Core Insights - The total market capitalization of stablecoins has grown from zero to over $251.7 billion since the inception of Tether (USDT) in 2014, with on-chain transaction volume reaching $5.6 trillion in 2024, establishing stablecoins as a cornerstone of the digital asset space [1] - The development of stablecoins is constrained by the "impossible trinity" dilemma, which highlights the challenge of achieving absolute price stability, extreme capital efficiency, and monetary independence simultaneously [1][5] - Different stablecoin designs reflect varying priorities, impacting their technological paths, risk exposures, and regulatory fates, ultimately shaping their roles in the global financial landscape [1] Group 1: Fiat-Collateralized Stablecoins - Fiat-collateralized stablecoins emerged to address the volatility of cryptocurrencies, providing a reliable "value benchmark" for decentralized finance (DeFi) applications and large-scale commercial settlements [2][3] - The 1:1 collateralization model, where each stablecoin is backed by an equivalent amount of fiat currency, has gained market trust, with USDC and USDT becoming foundational assets in the crypto economy, peaking at over $150 billion in market capitalization in 2022 [3] - The stability of fiat-collateralized stablecoins has been validated through compliance practices, as seen in Circle's USDC, which maintained its peg during the Silicon Valley Bank crisis in March 2023 [3] Group 2: Challenges of Fiat-Collateralized Stablecoins - Despite their success in price stability, fiat-collateralized stablecoins sacrifice capital efficiency and monetary independence, locking significant assets in low-yield reserves [5] - These stablecoins are essentially "digital dollars," relying on the dominance of the US dollar, which can exacerbate currency substitution issues in weaker economies [5] Group 3: Algorithmic Stablecoins - Algorithmic stablecoins emerged as a radical financial experiment aiming for high capital efficiency by using internal economic models instead of external collateral [6] - The collapse of Terra/LUNA serves as a cautionary tale, where the algorithmic mechanism failed under market pressure, leading to a loss of over $40 billion in value [7] - Even decentralized stablecoins like DAI have shifted towards incorporating fiat-collateralized assets to ensure stability, indicating a trend towards lower capital efficiency models [7] Group 4: Central Bank Digital Currencies (CBDCs) - The rise of CBDCs represents a response from central banks to the threats posed by private stablecoins, aiming to reclaim monetary sovereignty and enhance payment system efficiency [8][9] - CBDCs prioritize price stability and state monetary sovereignty, sacrificing capital efficiency in the process, which contrasts with the global nature of private stablecoins [9][10] - While CBDCs focus on enhancing financial stability within a centralized framework, they may lack the interoperability and capital efficiency of established global stablecoins [10] Group 5: Future Outlook - The stablecoin ecosystem is likely to evolve into a multi-layered and diversified landscape, with compliant fiat-collateralized stablecoins maintaining a significant role in mainstream finance, while those pursuing monetary independence thrive in DeFi [11] - CBDCs will reshape retail and wholesale payment systems at the national level, reflecting an ongoing tension between stability, efficiency, and sovereignty in the future of currency [11]