As an integral part of the cryptocurrency market, stablecoins are reshaping the global payments industry. With their price stability, decentralized nature, low-cost cross-border payment capabilities, and automated execution via smart contracts, stablecoins are gradually positioned as a bridge between traditional finance and the blockchain world. Delving into stablecoins' current development status, technical architecture, compliance challenges, impact on payment systems, and future trends, this report explores how stablecoins are driving changes in the payment industry and evaluates the strategies of key market participants.
1. Overview of Stablecoins
Stablecoins are a class of cryptos pegged to specific assets (such as fiat, commodities, or other crypto assets), designed to provide a relatively stable store of value and medium of exchange in the highly volatile cryptocurrency market. Compared to mainstream crypto assets like Bitcoin (BTC) and Ethereum (ETH), stablecoins exhibit significantly lower price fluctuations, giving them unique advantages in areas such as global payments, cross-border transactions, and decentralized finance (DeFi).
The concept of stablecoins was first conceived during the early development of the cryptocurrency industry. As Bitcoin became the dominant force in the crypto asset market, people gradually realized that its extreme price volatility had prevented it from being adopted in everyday payments. While Bitcoin's decentralization and censorship resistance were important, its fixed supply cap (21 million coins) and its price swings driven by market sentiment made it unsuitable as a stable measurement of value. Therefore, stablecoins were introduced essentially to address Bitcoin's limitations, aiming to preserve the benefits of decentralization while providing a stable pricing and transaction tool.
The design mechanism of a stablecoin determines its stability and market acceptance. The most common type of stablecoin is fiat-collateralized stablecoins (such as USDT, USDC, and TUSD). Their value is backed by reserves of U.S. dollars or other fiat currencies. This means that for every stablecoin issued, an equivalent amount of U.S. dollars is held in a bank account or other regulated financial institution. The primary advantage of this model is its high level of transparency, allowing users to easily verify the adequacy of the reserve assets. Meanwhile, within legal and regulatory frameworks, this type of stablecoins has gained widespread recognition.
However, fiat-collateralized stablecoins come with certain drawbacks. First of all, they are still dependent on traditional financial systems, requiring banks or financial institutions as custodians of reserves, which undermines their decentralization. If regulators were to freeze a stablecoin issuer's bank accounts, the stablecoin's stability and usability could be significantly impacted. In addition, this model incurs high operational costs and requires regular audits while facing potential liquidity crises in extreme market conditions.
By contrast, crypto-collateralized stablecoins (such as DAI) offer a more decentralized solution. This type of stablecoin maintains its value through over-collateralization with crypto assets (e.g. ETH). Typically, users must deposit assets worth more than the stablecoin issued to ensure price stability. For example, minting $100 of DAI may require users to collateralize $150 worth of ETH. This mechanism's advantage lies in the fact that it does not rely on bank accounts and operates entirely on the blockchain, thus possessing stronger censorship resistance. However, it also carries risks—if the value of the collateral drops sharply, smart contracts may trigger liquidations of some assets to maintain DAI's stability, which may result in fund losses for users.
Apart from fiat-collateralized and crypto-collateralized stablecoins, there are also algorithmic stablecoins (e.g., UST, FRAX), which rely on mathematical models and market-regulation mechanisms to maintain price stability. For example, some algorithmic stablecoins use a dual-token system, where one token (such as UST) functions as the stablecoin, while the other (like LUNA) absorbs market fluctuations. When UST's price falls below $1, users can burn UST in exchange for LUNA, thereby reducing UST's supply and pushing up its price. Conversely, when UST's price rises above $1, users can swap LUNA for UST, thus increasing UST's supply and bringing its price down. However, algorithmic stablecoins are incredibly risky as their stability hinges on market confidence. A large-scale sell-off in the market may trigger a "death spiral", leading to a complete collapse of the stablecoin, as exemplified by UST's crash in 2022.
From a market size perspective, stablecoins have become an integral part of the cryptocurrency market. According to the latest data, the total market cap of stablecoins has surpassed $100 billion globally, with USDT (Tether) and USDC (Circle) dominating the market. The trading volume of stablecoins has even surpassed that of many mainstream crypto assets, as they are not only used for risk hedging in transactions but also widely utilized in sectors such as payments, lending, decentralized exchanges (DEXs), and liquidity provision. Stable coins' widespread adoption has made them the "lubricant" of the crypto economy, fueling ecosystem-wide growth.
The success of stablecoins is no coincidence but rather a result of catering to the needs of the global payments market. Traditional cross-border payment systems are subject to high fees, slow settlement, and complex intermediary processes. In contrast, stablecoins, powered by blockchain technology, enable low-cost, instant global transactions. For instance, international remittances through traditional banking systems can take days and incur hefty fees, whereas the same transfers using stablecoins are almost instantaneous and cost just a few cents. Moreover, in regions where fiat money is subject to capital controls or banking systems are unstable, stablecoins have emerged as a vital tool to hedge against risks.
2. How Stablecoins Reshape the Payments Industry
The rise of stablecoins is profoundly transforming the global payments industry. As a bridge between blockchain and traditional finance, stablecoins provide an efficient, low-cost, and borderless payment solution, gradually taking over certain functions of traditional payment systems. In particular, they are playing an increasingly critical role in areas such as cross-border payments, corporate settlements, e-commerce, remittances, and wage payments. Stablecoins' success is not just attributable to their technological advantages but also because they precisely address the challenges of existing payment systems.
2.1 Challenges of Traditional Payment Systems
In traditional payment systems, funds often flow through multiple intermediaries, including banks, payment processors, and clearing institutions. Each intermediary charges a fee, resulting in high overall transaction costs. For example, credit card payments typically incur processing fees of 2%–3%, while international wire transfers can cost anywhere from $20 to $50 or even more. Additionally, third-party payment platforms (such as PayPal and Stripe) may charge extra fees of 2.9%–4.4% for international transactions, and currency conversion fees also apply, making global payments even more expensive. Furthermore, cross-border payments often take days or even a week to complete. This is because traditional banking systems rely on centralized clearing networks such as SWIFT and ACH, which require extensive time for transaction verification, fund settlement, and compliance reviews. For instance, a remittance from the United States to Africa for a cross-border transaction may have to pass through multiple institutions, including U.S. banks, international clearing banks, and local banks. Each institution must conduct Know Your Customer (KYC) and Anti-Money Laundering (AML) reviews, further prolonging transaction times and adding uncertainty.
Currently, over 1.5 billion people worldwide still lack access to bank accounts or basic financial services (i.e., the "unbanked" population), primarily concentrated in developing countries and remote regions. Due to factors such as limited credit history, geographical barriers, and government policies, they have no access to international payment systems and face difficulties in conducting e-commerce transactions, receiving wages, or making cross-border remittances. As international payments often involve currency exchange, fluctuations in exchange rates can drive up transaction costs, especially in countries experiencing severe inflation. For example, in countries like Argentina and Venezuela, where local fiat currencies depreciate rapidly, enterprises and individuals often have to pay extra foreign exchange conversion fees and bear the economic losses brought about by exchange rate volatility in international trade or cross-border payments.
Traditional payment systems are subject to strict government regulations worldwide, particularly regarding AML and KYC policy requirements. In countries and regions under economic sanctions, international payment channels may be completely blocked, hindering enterprises and individuals from conducting legitimate transactions. For instance, companies in Iran and North Korea are unable to access the SWIFT network, while some countries have imposed stringent regulations on crypto transactions. All these further impede the free flow of funds across the globe.
2.2 The Payment Advantages of Stablecoins
Stablecoin payments operate on blockchain-based peer-to-peer networks rather than depending on traditional banking systems, allowing them to bypass costly intermediaries and enabling more cost-efficient transactions. For example, a cross-border transfer using USDT (TRC-20 version on the Tron blockchain) may incur a transaction fee as low as $0.10, whereas a traditional bank wire transfer typically costs between $30 and $50 and takes days to process. In contrast, stablecoin payments are usually confirmed within seconds to minutes, considerably improving fund liquidity.
Another core advantage of stablecoins is financial inclusiveness. Anyone can create a cryptocurrency account and start making global payments as long as they have an internet connection and a digital wallet. This model drastically lowers barriers to financial access, enabling the unbanked population to utilize payment and savings services. In particular, in regions such as Africa, Southeast Asia, and Latin America, stablecoins have already become a crucial tool for people to hedge against local currency inflation.
Compared to crypto assets like Bitcoin and Ethereum, stablecoins experience minimal price fluctuations since their value is typically pegged 1:1 to the US dollar or other fiat currencies. For example, the price of stablecoins such as USDC and USDT generally fluctuates within a ±0.5% range, far more stable than volatile assets like Bitcoin. This makes stablecoins a reliable medium of payment, and both merchants and consumers can accept payments in stablecoins without worrying about sudden value depreciation.
Built upon blockchain-based smart contracts, stablecoins also enable automated payments and programmable fund management. For example, enterprises can use stablecoins to automate wage payments through smart contracts, ensuring employees are paid monthly. Similarly, cross-border traders can set payment conditions that automatically release funds once goods are delivered. Capable of programmable payments, stablecoins have enormous potential in fields such as supply chain finance and intelligent settlements.
2.3 Key Use Cases
Cross-Border Remittances: Each year, global migrants and overseas workers send over $600 billion in remittances to their home countries. Meanwhile, traditional remittance channels (such as Western Union and MoneyGram) charge fees as high as 5% to 10%. Stablecoins offer a cheaper and faster alternative. For example, a Filipino worker in the U.S. can transfer USDT or USDC to their family in the Philippines within minutes, with transaction fees of just a few cents.
International Corporate Payments and Settlements: Global enterprises frequently make international payments, but traditional banking systems are slow and costly, with complex procedures. Stablecoins help enterprises bypass banking systems, directly settle B2B transactions, and improve the management efficiency of cash flows. For instance, a Chinese manufacturer can pay a U.S. supplier in USDC without going through foreign exchanges or intermediary banks, thereby reducing both costs and processing time.
E-Commerce and Digital Payments: With the globalization of e-commerce, stablecoins are becoming a popular payment option for cross-border e-commerce. A European online store, for example, can accept USDT payments to avoid high credit card transaction fees while providing a convenient payment option for consumers worldwide. More and more e-commerce platforms, subscription services, and gaming platforms have begun to support stablecoin payments in an attempt to attract customers from across the world.
Wage Payments for Freelancers and Remote Workers: The global freelance economy is flourishing, but traditional wage payment systems often come with high fees and settlement delays. By using stablecoins for wage payments, remote workers can receive payments instantly and convert them freely into their local currency or spend them directly. For instance, a freelance designer working in India can accept salary payments in USDT from a U.S. employer without worrying about bank fees or exchange rate losses.
Travel and Consumption Payments: Stablecoins are emerging as a new payment method in the tourism industry. For example, some merchants in places like Dubai, Thailand, and Japan now accept USDT and USDC payments, allowing tourists to make seamless payments with stablecoins and avoid currency exchange fees associated with credit card payments. In the future, as more merchants embrace crypto payments, stablecoins could become a standard payment option for international travelers.
DeFi and Smart Payments: Stablecoins are integral to the DeFi ecosystem, and users can deposit funds, take out loans, and engage in liquidity mining through stablecoins. In addition, DeFi protocols offer automated payment solutions, such as smart contract-based scheduled payments and insurance payouts, further driving the development of the digital payments industry.
As blockchain technology matures and stablecoins become more widely adopted, they are reshaping the global payments industry, offering individuals and enterprises faster, cheaper, and more equitable payment methods. In the future, stablecoins are poised to become a fundamental part of the global payment system, accelerating the growth of digital finance.
3. Compliance Challenges and Policy Evolution for Stablecoins
As a major innovation in the blockchain field, stablecoins have had a profound impact on payments and financial services. More than that, their technical architecture, innovation, and compliance challenges have been areas of key interest for both the market and regulatory authorities. The core value of stablecoins lies in their ability to maintain price stability while offering users a convenient payment method. However, achieving this goal is no simple task, as it involves complex technological frameworks, innovative models, and an ever-changing regulatory environment. Consequently, the success of stablecoins depends not only on continuous technological advancements but also on their ability to meet regulatory compliance requirements of different countries.
The technical architecture of stablecoins encompasses multiple aspects, including asset collateralization mechanisms, smart contracts, and decentralized governance. Different types of stablecoins vary in their design and implementation. As the stablecoin market continues to expand, governments and financial regulatory authorities worldwide have begun formulating plans for the regulation of stablecoins. Key compliance issues regarding stablecoins include AML and KYC requirements, transparency, cross-border payments, and financial stability. Regulatory stances vary across countries, which poses significant challenges to the cross-border application and global development of stablecoins.
First of all, stablecoins are pseudonymous, thus presenting potential compliance risks in cross-border transactions. While the decentralized nature of stablecoins offers strong privacy protection, it also makes them susceptible to misuse in illicit activities such as money laundering and terrorist financing. To address this issue, regulatory authorities in various countries require stablecoin issuers to adhere to strict KYC/AML policies, verify user identities, and ensure their compliance. For instance, the U.S. Financial Crimes Enforcement Network (FinCEN) mandates that stablecoin issuers register as Money Services Businesses (MSBs) and fulfill relevant anti-money laundering obligations.
Second, the transparency of stablecoins has long been at the center of focus of regulatory authorities, particularly concerning fiat-collateralized stablecoins. Since the value of these stablecoins is backed by fiat reserves held in custody, issuers must conduct regular financial audits and disclose detailed information about their reserves to ensure that every stablecoin is fully backed by an equivalent amount of fiat currency. Otherwise, the credibility of stablecoins would be questioned, potentially leading to market instability. To address this issue, some stablecoin issuers have taken proactive measures. For example, USDC has partnered with Circle to regularly publish proof of reserves and enhance transparency.
Third, stablecoins also face tremendous challenges in international regulation. With each country imposing different regulatory requirements, the cross-border circulation and application of stablecoins are subject to the constraints of differing legal frameworks. For instance, China has completely banned the issuance of private cryptocurrencies but is actively promoting central bank digital currencies (CBDCs) as an alternative form of compliant stablecoins. In contrast, the United States is working on establishing a regulatory framework for stablecoins, including the introduction of the Stablecoin Transparency Act. Meanwhile, the European Union has enacted the Markets in Crypto-Assets Regulation (MiCA), which mandates the disclosure of reserves and EU-wide regulation for stablecoins. These divergent stances on stablecoins across countries and regions present various challenges for their global application.
In terms of compliance, stablecoin issuers also face the challenges of adapting to regulatory frameworks. The policy variations across countries require stablecoin issuers to maintain operational flexibility and market competitiveness while meeting different legal requirements. To tackle these challenges, many stablecoin issuers often choose to collaborate with traditional financial institutions, leveraging the latter's existing compliance expertise and infrastructure to mitigate compliance risks.
In the future, both the technology and compliance pathways of stablecoins may undergo profound changes. As advancements in DeFi and privacy-enhancing technologies continue, stablecoins will see broader applications, as well as improved security and efficiency. At the same time, international coordination and cooperation in the compliance field will be crucial to the sustainable growth of stablecoins. To achieve widespread global adoption, stablecoins must not only pursue technological innovation but also facilitate regulatory coordination worldwide to comply with diverse legal frameworks.
4. Future Development Trends
As blockchain technology and stablecoin adoption grow rapidly, stablecoins will play a greater role in payments, financial services, and various other industries. From technological advancements to evolving market demands, the future development of stablecoins is becoming increasingly diverse. The key development trends of stablecoins will be explored below.
First, with rising demand for global payments and cross-border transactions, the use of stablecoins in international payments will expand further. Traditional payment systems, particularly cross-border transactions, have long been plagued by high costs, slow processing times, and a lack of transparency, among other issues. As a low-cost, highly efficient, and decentralized payment tool, stablecoins effectively address these shortcomings. In the future, as stablecoin infrastructure improves and more financial institutions embrace their usage, stablecoins will play a pivotal role in cross-border payments. By leveraging stablecoins, users can bypass traditional banks and clearing systems, executing global payments and transactions directly. Moreover, stablecoins offer more than just speed and cost-efficiency in cross-border payments. They also enhance transparency and security, which can significantly reduce the risks of financial fraud and money laundering.
Second, the application of stablecoins in the DeFi sector will continue to expand. As an innovative application of blockchain technology, DeFi offers a wide range of financial services through decentralized protocols, including lending, trading, and insurance. Meanwhile, as a core asset within DeFi platforms, stablecoins provide a stable value foundation to mitigate risks associated with market volatility. As the DeFi market continues to grow, stablecoins will play an increasingly vital role. In the future, stablecoins will become more deeply integrated with DeFi protocols, further driving their adoption and development. For instance, stablecoins can be used as collateral on decentralized lending platforms. Users can borrow stablecoins or take out collateralized loans with them, thereby enhancing liquidity and stability in the decentralized lending market.
Stablecoins will play a crucial role in related areas, such as smart contracts, decentralized autonomous organizations (DAOs), and other decentralized applications (DApps). The implementation of smart contracts and DAOs requires a stable unit of value to maintain fairness in protocol execution and governance. Stablecoins provide a secure, reliable, and user-friendly medium of exchange for these DApps. For example, DAOs can use stablecoins to distribute rewards and compensation to members while preventing governance disruptions caused by market fluctuations with reliance on their price stability. In smart contracts, stablecoins can function as margin for counterparties or as a payment method for contract execution to ensure the smooth fulfillment of contracts.
Third, the application prospects of stablecoins in traditional financial markets also deserve attention. Looking ahead, as regulatory frameworks become clearer and compliance strengthens, stablecoins will integrate more deeply with traditional financial markets, bringing more innovation opportunities. To begin with, stablecoins will play a role in digital asset management, fund investments, and other areas. With stablecoins, investors can conduct more efficient and cost-effective digital asset transactions while facilitating cross-border fund flows. For example, stablecoins can function as risk management tools, helping investors maintain a certain level of value stability within their digital asset portfolios.
Furthermore, the relationship between stablecoins and central bank digital currencies (CBDCs) is set to become a key development trend in the future. As legal digital currencies issued by central banks worldwide, CBDCs are gradually advancing into the R&D phase and are expected to become an integral part of financial markets in the coming years. The competition and collaboration between stablecoins and CBDCs will have far-reaching influences on the financial market. While CBDCs are state-issued legal tender, stablecoins' decentralized nature and cross-border functionality allow them to complement CBDCs in specific use cases. For example, in cross-border payments, stablecoins may become a preferred payment tool due to their lower costs and higher efficiency. Meanwhile, in other areas, the collaboration between stablecoins and CBDCs could enhance the interoperability of digital currencies and drive reforms and innovations in global payment systems.
Fourth, with continuous advancements in privacy-enhancing technologies, improving the privacy and security of stablecoins will be a key focus moving forward. At present, stablecoins are still confronted with challenges in privacy protection, particularly concerning the protection of user identity and transaction data. As privacy-enhancing technologies such as zero-knowledge proofs (ZKP) and homomorphic encryption evolve, future stablecoins will be able to offer stronger privacy protection, thus attracting more users. At the same time, as privacy-enhancing technologies mature, decentralized stablecoins will strengthen the protection of user data and privacy while maintaining transparency and compliance. This will ultimately boost users' trust in stablecoins.
Fifth, the widespread adoption of stablecoins will be closely tied to the establishment and management of digital identities. The establishment of digital identities is a crucial application of blockchain technology, and the application of stablecoins will contribute to the improvement of the digital identity management system. In the future, every transaction made by users with stablecoins could be linked to digital identities, thereby ensuring transparency and reliability in identity verification and transaction tracking. In this process, digital identities will serve as the infrastructure for applications such as stablecoin circulation, payments, and investments, providing users with a more efficient and convenient digital financial experience.
Lastly, the continuous evolution of stablecoin technology and its use cases will bring about a wave of new market opportunities. For example, stablecoins could play a role in new asset classes such as real estate, artwork, and even carbon credits. With the increasing adoption of blockchain technology, stablecoins are poised to become a medium of payment and exchange for these emerging assets, further accelerating the development of the global digital economy.
5. Conclusion
In summary, the future development of stablecoins will be characterized by diversification. They will not only continue to drive innovation in payment systems and financial services but also bring profound changes to DApps, digital asset management, cross-border payments, privacy protection, global regulation, and more. As technology advances, market demand grows, and policies evolve, stablecoins will play an increasingly vital part in the global economy and financial system. They are rapidly revolutionizing the traditional payments industry, offering global users a more efficient, low-cost, and borderless payment solution. Nevertheless, their long-term development trajectory will be shaped by factors such as regulation, privacy protection, and technological innovation. As more financial institutions and tech companies enter the sector, stablecoins are set to become an integral part of the global payment network, driving further digitization and decentralization of financial systems.
