Asset Collateralization: Supported by other decentralized crypto assets. For example, MakerDAO's DAI stablecoin is pegged to the US dollar but fully embodies decentralization, with no single entity controlling its issuance.
- Decentralized Uncollateralized: Maintaining value stability through smart contract algorithmic control of token supply. In some ways, this is similar to central bank operations - which also do not rely on reserve assets to maintain currency value. The difference is that the Federal Reserve and other central banks develop monetary policy based on clear parameters and publicly, with the issuer's identity providing credibility to the policy.
Depegging Risks and Fraud Traps
Stablecoins should maintain stability, with their original purpose being to overcome the inherent volatility of cryptocurrencies. Maintaining stability requires two conditions: (1) anchoring to a stable asset; (2) having an effective mechanism to maintain the anchor.
If pegged to volatile assets like gold or electricity, stablecoins become a high-risk choice. For instance, USDe maintains its US dollar anchor through Delta hedging, generating a 27% annualized return through futures long and short positions - far higher than other US dollar stablecoins' average 12% return. However, derivative positions inherently carry high risks, which contradicts the original design of stablecoins.
In over a decade of stablecoin development, no major depegging crisis has occurred besides the Terra incident. Terra's collapse was not due to insufficient reserves or mechanism flaws, but the result of fraud and manipulation.
TerraUSD (UST) originally designed an arbitrage mechanism between UST and LUNA tokens: burning LUNA could generate UST. To attract traders, the Terra team offered a 19.5% staking yield (deposit interest) through the Anchor protocol. Such a high interest rate was clearly unsustainable - requiring borrowers to pay equal or higher rates for lenders to receive 19.5% returns. An analysis in January 2022 showed the Anchor protocol was already operating at a loss. A key accusation in the lawsuit against Terraform Labs' founder was that the Anchor protocol was essentially a Ponzi scheme.
In March 2025, Galaxy Digital reached a $200 million settlement with the New York Attorney General over undisclosed conflicts of interest in promoting LUNA tokens. In January of the same year, Terra's founder Do Kwon was found guilty of securities fraud and faces multiple charges in the US, including telecommunications and commodity fraud. If regulators want to prevent similar incidents, the focus should be on how to prevent fraudsters from issuing or manipulating stablecoins.
Decentralization: Rekindling Bitcoin's Original Vision
Most stablecoins use a centralized asset collateralization model controlled by corporations. This can lead to misappropriation of customer funds or false claims of adequate reserves. To prevent such actions, regulators need to closely monitor and establish quasi-securities regulations.
Centralized stablecoins contradict the blockchain concept and Bitcoin's original vision. Bitcoin was conceived as a disintermediated payment platform free from corporate, bank, or government control - a decentralized mechanism governed by the people.
If stablecoins adopt a centralized model, they should be subject to the same regulations as other centralized assets. Perhaps now is the time to rekindle Bitcoin's original spirit in a more "stable" way: developing algorithmically decentralized stablecoins free from any corporate, bank, or government control, truly reviving the core spirit of blockchain.
