Core Viewpoint - Stablecoins are evolving into a new financial infrastructure, playing a crucial role in payments, cross-border settlements, digital asset trading, and decentralized finance (DeFi), thereby reshaping the international financial system [1][2][24] Summary by Sections Overview of Stablecoins - Definition: Stablecoins are a special type of cryptocurrency whose value is pegged to specific assets, typically fiat currencies like the US dollar, aimed at overcoming the volatility of traditional cryptocurrencies. The total market size of stablecoins has surpassed $250 billion, with most pegged to the US dollar at a 1:1 exchange rate [3][4] - Classification: Stablecoins can be categorized into three main types: fiat-collateralized stablecoins (e.g., Tether (USDT), USD Coin (USDC)), crypto-collateralized stablecoins (e.g., MakerDAO's DAI), and algorithmic stablecoins (e.g., TerraUSD (UST)) [4][5] Characteristics and Features - Pegging Mechanism: Stablecoins maintain their value by being pegged to fiat or other assets, with fiat-collateralized stablecoins requiring a 1:1 reserve and regular audits [6] - Price Stability: By anchoring to fiat currencies or stable assets, stablecoins provide a relatively stable value, offering low volatility for digital payments and value storage [6] - Liquidity and Convertibility: Stablecoins serve as a major trading medium in the cryptocurrency market, with high liquidity allowing for easy conversion to fiat or other cryptocurrencies [6] - Openness and Cross-Border Attributes: Utilizing blockchain technology, stablecoins enable global circulation without traditional intermediaries, significantly reducing cross-border payment costs and enhancing transaction efficiency [6] Market Development - Global Market Size: The global stablecoin market has seen explosive growth, reaching approximately $245 billion by May 2025, up from about $5 billion in 2019, with a compound annual growth rate (CAGR) of nearly 2000% from 2020 to 2025 [8][9] - Market Share: As of May 2025, USDT and USDC dominate the market, accounting for approximately 85% of the total stablecoin market share [9][10] - Trends and Evolution: The demand for decentralized and synthetic stablecoins is rising, with stablecoins becoming integral to the DeFi ecosystem, representing over two-thirds of on-chain trading volume [11] Recent Regulatory Developments - US Regulatory Movements: The US Senate passed the GENIUS Act, which aims to establish a federal regulatory framework for stablecoins, ensuring that USD-pegged stablecoins become a global standard [14][15] - Hong Kong's Regulatory Framework: Hong Kong's Legislative Council passed the Stablecoin Ordinance, set to take effect on August 1, 2025, establishing a licensing regime for stablecoin issuers [17][18] Future Outlook - Institutional Adoption: Traditional financial institutions are increasingly incorporating stablecoins into their services, indicating a growing interest in stablecoin settlements and asset tokenization [12] - Central Bank Digital Currencies (CBDCs): Stablecoins are seen as complementary to CBDCs, enhancing cross-border payment efficiency and reducing reliance on traditional intermediaries [13] - Emerging Stablecoins: New stablecoins are emerging, supported by institutional backing and DeFi incentives, expanding their market share and usage across various blockchain ecosystems [14]