Crypto Assets unexpectedly gave rise to the astonishing product of stablecoins.

In the past year, three major events have propelled stablecoins into the mainstream:

1. Tether has generated nearly $13 billion in profits with fewer than 200 employees.

2. Trump's inauguration and the shift in the U.S. regulatory attitude;

3. Stripe acquired the stablecoin infrastructure company Bridge for $1.1 billion.

When an ecosystem can earn so much money, regulation will also become clear.

If you are issuing or using stablecoins, I hope this guide helps you understand the perspectives of industry insiders.

We interviewed several industry leaders to provide multi-faceted insights.

Let's get started!

Definition of stablecoin

Stablecoins are typically liabilities priced in US dollars, supported by reserves of assets with equivalent or higher market value.

There are mainly two types:

• Fiat support: Fully backed by bank deposits, cash, or low-risk cash equivalents ( such as government bonds ) as collateral.

• Collateralized debt position ( CDP ): Primarily over-collateralized by Crypto Assets ( such as ETH or BTC ).

The utility of stablecoins depends on the "peg" to the US dollar. This peg is maintained through two mechanisms: primary redemption and the secondary market. First, is it possible to immediately redeem an equivalent amount of reserves? If not, is there a deep and persistent secondary market?

Due to the unpredictability of the secondary market, primary redemption is a more durable peg mechanism. In addition, there are many low-collateral or algorithmic stablecoin attempts, which this guide will not elaborate on.

It is important to note that stablecoins do not come out of thin air. They rely on blockchain to provide core functions similar to those of banks.

Definition of Blockchain

Blockchain is a global "accounting system" that includes personal assets, transaction records, and transaction rules.

For example, Circle's USDC is issued based on the ERC-20 standard, which stipulates the rules for token transfers. These rules, along with the consensus mechanism, ensure that users cannot over-transfer. In simple terms, blockchain is like an append-only database or a double-entry ledger that records every transaction in a closed-loop network.

Assets on the blockchain are held by EOA accounts or smart contracts. EOA ownership is achieved through public and private key encryption. Smart contracts hold and trade assets according to preset logic.

The "trust" in the system's accuracy comes from the execution and consensus mechanism of the underlying blockchain. Accuracy can be verified through the initial state and transaction history. Transaction settlements occur around the clock, unaffected by bank operating hours. Gas fees are required for processing transactions.

These definitions provide a common foundation for readers. So, how did we get to this point?

The History of Stablecoins

Twelve years ago, stablecoins were just an idea. Today, Circle, which issues USDC, is preparing to sell or go public. Circle's S-1 filing documents the history of the creation of USDC.

We invited the founders of USDT and DAI, Phil Potter and Rune Christensen, to share their stories.

Tether: The Birth of a King

In 2013, the Crypto Assets market was in the Wild West era. Exchanges were advised to only accept Crypto Assets deposits and withdrawals, hindering widespread adoption. Traders needed to hedge but did not want to leave the "casino".

Phil Potter saw this opportunity. His plan was to create a "stablecoin": a 1 dollar Crypto Assets liability backed by a 1 dollar reserve. In 2014, he collaborated with BitFinex to create Tether, an independent entity with the necessary licenses to integrate into the broader financial network.

Tether issues USDT, only entities that have passed KYC certification can directly mint or redeem it. However, USDT circulates freely on permissionless blockchains.

Two years later, Phil discovered that the adoption rate of USDT in regions such as Southeast Asia had increased. Export companies regarded USDT as a faster and cheaper alternative to the dollar payment network. Crypto natives also began using USDT for cross-exchange arbitrage. Phil realized that Tether had built a faster and simpler parallel dollar network.

Currently, the circulation of USDT is nearly $150 billion, far exceeding the $61 billion of USDC. Tether is considered one of the companies with the highest per capita profit in the world.

DAI: the first decentralized stablecoin

Rune was exposed to Crypto Assets early on, seeing them as a way to escape an unfair financial order. However, the subsequent downturn made him realize the need to manage volatility.

In 2015, Rune collaborated with Nikolai Mushegian to design a stablecoin pegged to the US dollar. The emergence of Ethereum provided them with a platform. Could they issue a stablecoin using ETH? How to maintain the system's solvency?

Their solution is the MakerDAO protocol, which was launched in December 2017. Users can deposit 100 USD worth of ETH to obtain 50 USD worth of DAI, creating an over-collateralized stablecoin. Smart contracts set liquidation thresholds to ensure solvency. Over time, new modules have been added to simplify auctions, set interest rates, and incentivize liquidators.

This CDP stablecoin concept has sparked a large number of imitators. The key lies in the programmability and transparency of Ethereum: all reserves, liabilities, and parameters are visible to all participants.

Today, the circulation of DAI( and USDS) has exceeded 7 billion USD, becoming an important pillar of DeFi. However, MakerDAO is shifting towards traditional reserve assets like USDC to respond to changes in the competitive landscape.

Stablecoin: Current Products

The fundamental promise of stablecoins is that holders can exchange them for USD at a 1:1 ratio at any time, with no discount and minimal trading friction. Achieving this promise requires robust asset management, reserve transparency, excellent operations, liquidity, custodial integration, developer accessibility, and regulatory approval.

Given the success of early issuers, competition is now fiercer. There are currently at least 200 stablecoins, and there could be thousands more in the future. To compete effectively, new strategies must be formulated from the start, and cohesive products must be offered. The success factors for fiat-backed stablecoins include:

• Professional reserve management: Maintaining the peg depends on solvency, and professional management is the minimum requirement for large stablecoins. Smaller issuers may start with tokenized MMFs.

• Custody Coverage: Institutional clients require custody services from providers such as Coinbase, BitGo, etc. Listing may require high fees and institutional support.

• Standardized Cross-Chain Deployment: Native multi-chain deployment will become a necessary condition for achieving a smooth user experience.

Infrastructure providers like Paxos and emerging service providers such as Brale offer many out-of-the-box features. However, issuers still need to design practical products and promote them effectively.

stablecoin utility function

Stablecoins were initially created as a savings tool. However, the functionality of fiat currency goes beyond savings. Any operations users perform with stablecoins enhance their utility. The higher the utility, the higher the retention rate and floating returns.

Different users have varying standards for measuring utility. Product market fit requires that the functionality set aligns with customer expectations. Recent successful and failed cases provide insights into the current market landscape.

Trading: Conquering Centralized Exchanges ( CEX )

The establishment of Tether and the close cooperation with Circle, Coinbase, etc. is not a coincidence: Crypto Assets are essentially speculative, and CEX remains the preferred choice for most users. The trading volume in 2024 is approximately $19 trillion.

In the exchange, stablecoins that can be used as margin or constitute the base currency pair are more useful for traders. Acquiring these customers is no easy task; new issuers must achieve differentiation on a whole new level.

Apart from the main participants, the most successful CEX transformation belongs to Ethena and its (, which is not entirely a stablecoin USDe.

Ethena senses an opportunity and reaches a three-way agreement among traders, CEX, and itself:

1. Tokenize high-yield, delta-neutral strategy into USDe.

2. Collaborate with CEXs like Bybit to share part of the basic earnings.

3. Bybit transfers profits to traders to compete for market share. As of March 2025, Bybit traders using USDe as margin earn a 9% annualized return, while ) USDC is at 0%, (.

The advantages of using USDe as collateral are clear, coupled with frictionless distribution through CEX, driving its circulation to $5 billion. This reflects traders' preference for capital efficiency, even when the underlying asset has higher credit risk.

Profit: Decentralized Finance ) DeFi ( Integration

USDC and USDT have brand value and can achieve higher floating returns. New competitors such as MO and Agora have shifted to sharing basic returns with users or B2B partners.

However, sharing profits is difficult to overcome the user switching costs. Forward-looking issuers are seeking to enhance utility through DeFi integration. One of the core integrations is the listing of on-chain money markets promoted by protocols such as AAVE and Morpho.

These protocols coordinate both parties in a collateralized repurchase transaction. On-chain money markets enable holders to leverage their assets. The demand for leverage drives borrowing demand, and stablecoin holders earn returns through lending.

New stablecoins like PYUSD enhance borrower yields through incentive programs. Regardless of the approach taken, issuers must maintain objectivity.

More and more new issuers are creating DEX markets with USDC, enhancing utility through providing interchangeability. However, this faces challenges of low capital efficiency of USDC and high IRR thresholds for market makers.

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Payment: Bootstrap Distribution

Stablecoins must become practical and not just speculative. Circle's payment network is an example of trying to create additional features to achieve liquidity monetization. However, the dream of stablecoins and blockchain becoming payment networks faces resistance from existing network effects.

The cryptocurrency-based debit card allows users to use stablecoins at millions of merchants worldwide. Crypto debit card issuers like Rain automatically authorize transactions when users deposit sufficient USDC on-chain.

By collaborating with debit card issuing bodies or card networks, issuers leveraging existing network effects are more likely to achieve higher floating yields.

Future encryption debit cards will attempt to authorize the use of a wider range of Crypto Assets as collateral. In the long run, the card integration layer may completely abstract the underlying stablecoin choices, reducing the importance of branding.

In summary, people are increasingly expecting stablecoins to be launched with core foundational elements while maximizing user utility in terms of transaction-yield-payment. Initiatives like USDG acknowledge this reality.

As stablecoins are adopted by more global payment channels, they will increasingly be integrated into the traditional financial services regulatory framework. Navigating this major change is crucial for gaining and maintaining market dominance.

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Ever-changing regulatory environment

Imagine spending years building a moat, only to be forced to delist by regulations in the end. This is not unfounded: after the EU MiCA came into effect, USDT was delisted by major CEXes across the European continent. Complying with global regulations is becoming increasingly important for entering key markets and gaining distribution partners.

The following covers widely accepted compliance fundamentals and best practices:

) Basic Constraints Factors

Obtaining global regulatory recognition usually has two non-negotiable conditions:

KYC/AML: Require customers to self-identify to reduce the ability of bad actors to cause harm.

Best practices: control the nodes for fiat currency in and out of stablecoins. For example, minting USDC requires joining Circle or going through regulated CEX.

Monitoring and Sanctions Screening: Implement effective monitoring of participants to detect those whose behavior deteriorates.

Best Practices: Document policies and implement automation. Guidelines include regular screenings, frequency adjustments, using automated compliance tools, participating in information-sharing programs, etc.

( Emerging Options: Blacklist vs Whitelist

The world's largest fiat stablecoin adopts a blacklist model, maximizing distribution while minimizing friction. Any wallet can use the stablecoin unless it is marked as illegal.

On the contrary, the whitelist mode only allows pre-approved wallets to use stablecoins. This approach reduces utility but provides maximum counterparty certainty, which may attract