Circle’s IPO earlier last month turned more than a few heads on Wall Street. The digital payments firm behind USD Coin raised over a billion dollars and saw its stock more than triple on debut. For a product that was once seen as a niche crypto tool, this was a watershed moment.
But ask most people (even some in finance) what a stablecoin actually is, and the answers get a little fuzzy.
Isn’t it just another crypto token? Is it backed by anything real? Is it safe? The short answer is yes, sort of, and that depends. The long answer is where things get more interesting.
With regulation finally catching up and central banks taking a closer look, stablecoins are stepping into the spotlight.
Some see them as the bridge between traditional finance and the crypto world.
Others, including the Bank for International Settlements, warn that they’re built on shaky ground. So before the jargon gets too thick and the hype too loud, it’s worth going back to the basics.
So, What Is a Stablecoin?
A stablecoin is a type of digital token. But unlike most cryptocurrencies that swing wildly in price, a stablecoin is designed to stay, well, stable, of course. One token usually equals one dollar, or one euro, or whatever it’s pegged to.
There are a few ways stablecoins try to hold that steady value. The most common method is backing the token with something real, usually fiat currency or cash-equivalent assets like Treasury bills. That means for every digital token issued, the company promises there’s a real-world asset sitting in reserve somewhere.
Some stablecoins take a more complex route. Instead of backing with fiat, they use other cryptocurrencies as collateral. Others rely on algorithms and supply adjustments, hoping that code and incentives alone can keep the price stable. That approach has proven, let’s just say, less reliable.
The core idea is to create a digital currency that people can actually use, be it for payments, transfers, or savings, without worrying that it might crash in value overnight. It’s money that lives on blockchain rails but doesn’t behave like Bitcoin.
That said, not everyone thinks stablecoins are ready for the big leagues. Mastercard, for instance, has been building infrastructure to support stablecoin transactions, but says it’s still far from mainstream usage. Despite the tech, there’s not enough real-world traction yet.
Around 90% of stablecoin usage, according to Mastercard, still happens in crypto trading, and consumer adoption for everyday payments remains low.
BIS Said Stablecoins Failed Three Tests
The Bank for International Settlements has laid out three fundamental tests that any form of money must meet to be part of the mainstream financial system, which are singleness, elasticity, and integrity.
And by their assessment, stablecoins fall short on all three. Let’s have a look at what tests they failed.
This doesn’t mean stablecoins are going away.
On the flip side of the coin, this means that their future, or at least as mainstream digital money, likely depends on how well they can be integrated into regulated frameworks without losing the features that made them popular in the first place.
Not All Stablecoins Are Built the Same
To understand the different types of stablecoins, it helps to break them down into four main categories.
Fiat-backed stablecoins are the most popular. They’re issued by companies like Circle or Tether, and are typically redeemable for real dollars. They’re also centralised, which means the issuer holds the reserves and controls redemptions.
Crypto-backed stablecoins use other tokens like Ether as collateral. Because crypto is volatile, these are usually overcollateralised. You might lock up USD $2 worth of ETH to mint $1 worth of stablecoin. Most run on decentralised protocols.
Algorithmic stablecoins are the riskiest bunch. They rely on mechanisms that increase or reduce supply based on market demand. When it works, the price stays steady. When it doesn’t, it falls apart fast, as we saw in the spectacular collapse of TerraUSD in 2022.
Commodity-backed stablecoins are backed by tangible assets such as gold, silver, or oil. They appeal to investors who want a digital asset tied to a real-world commodity.
However, they inherit the volatility of those underlying assets and often come with higher costs and lower liquidity. Examples include PAX Gold (PAXG) and Tether Gold (XAUt).
Regulation and Real-World Adoption
Asia is becoming a key region in the global evolution of stablecoins, both in terms of innovation and regulation.
In Singapore, the Monetary Authority of Singapore (MAS) finalised its regulatory framework as early as in 2023, requiring single-currency stablecoins to be backed 1:1 by low-risk assets and mandating redemption rights and independent audits.
Circle’s Euro Coin (EUROC) and PayPal USD (PYUSD) are among those aiming for regulatory clarity in the region.
Japan was also among the first major economies to introduce a legal stablecoin framework, limiting issuance to licensed banks and trust companies. This ensures high consumer protection and ties stablecoin stability directly to regulated financial institutions. Mitsubishi UFJ is among the pioneers with its yen-backed “Progmat Coin.”
South Korea is emphasising reserve segregation and bankruptcy protection under its Digital Asset Basic Act and Virtual Asset User Protection Act, while exploring won-backed stablecoins through a consortium of banks.
Hong Kong passed its Stablecoins Ordinance in 2025, mandating licensing, redemption guarantees, and oversight by the HKMA. Its framework also regulates the marketing of foreign-issued stablecoins targeting local users.
These diverse but tightening regulatory approaches show Asia’s intent to harness stablecoin innovation while mitigating systemic risks.
They Are Coins, But They Are Not the Same Thing
While stablecoins live on the same blockchain infrastructure, their purpose is quite different from that of typical cryptocurrencies like Bitcoin or Ethereum.
Here’s a quick comparison to make that clearer:
In short, stablecoins aim to be usable as digital money. Bitcoin aims to be an alternative store of value. Both have their roles, but they serve different needs.
Why This Could Be a Game Changer
One of their biggest advantages of stablecoins is the ability to settle transactions around the clock, bypassing the delays, fees, and multiple intermediaries that define legacy systems like SWIFT. Operating on blockchain rails, they can cut cross-border payment fees by as much as 80%, according to estimates by McKinsey and others.
The traditional system also relies on trillions of dollars locked in pre-funded accounts, often referred to as nostro accounts, to keep global transactions running.
Stablecoins, by enabling direct settlement, can eliminate the need for much of this capital to be parked idly. Even a modest shift to stablecoin-based infrastructure could free up hundreds of billions in liquidity. Money that could be reinvested more productively across the global economy.
Beyond just speed and efficiency, stablecoins can be a cornerstone of the decentralised finance (DeFi) ecosystem. They provide the price-stable asset necessary for borrowing, lending, and trading on-chain. And because they are programmable, businesses can build tools like instant supplier payouts or real-time treasury operations around them.
For people in countries grappling with inflation or currency volatility, USD-pegged stablecoins can serve as a digital store of value which is accessible via just a smartphone and internet connection.
They’re a practical way to hold value and participate in the global economy.
Visa and Citibank Are Responding
Stablecoins aren’t just catching the attention of crypto enthusiasts.
Card networks like Visa and Mastercard are watching closely, as Nasdaq reported that their core business could come under pressure. If payments shift from card-based systems to direct wallet-to-merchant transfers using stablecoins, these networks could be bypassed.
Some major retailers, like Amazon and Walmart, are already exploring the idea of issuing their own stablecoins to take greater control over payments and lower transaction costs.
Rather than resist the shift, both Visa and Mastercard are said to be moving to adapt. Visa has been piloting USDC-based settlements and positioning itself as a connector between traditional and blockchain-based systems, while in a presentation by Mastercard executives, the company made clear that it’s seeking to embrace what opportunities currently exist for integrating stablecoins into its offering.
Banks are also getting in on the act.
Citibank, for instance, has launched Citi Token Services in 2023, which allows its corporate clients to move tokenised deposits at any time. Just this month, too, their CEO, Jane Fraser, stated that Citigroup is also now considering issuing its own stablecoin.
As we can see, stablecoins are slowly laying the foundation for a new kind of financial infrastructure. In countries with volatile currencies, they offer stability.
What happens next depends not just on the technology, but on whether the system is ready to evolve with it.
Featured image: Edited by Fintech News Singapore, based on images byishfaqahmad1, Dang Pham and Dang Pham via Freepik.
