Stablecoins (Global payment infrastructure)
No longer just a tool for transferring funds to trade altcoins, Stablecoin has become the “Internet’s Settlement Layer” with transaction volumes of tens of trillions of USD every day.
Real-world trend: Cash flow is strongly shifting to chains with ultra-low fees and extremely high speeds (such as Solana, Base). Even the concept of Stablechains has emerged—blockchains specifically optimized to route and settle stablecoins with costs that are nearly zero. Why it matters: This is the most solid bridge between traditional finance (TradFi) and Crypto, providing stable, real cash flow for the entire ecosystem. Eager to go. Let’s take a deep dive into the Stablecoin segment through the lens of infrastructure structure, business models, growth drivers, and the projects leading the flow of funds.
To truly understand stablecoins, we shouldn’t only view them as a “trading asset,” but also as a cash-flow business model and the bloodstream of payments connecting TradFi (traditional finance) and DeFi.
I. Core growth drivers of stablecoins
Why is this segment so extremely resilient and a “long engine” of Crypto? There are 3 main drivers:
The hyper-profitable business model (The Money Printing Machine): Centralized stablecoin issuers (such as Tether, Circle) receive users’ USD cash, mint corresponding stablecoins, and then use those USD to buy US Government Bonds (US Treasuries) yielding about 4.5% to 5%. They keep all of this interest, while users holding stablecoins get little to no benefit from the yield.
Demand to store assets in inflationary countries: In emerging markets (Argentina, Türkiye, and parts of Africa/Asia), people use USDT/USDC like a USD savings account to avoid domestic currency inflation, bypassing the traditional, cumbersome banking system entirely.
The surge of low-fee networks (PayFi): When transaction fees on blockchains like Solana, Base, or other Layer 2s drop below $0.01, stablecoins become the fastest and cheapest cross-border peer-to-peer payment tool for real.
II. Three main stablecoin design models & standout projects
The current stablecoin landscape is divided into three major design schools. Each school has a leading representative (Leader) controlling most of the market share:
Fiat-Backed Stablecoin (collateralized by legal-tender assets)
This is the safest peg-keeping model, backed 1:1 by cash or cash equivalents (short-term bonds).
Tether ($USDT ): Position: The king of liquidity. It holds more than 70% of the total stablecoin market share. Momentum & Advantage: USDT has an enormous network effect. Every exchange, every trading pair, every form of off-ledger transfer or international trade prioritizes using USDT. Even though it was once questioned about its backing assets, Tether has proven that it is one of the organizations holding the largest US Government Bond portfolios in the world, earning billions of dollars in profit every quarter.
Circle ($USDC ): Position: A standard of transparency and legal/regulatory compliance. Momentum & Advantage: Backed by big players like Coinbase and BlackRock. USDC is the top choice for institutional investment funds and major DeFi applications in the US/Europe because of clear legal standards and strict periodic audits. The growth of the Base ecosystem (Coinbase’s Layer 2) is a major springboard for USDC.
This group accounts for over 90% of the total global stablecoin market capitalization. The main drivers are liquidity, safety, and legal/regulatory compliance (Compliance).
Market-leading projects (Tier 1 Leaders) Tether (USDT): The king of global liquidity. Issued on nearly every major blockchain (Tron, Ethereum, Solana, Ton...). It’s the lifeblood of CEX order books and enables cross-border payments.
Circle (USDC): A transparency standard in the US and among financial institutions. Deeply integrated into the Coinbase ecosystem, Layer 2 solutions (such as Base), and TradFi.
Projects from financial institutions & exchanges (Tier 2) First Digital Labs (FDUSD): A Hong Kong-based stablecoin, strongly backed by Binance through zero-fee trading programs after BUSD was shut down.
PayPal (PYUSD): Issued by the payment giant PayPal (through Paxos). Runs on Ethereum and Solana, targeting PayFi and traditional e-commerce directly.
Paxos (USDP): The company behind the infrastructure of many major stablecoins. Their own USDP token is extremely reputable from a legal standpoint in New York.
Ripple ($RLUSD ): A stablecoin project developed by Ripple (XRP) to leverage their existing payment network with major global banks.
Non-USD stablecoins (Non-USD Stablecoins) Tether Gold (XAUt) / PAX Gold (PAXG): Essentially stablecoins backed 1:1 by physical gold stored in secure vaults.
Euro Coin (EURC from Circle) / Stasis Euro (EURS): Euro-collateralized stablecoins, serving specifically for the European market under the MiCA regulatory framework.
Crypto-Backed Stablecoin (collateralized by crypto) (Model 2)
A decentralized model: users deposit volatile assets (such as ETH, WBTC) into smart contracts to borrow stablecoins. This model typically requires over-collateralization to ensure safety when the market collapses.
Sky - formerly MakerDAO (DAI/USDS): **Position:** A DeFi monument. Momentum & Advantage: After rebranding to Sky and launching the USDS token, this project combines both crypto assets and real-world assets (RWA) for backing. Sky automates taking collateral assets to buy US Treasuries and share the profits back to USDS holders through the sUSDS savings rate. This is a move away from pure DeFi toward integrated TradFi.
Details of Crypto-Backed Stablecoin Collateral: To reduce risk from highly volatile assets, decentralized protocols have split the collateral portfolio into 4 main asset groups:
2a. Underlying volatile assets (Native Crypto Assets): These are the core coins, and in my view they have the highest liquidity in the market.
Ethereum (ETH) & Wrapped Bitcoin (WBTC): Two core assets with the largest share because they have deep liquidity and are difficult to manipulate in a way that would trigger fake liquidations.
Other L1 coins: Depending on the blockchain, that stablecoin is native. For example, on the Solana ecosystem, protocols (such as UXD or CDP projects) allow collateralization with SOL.
2b. LSTs (Liquid Staking Tokens - tokenized staking): This is a major breakthrough that lets users both mint stablecoins for spending and not lose the staking rewards (~3–4% per year) from the network.
stETH / wstETH (Lido Finance)
mETH (Mantle)
bETH / rETH (Rocket Pool)
JitoSOL / bSOL (Solana ecosystem)
2c. LRTs (Liquid Restaking Tokens - New trend from 2024–2026): Users take LSTs and restake them on protocols like EigenLayer and Symbiotic to receive LRTs. Today’s new-generation stablecoins allow depositing these LRTs as collateral.
eETH (Ether.fi)
pufETH (Puffer Finance)
ezETH (Renzo)
Note: This group has a very high Layered Risk level because, by nature, it is leverage on top of leverage.
2d. Stable assets (Stablecoin/RWA) - “the life raft” in a Bear Market: To prepare for the winter, the Crypto-Backed Stablecoins themselves must “dilute” decentralization by allowing collateralization with stable assets.
USDC / USDT: For example, MakerDAO (Sky) uses a PSM (Peg Stability Module) mechanism that allows direct exchange of USDC for DAI at a 1:1 ratio to maintain the price during market volatility.
Tokenized US Treasuries (RWA): Recently, Sky (MakerDAO) deposited RWA assets like bIB01 (BlackRock’s short-term treasury bills via Backed Finance) as fixed-income earning collateral.
Risk of Model 2 (Crypto-Backed) in a Bear Market: “Mass liquidations & network congestion.” This model works based on over-collateralization, usually at a ratio of 130% to 150% (deposit $150 ETH to borrow $100 DAI/USDS).
[Severe market crash] ➔ [Collateral asset value (ETH/WBTC) drops rapidly] ➔ [Collateralization ratio falls into a dangerous zone] ➔ [Triggers automatic liquidation] ➔ [Liquidation protocol sells ETH into the market to recover Stablecoin] ➔ [ETH price drops even deeper] ➔ [Liquidation spiral] The ignition factor of catastrophe: when the market crashes too fast, blockchain networks are often congested (gas fees spike). Keepers (bots specialized in liquidating assets for spread profit) can’t push liquidation orders fast enough. As a result, the value of collateral in smart contracts falls below the value of stablecoins that were minted ➔ The system becomes “bad debt,” and the stablecoin loses its peg.
Long-standing monuments and legacy giants (Legacy Giants) Sky - formerly MakerDAO (DAI / USDS): The world’s largest CDP (Collateralized Debt Position) project. Allows multi-asset collateral (Multi-Collateral) from ETH, WBTC to RWA portfolios (US bonds).
Liquity (LUSD / BOLD): A notorious pure decentralized protocol with a mechanism that only accepts ETH collateral. This protocol cannot be censored, has no governance interest rate (0% interest rate), and stays alive entirely through liquidation automation algorithms and the Stability Pool. The V2 version introduces BOLD, which also supports stETH.
Curve Finance (crvUSD): A stablecoin issued by the DEX Curve, using a proprietary soft liquidation mechanism called LLAMMA (Liquidation AMM). Instead of liquidating all of a user’s assets when the price crashes, it gradually swaps ETH into crvUSD (and vice versa), minimizing the risk of maximum loss for borrowers.
Projects derived from the LST / LRT / DeFi ecosystem (New Wave) Abracadabra Money (MIM - Magic Internet Money): Lets users deposit yield-bearing tokens from other DeFi positions to mint MIM.
Prisma Finance (mkUSD / ULTRA): A centralized protocol that optimizes capital flows for Liquid Staking Tokens (wstETH, rETH, cbETH...) to mint the stablecoin mkUSD.
Minterest / Inverse Finance (DOLA): Lending protocols that integrate an internal stablecoin issuance tool to optimize capital flow efficiency in a looping cycle.
Synthetix (sUSD): A stablecoin minted by collateralizing the governance token SNX, acting as the base currency unit to trade synthetic assets (Synths) on the Synthetix derivatives exchange.
Algorithmic / Synthetic Stablecoin (algorithmic/synthetic stablecoin)
No need for fiat collateral—use financial risk-hedging mechanisms or algorithms to maintain a $1 price level.
Ethena (USDe): Position: The brightest star among today’s synthetic projects. Momentum & Advantage: Ethena does not use the old LUNA-style model (which relied on printing worthless tokens). USDe maintains a $1 peg using a Delta-Neutral strategy: they receive users’ stETH (ETH that earns delta yield) and simultaneously open an equivalent Short ETH position on derivatives exchanges (CEX). This mechanism cancels out ETH price volatility, while generating two sources of profit: interest from stETH and Funding Rate fees from the Short position. These profits are redistributed to delta-staked USDe (sUSDe), delivering a highly attractive APY in a bull market.
Risk of Model 3 (Synthetic/Ethena USDe) in a Bear Market: “Negative Funding Rate.” Ethena (USDe) maintains a $1 peg using a Delta-Neutral position: buy spot (Long) stETH and open an equivalent Short ETH position on CEX exchanges to earn Funding Rate money.
In a Bull Market: Everyone wants to go Long with leverage; the Long side pays the Short side ➔ Funding Rate is positive. Ethena profits heavily (sometimes APY reaches 30–40%) ➔ Capital rushes in.
In a prolonged Bear Market: panic grips the market, long demand disappears, and people switch to Short to hedge their portfolios or leave the market altogether. At this point, the Funding Rate turns negative.
Consequence: Instead of receiving money, Ethena has to pay the CEX exchanges to maintain its Short positions.
To survive, Ethena has to use its Reserve Fund.
If a prolonged bear market drains the reserve fund, USDe’s APY will turn negative. Users will panic and withdraw capital all at once (bank run). To repay users, Ethena must close its Short positions on CEX and sell stETH on DEX ➔ If liquidations can’t happen fast enough or DEX liquidity runs out, USDe will de-peg and collapse.
This group trades off absolute safety to achieve maximum capital efficiency (Capital Efficiency 1:1). Instead of requiring users to lock $150 of assets to borrow $100, this group tries to turn $100 of value into exactly $100 stablecoins while still maintaining the peg, using financial risk-hedging tools (Hedging) or price spreads (Arbitrage).
The next generation Delta-Neutral & Synthetic (new generation) Ethena Labs (USDe): This niche-leading project is currently the most prominent. It uses a Delta-Neutral strategy (spot Long stETH + Short ETH futures contract on CEX) to create a “Internet Bond” with high yield from both the funding rate and staking yield.
UXD Protocol (UXD): A project similar to Ethena but running on the Solana ecosystem. UXD uses decentralized derivatives exchanges (DEX perps like Mango Markets and Drift) to open a delta-neutral Short position as backing for the UXD token.
Seigniorage & Fractional algorithmic system (Old fragmentation/algorithmic system) Frax Finance (FRAX): It started as a fractional-algorithmic stablecoin (partially backed by USDC and partially by an algorithm via the FXS token). Now, Frax has shifted toward a safer model through capital-allocation control algorithms (Algorithmic Market Operations - AMOs).
Ampleforth (AMPL): It’s not a stablecoin that keeps a fixed $1 price; it’s a rebase token. AMPL’s price fluctuates around $1, but the number of tokens in your wallet automatically increases or decreases each day depending on market demand to bring the price back to equilibrium.
III. Potential and risks to watch in the near future
Upside potential
Clear legal regulations (Regulation): The MiCA law in Europe and upcoming regulatory frameworks in the US will make Stablecoins legal. This enables major commercial banks to participate in issuing stablecoins or integrating stablecoins into their payment systems.
PayFi (Payment Finance): Stablecoins will shift from serving traders to serving e-commerce, cross-border payroll payments, and micro-payments for AI services.
Risk (Downside)
De-peg risk from derivatives: For models like Ethena (USDe), if the market falls into a prolonged downtrend, the Funding rate turns negative (the Short position must pay the Long position), the yield source disappears, and withdrawal pressure can create liquidity risk on CEX exchanges.
Centralization pressure: USDT and USDC hold too much power. If regulators (such as the SEC or OFAC) require freezing wallet addresses, the “decentralized” nature of Crypto will face major challenges.
The stablecoin sector is the foundation. When this lifeline is solid, new capital can flow into the next niches.
As a trader, I see Models 2 and 3 as excellent capital efficiency tools in an uptrend. However, when the market structure shifts into a long-term downtrend, moving assets into Fiat-Backed Stablecoins (USDT/USDC) or stablecoins with a high proportion of US Government Bond collateral (RWA) is mandatory risk management governance to preserve capital.