Stablecoins can be defined as a crypto-asset designed to maintain a stable value relative to another asset (typically a unit of currency or commodity) or a basket of assets(Financial Stability Board, 2019). Essentially, it is a cryptocurrencies on the blockchain that reflect the price stability of real-world liquid assets, providing the price stability expectations lacking in other virtual currencies through mechanisms such as exchange rate pegging.
Since their introduction in 2014, stablecoins have exhibited strong resilience during various risk shocks. By the end of May 2025, the total market capitalization of stablecoins had exceeded $250 billion, an eleven-fold increase from the $20 billion market cap in 2020(CoinGecko, 2025). Depending on the type of underlying collateral, stablecoins can be categorized into: Fiat-backed stablecoins (e.g., USDC, USDT), Crypto-collateralized stablecoins (e.g., DAI), Commodity-backed stablecoins (e.g., PAXG) and Algorithmic stablecoins (e.g., USDD).

Initially, stablecoins were primarily used for trading and settlement in cryptocurrency markets. Due to their price stability, low transaction costs, and security and convenience, stablecoins have emerged as a new, convenient payment method[4]. However, in recent years, they have been rapidly adopted in various fields such as hedging against local currency devaluation, cross-border trade settlement, daily transactions, and other financial investments.

Traditional financial system is slow, cost with limited accessibility[5]. However, leveraging blockchain technology, and effectively balancing openness and stability in their functional characteristics, stablecoins enable faster and more cost-effective cross-border transactions[6]. This is particularly beneficial for remittances, where traditional banking systems often involve high fees and long processing times. Traditional bank cross-border remittance settlements can take up to 5 business days; in digital payments based on interbank communication systems, about 30% of remittances take more than 1 day. In contrast, 100% of stablecoin cross-border payments can be completed within 1 hour, significantly decreasing the payment cost.

Technological iteration is driving new application scenarios. The RWA (Real-World Asset) collateralization model enables stablecoins to transcend their role as payment tools and evolve into income-generating assets. Circle has allocated 32% of its reserves to U.S. Treasury bonds, launching an interest-bearing USDC, with annualized returns benefiting users; JPMorgan Chase’s Onyx uses stablecoins to enable 24/7 real-time settlement between institutions, while traditional financial giants BlackRock and Fidelity are settling tokenized fund shares using stablecoins.

In the decentralized finance (DeFi) field, stablecoins are integral for various financial services such as lending, borrowing, yield farming, and staking. Their stability minimizes the risk of volatility, making them suitable for financial contracts and transactions. This is mainly due to continuous innovation in blockchain technology, enhancement of the security of smart contracts, and reflection on the limitations of traditional financial systems. Stablecoins like USDC are favored for their proactive compliance. Issuers provide monthly reports, collaborate closely with financial regulators, and keep reserves in reputable banks and fiscally supported assets. This transparency encourages adoption by governments, fintech companies, and institutional participants exploring tokenized payment systems[7]. Currently, major DeFi protocols such as MakerDAO, Compound, Aave, and Curve all utilize USDC as a core supported asset for collateralized lending and other services.

Stablecoins designed with regulatory considerations in mind are expected to expand globally with reduced legal friction. As the digital economy plays an increasingly important role in the global economy, stablecoins, serving as a bridge between traditional finance and digital assets, are redefining the monetary system in the digital financial world.