Stablecoins have recently become a focal point in financial market discussions. On June 5, Circle Internet Group, the issuer of USDC (the world's second-largest stablecoin), went public on the New York Stock Exchange. Its shares surged 168.5% on the first trading day, reaching a market capitalization exceeding $180 billion. By June 21, Circle's valuation had surpassed $534 billion.
The rapid growth of stablecoins reflects their increasingly vital role as infrastructure in the digital economy. This article will analyze stablecoins' core logic: Why does the market need them? How to purchase and use them? How do issuers generate profits? And why aren't they always stable?
Why Are Stablecoins Necessary?
Cryptocurrencies like Bitcoin and Ethereum have long been plagued by extreme price volatility. For instance, Bitcoin's price dropped 28% in less than three months between January and April 2025. Such volatility makes cryptocurrencies impractical for daily payments and commercial use.
In the early days of crypto, converting between cryptocurrencies and fiat currencies (like USD) faced numerous obstacles due to regulatory restrictions and cumbersome processes. This created market demand for a new type of cryptocurrency — stablecoins that maintain 1:1 parity with fiat currencies.
Tether launched the first USD-pegged stablecoin (USDT) in 2014, bringing much-needed stability to the crypto world. USDT functions like "tokens" in the cryptocurrency ecosystem, simplifying transactions between fiat and digital assets.
How to Buy and Use Stablecoins?
There are three primary methods to obtain stablecoins:
- Centralized Exchanges: Platforms like Binance and OKX allow users to purchase stablecoins via credit/debit cards or bank transfers after identity verification.
- P2P Trading: Peer-to-peer platforms enable direct transactions between buyers and sellers, particularly useful in regions with strict crypto regulations.
- Crypto ATMs: Available in select cities, though typically charging 5%-10% fees.
👉 Learn how to buy stablecoins securely
Stablecoins now serve multiple functions: as trading pairs on exchanges, collateral in DeFi protocols, payment tools in e-commerce, and remittance solutions for cross-border transfers. Their instant settlement and low fees (often <$0.01 per transaction) offer significant advantages over traditional payment systems.
How Do Stablecoin Issuers Make Money?
Stablecoin issuers primarily profit through:
- Interest Spreads: Investing user deposits in low-risk assets like U.S. Treasuries
- Network Effects: Scaling operations with minimal marginal cost
- Transaction Fees: Charging for conversions between stablecoins and fiat
Circle's 2024 financials reveal that 99% of its $1.68B revenue came from interest on USDC reserves. This "digital banking" model relies heavily on maintaining market confidence and sufficient liquidity.
Why Aren't Stablecoins Always Stable?
Despite their name, stablecoins face several instability risks:
- Collateral Issues: Reserve shortages (like Tether's 2021 CFTC fine) or illiquid assets
- Market Panics: Bank-run scenarios (e.g., USDC's 2023 depeg during SVB collapse)
- Algorithmic Failures: Death spirals in non-collateralized models (Terra/LUNA crash)
- Regulatory Actions: Compliance challenges across jurisdictions
New regulations like the U.S. GENIUS Act and Hong Kong's Stablecoin Ordinance aim to mitigate these risks by mandating full reserve backing and regular audits.
FAQs About Stablecoins
Q: Are stablecoins safe?
A: Generally safer than volatile cryptocurrencies, but dependent on issuer credibility and reserve adequacy.
Q: Can I earn interest on stablecoins?
A: Some platforms offer yield-bearing products, but most stablecoins themselves don't pay interest.
Q: How do stablecoins help cross-border payments?
A: They enable near-instant transfers with fees often <1% versus traditional remittance costs averaging 6.62%.
Q: What happens if a stablecoin issuer goes bankrupt?
A: Users may lose redemption rights, potentially causing the stablecoin to lose its peg. Diversification is recommended.
Q: Why are retailers like Amazon exploring stablecoins?
A: To bypass traditional payment networks and save billions in transaction fees.
The Future of Stablecoins
As adoption grows, we'll likely see:
- Increased institutional participation
- More regulatory clarity globally
- Innovation in programmable money use cases
- Potential CBDC competition
Current USD-backed stablecoins dominate (~98% market share), but regional alternatives like potential offshore RMB stablecoins could emerge to promote currency internationalization.
👉 Explore stablecoin investment strategies
Stablecoins have proven indispensable in connecting traditional finance with the digital economy. While challenges remain regarding stability and regulation, their ability to provide efficient, low-cost financial infrastructure ensures they'll continue playing a pivotal role in the future of money.