For one, their increased use in money laundering and terrorist financing poses risks to national security. In addition, increased holdings of stablecoins by the public could potentially draw down bank deposits and thereby limit the efficacy of monetary policy. On the other hand, if issuers hold cash reserves as deposits and steer new cash into banks, such as from unbanked or foreign populations, stablecoin uptake may increase deposits and enhance the transmission of monetary policy. The composition of reserves also has implications for public finance—U.S.
Global Dollar USDG
Fiat-backed stablecoins are transforming how money moves across borders, between businesses, and within digital ecosystems. By combining the price stability of fiat currencies with the speed, availability, and programmability of blockchain, they’re quickly becoming foundational to modern payments infrastructure. Unlike many other crypto assets, the largest reserve-backed stablecoins are issued by entities that retain the sole prerogative to mint and destroy tokens.
Deep dive into real life use cases.
These reserves are typically maintained in segregated, bankruptcy-remote accounts, and are subject to regular attestation or audit. USDC is issued through regulated affiliates of Circle1, a financial technology company in the private sector, while a CBDC would be issued by a government. While most CBDCs are only in the research phase, USDC exists today and is widely used by millions of people around the world.
During this turmoil, Tether saw its stablecoin trading on the secondary market at values as low as 94 cents on the dollar despite continuing to honor requests redeeming tokens for dollars in full. Some issuers of asset-backed tokens have begun to publicize the composition of their reserves to boost confidence in their solvency, but implementation has been uneven in the absence of regulatory standards. Stablecoin payments for goods and services in the real-world economy have taken off faster in other countries than in the U.S., but there is potential for growth here. Stripe, the second largest online payments processor, now enables users to pay U.S. merchants with stablecoins. Stripe then pays these merchants in U.S. dollars and charges only half the fee it applies to card transactions.
Where can I buy stablecoins?
In the years that followed, Chinese authorities continued to tighten control over the crypto industry, steadily restricting permissible activities. In September 2021, regulators declared all cryptocurrency-related financial activities illegal—including trading, payments, token issuance, fundraising, and derivatives. The ban even extended to foreign crypto exchanges serving Chinese residents. The collateral used is mostly cash, but with some engineering and overcollateralization, other cryptocurrencies can back the value of stablecoins. For example, USDD is a stablecoin backed by other cryptocurrencies like USDC and Tether, as well as TRX and Bitcoin. In fact, USDD is highly overcollateralizated, as the coins reserve contains more than 3 times the total value of all USDD in circulation.
Stablecoins don’t have to be pegged to the value of government-issued currencies. They could also be based on the value of gold or index funds consisting of multiple commodities. The problem with “Buying a cup of coffee with Bitcoin” is that crypto prices are volatile. They change a lot and they change quickly compared to the government-issued currencies we are accustomed to using. With euros or pounds, a café might adjust its prices once or twice a year to account for inflation and other economic developments. With crypto, bigger price changes would have to happen much more often.
- In 2023, for example, many Argentines turned to stablecoins to preserve purchasing power when inflation skyrocketed over 200%.
- Yet despite their promise, stablecoins have existed on the periphery of the mainstream financial system, largely due to a lack of a comprehensive regulatory framework.
- If you sign up for cryptocurrency services with PayPal, you can buy PYUSD in our app or on our site.
- Unlike the money we know, stablecoins are still new and regulations are still evolving.
For payment firms and institutions, understanding and addressing these risks is essential to unlocking the full benefits of stablecoin-based payments. Integrating stablecoins into a payments stack requires more than just adding a token, it means engaging with the underlying systems that make secure, compliant, and scalable digital asset operations possible. For firms building stablecoin-powered flows, success depends on a coordinated infrastructure of custody, network access, APIs, and reconciliation systems. Increasingly, stablecoins are being used as a new payment form factor that blends the advantages of digital assets with the familiarity and trust of traditional money.
It somewhat diminishes the hard-won progress in recent years toward building renminbi-based financial infrastructure that could serve as an alternative to the dollar-based infrastructure controlled by Washington. In a world where dollar stablecoins circulate globally, Beijing risks losing not just monetary ground, but also political leverage. They seek to provide fiat value and price stability in a blockchain environment where digitized (yet non-decentralized) cash may not be recognized. Although all stablecoins aim to maintain a pegged ratio to a https://youtu.be/vSFodNZsYyM?si=d2PjHIEBGV8m-OE1 given fiat currency, the assets they hold as collateral may determine the stability of their respective pegs.
Unlike the money we know, stablecoins are still new and regulations are still evolving. The relatively recent set of rules and its ease of use have also attracted shady actors like drug dealers and ransomware hackers. But stablecoins still aren’t a fixture in consumer payments and spending. They’ve largely been used for trading into and out of other types of crypto and, to a lesser extent, sending cross-border payments.