The Value and Challenges of Stablecoins: An In-Depth Analysis of the Cornerstone of the Crypto Assets Market

In the field of Crypto Assets, stablecoins have become an indispensable key element. Their unique value is not only reflected in serving as a medium for Crypto Assets trading but also shows innovative potential in traditional financial scenarios such as cross-border payment settlements. As of April 2025, the global market capitalization of stablecoins has reached $236.7 billion. Top asset management institutions and sovereign economies are accelerating their layout in the stablecoin track. USDC issuer Circle recently submitted a prospectus to the SEC, expecting to go public with a valuation of $5-7 billion, reflecting the industry's booming development.

The Nature and Applications of Stablecoins

A stablecoin is a type of Crypto Asset designed to maintain a specific price over the long term, with its core feature being the maintenance of the relative stability of the coin's value through specific mechanisms. Unlike central bank digital currencies, stablecoins in the crypto industry are mostly issued by private entities, and their value anchoring relies on commercial credit, collateralized assets, or algorithmic protocols.

The emergence of stablecoins has solved the value storage problem in the world of Crypto Assets. Investors can enter and exit the crypto market through stablecoins, locking in investment gains or losses. In addition to the investment field, stablecoins are also widely used in scenarios such as DeFi and cross-border payments.

In cross-border payments, stablecoins demonstrate significant advantages. Traditional banking systems require an average of 2-5 days for cross-border transfers, with high costs. In contrast, stablecoin payments can be completed in a matter of minutes, with extremely low transaction costs. This efficiency improvement is powered by technologies such as distributed ledgers and smart contracts.

In the DeFi ecosystem, stablecoins have become cornerstone assets. As an important medium of value, stablecoins provide stable liquidity for DeFi platforms, optimizing trading and lending models.

Mainstream stablecoin analysis

fiat currency pegged stablecoin

USDC

• Issuer: Circle Company
• Circulating Market Cap: Approximately $60 billion
• Mechanism: Excess reserve of US dollar cash and short-term US treasury bonds
• Compliance: Holds multiple state money transfer licenses in the US, compliant with EU MiCA regulations.

USDT

• Issuer: Tether
• Circulating Market Cap: Approximately $60 billion
• Mechanism: 1:1 reserve cash and other assets
• Compliance: Previously fined for lack of transparency in reserves, facing regulatory disputes.

Crypto Assets pegged stablecoin

DAI

• Issuer: MakerDAO
• Circulating Market Cap: Approximately 3.1 billion USD
• Mechanism: Crypto Assets Over-Collateralization
• Compliance: Decentralized organization, lack of clear legal entities

physical asset-backed stablecoin

PAXG

• Issuer: Paxos Company
• Market Cap: Approximately $1.87 billion
• Mechanism: 1:1 pegged to physical gold
• Compliance: Regulated by the State of New York

Algorithm stablecoin

Algorithm stablecoins maintain the stability of coin values through smart contract algorithms, without relying on reserve assets. However, their stability is overly dependent on algorithm design and is susceptible to extreme market fluctuations. The 2022 UST collapse exposed many risks of algorithm stablecoins, leading to a prolonged downturn for this type of stablecoin.

Summary

The value of stablecoins is based on the support of underlying assets and market consensus. However, its "stable" attribute is not absolute and still faces potential risks. In the future, it is necessary to further improve the regulatory framework and technical security mechanisms to protect the rights and interests of holders.