The use of stablecoins, designed to maintain a constant value, usually a 1:1 US dollar peg, has exploded in recent years, notably among crypto traders moving funds to and from other tokens, such as bitcoin and ethereum.
In July, the US Congress passed the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act, creating a legal framework for US dollar-denominated stablecoins. This month, Hong Kong became the latest jurisdiction in the Asia Pacific region to push forward with a stablecoin licensing regime.
For years in the institutional space, Wall Street banks kept stablecoins – and crypto more generally – at arm’s length. But now, even the most conservative parts of traditional finance are starting to recognise their potential.
It feels like a seminal moment, with stablecoins on a path to play a big role in the future of money globally. But, as always with technological innovation, there are risks and challenges and questions of hype vs reality.
What are stablecoins?
Stablecoins are crypto tokens issued on distributed ledgers that are designed to provide the stability of fiat currencies with the efficiency of blockchain.
Unlike cryptocurrencies like bitcoin and ethereum, which often see large shifts in price, stablecoins are designed to maintain a consistent value relative to another asset. They are usually pegged 1:1 to a fiat currency like the US dollar, offering convertibility on demand at par.
Stablecoins are often used by traders and investors to buy other cryptocurrencies on exchanges that do not accept fiat currencies, or as a place to park funds when cryptocurrencies are experiencing big price swings. As traders often cannot sell cryptocurrencies for dollars, they can sell into stablecoins instead.
In emerging institutional use-cases, proponents point to instant cross-border payments and remittances, as well as faster trading and capital market settlement and treasury and cash management.
Who are issuers of stablecoins?
Stablecoins are issued by private companies, with Tether (USDT) and Circle (USDC) holding the largest market share. Ripple also has its own stablecoin (RLUSD). Customers provide traditional currency (e.g., US dollars) to these issuers. The issuers then invest that money in safe and liquid assets, such as US Treasurys, to back the stablecoins (their liabilities) to make sure they can be redeemed.
Once a stablecoin has been issued and pegged to a stable asset, it is made available via a blockchain ledger, which records who owns it and any transactions they make with it. The value on the ledger is linked to the stablecoin, which means the owner can exchange their stablecoin back to a fiat currency at the same price.
As stablecoin issuers keep the interest from their investments and monetise on the back end, especially from issuance and redemption fees, they have become highly profitable businesses. Tether announced this month that it had registered a net profit of $4.9 billion in Q2 2025. For comparison, BlackRock – the world’s largest asset manager – had a Q2 2025 net profit of $1.6 billion.
How popular are stablecoins?
Global circulation of stablecoins has risen to around $250 billion from $120 billion 18 months ago, with the vast majority linked to the US dollar. Standard Chartered predicts the market will reach $750 billion by 2026. JP Morgan analysts offer a more conservative forecast, pegging stablecoin growth at $500 billion by 2028.
Stablecoins have captured the attention of regulators and corporates alike, with major global firms including Mastercard, Visa, PayPal Holdings, Walmart and Amazon.com exploring how to issue or use stablecoins to capitalise on the promise of instant payments and settlement. For retailers like Amazon and Walmart, it would allow them to accept payment and avoid pricey credit card transaction fees.
What are regulators doing?
In July, President Donald Trump signed the first US law to regulate stablecoins – the GENIUS Act – paving the way for investors and traditional financial institutions to explore the tokens. The move, he said, was a “giant step to cement American dominance of global finance and crypto technology.”
Hong Kong’s new law on stablecoins took effect at the beginning of this month, requiring issuers to be locally incorporated, maintain 1:1 fiat reserves, and meet strict anti-money laundering and countering financing of terrorism standards.
In Japan, the Financial Services Agency is set to greenlight the country’s first yen-backed stablecoin by Q4 2025, and in South Korea, lawmakers are advancing the Digital Asset Basic Law, which would allow licensed firms to issue won-pegged stablecoins.
In other regions, the EU’s Markets in Crypto-Assets regulation for crypto assets, including stablecoins, came into force at the end of last year, while the Bank of England has signalled it would relax its previous restrictive stance on stablecoin issuers. Stablecoins are also being used to hedge against local currency collapses in Latin America.
Despite these recent efforts – and like the digital asset industry more broadly – regulation of stablecoins remains extremely fragmented.
What are banks doing?
The rise of stablecoins has presented myriad challenges for financial institutions. Banks are now considering the risk of funds being held as stablecoin balances instead of as bank deposits. This has prompted some, like Bank of America and Citigroup, to consider issuing their own stablecoins, as they noted in post-earnings calls last month.
Bank of America chief executive Brian Moynihan told investors: “If people use [stablecoins] as a transactional account, we have to be ready to have those transactional deposits stay within our franchise…or else you’ll see a major migration of deposits outside the industry.”
Morgan Stanley said it is closely monitoring stablecoin developments, while JP Morgan CEO Jamie Dimon said the bank will be involved in stablecoins, without giving details.
Standard Chartered announced this month that it had formed a joint venture with strategic partners to apply for a license to issue stablecoins in Hong Kong, days after stablecoin legislation came into effect. Elsewhere, Frances's Société Générale is launching a dollar-backed stablecoin after launching a euro-based stablecoin in 2023, while Sony Bank in Japan is experimenting with a yen-backed coin.
In other areas of the financial system, Intercontinental Exchange is working on a project with Circle to trial using stablecoins as trading collateral within its derivatives exchanges, clearinghouses and data services.
Risks and challenges
In its Annual Economic Report 2025, the Bank for International Settlements, a forum for the world’s central banks, issued a stark warning about the potential for stablecoins to undermine monetary sovereignty, as well as transparency issues and the risk of capital flight from emerging economies.
The BIS also pointed out that some stablecoins have seen substantial deviations from par, highlighting the “fragility of their peg,” and noted that as of 2024, stablecoins have overtaken bitcoin as the asset of choice for criminals, accounting for approximately 63% of all illicit transactions.
Other concerns from regulators include cybersecurity risks, the risk stablecoins could pose to consumers or markets generally if they are not adequately collateralised, and the potential impact if a stablecoin issuer is hit with a sudden wave of redemptions.
Crypto’s big bang moment?
Stablecoins appear positioned for increasing mainstream traction, but the floodgates have not quite opened yet. There is a question of exactly how impactful stablecoins can become on the global stage when most of their market value is made up of tokens tied to the US dollar. Coupled with this is regulatory uncertainty around the world with fragmented or absent frameworks for stablecoin issuance, trading and use.
For jurisdictions with regulations in place, companies must embark on a lengthy process to deploy their own stablecoins or decide whether it makes more sense to integrate existing stablecoins into their business.
Then there is the expense. In Hong Kong, for example, the new regime demands a minimum paid-up share capital of HK$25 million, segregated reserves and a bar on paying interest to holders. The rules in other regions in Asia are similar.
There is no doubt that enthusiasm for stablecoins is at an all-time high, but there is still a long way to go before they can be viewed as truly transformative and fulfilling their potential.
Further reading:
The stable door opens: How tokenized cash enables next-gen payments – McKinsey and Co.
From hype to hazard: what stablecoins mean for Europe – The European Central Bank
Why stablecoins are shifting from crypto fringe to corporate strategy – The Financial Times
Stablecoin growth – policy challenges and approaches – The Bank for International Settlement
Stablecoins could increase treasury demand, but only by reducing demand for other assets – Federal Reserve Bank of Kansas City
