If you’ve been to Token2049, DAS, or scrolled through Crypto Twitter lately, you’ve probably noticed it, everyone is talking about stablecoins! Not dexes, not meme coins. Just “stables”!
2025-10-22 - 14 min read
The industry that was chasing volatility for a decade ended up buying the dollar again This piece was made possible thanks to the brilliant contributions of those who have been working hands-on with stablecoin providers for years. Special thanks to @stacy_muur , @dara_khan , @gauntletxyz , @0xarthur_chi , @BorriAlberto and @Mrfti_plus for their insights, support, and thoughtful reviews. Stablecoins mentioned in the article: USDT, USDC, FDUSD, USD1, FRAX, cUSD, USDG, DAI, USDe, USDf, sDAI, sUSDe, sUSDS, mUSD, sUSDf, crvUSD, fxUSD, BUIDL, BENJI, USDY, PAXG, UST, PYUSD, SFRXUSD, syrupUSD, USR, aUSD, YU, alUSD, USD0, USDO If you’ve been to Token2049, DAS, or scrolled through Crypto Twitter lately, you’ve probably noticed it, everyone is talking about stablecoins! Not dexes, not meme coins. Just “stables”! The irony is striking: after a decade of chasing volatility, crypto has quietly become a stablecoin industry . Nearly every major protocol, exchange, and bank integration now revolves around dollar-pegged assets. What began as a bridge between fiat and DeFi has turned into the core of onchain finance, the layer where liquidity, regulation, and real yield finally converge. In fact, since stablecoins provide stability in a volatile market and support the growth of DeFi they have emerged as critical assets in the digital asset ecosystem. By September 2025, the global stablecoin market cap reached an all-time high of $300 billion with 25.2 million senders every month, reflecting unprecedented adoption. Transaction volumes have surpassed $27 trillion annually, with nearly $100 billion in payments settled between 2023 and mid-2025. In this article, we will examine: The different types of stablecoins and their structural characteristics The global regulatory frameworks governing them The mechanisms driving their yield generation We incorporate both established stablecoins such as USDT and USDC as well as innovative examples including but not limited to FRAX, cUSD, and Paxos’s USDG through an in-depth analysis that highlights how they balance peg reliability, liquidity, and income potential. The article also aims to provide a comprehensive overview of the stablecoin landscape, emphasizing banking implications and associated risks. We hope you enjoy it! Stablecoins Evolution First thing first. Stablecoins went from experimental assets to the backbone of DeFi. Let’s explore how we got here. 2014–2018: Early Days - Fiat-backed and Pioneering Models BitUSD (July 2014) was the first decentralized stablecoin that allowed users to lock $BTS (BitShares token) as collateral. It was pegged to USD via smart contracts and market incentives. Volatile BTS prices caused frequent undercollateralization and liquidations, limiting adoption and that’s when Tether USDT (November 2014) came into the picture offering a fiat-backed alternative, redeemable 1:1 for USD held in custody that would avoid overcollateralization or algorithmic complexity. USDT focused on exchange liquidity, payments, and settlements. It rapidly expanded, particularly in Asia, achieving $19.3 million in volume and $1.45 million market cap in just a few months and in a market where ETH was ~$1 and BTC ~$240. Circle (September 2018) arrived much later with USDC, a fully dollar-backed stablecoin regulated with public attestations that gained traction mostly amongst compliant fintech integrations very quickly becoming a key collateral asset in DeFi protocols. 2017–2019: Collateralized DeFi Models Emerge Single-Collateral Dai (SAI, December 2017) by MakerDAO enabled users to lock ETH in Collateralized Debt Positions (CDPs) to mint SAI, with a soft USD peg maintained via stability fees and incentives. ETH-only collateral exposed it to volatility and liquidation risk. Multi-Collateral DAI (November 18, 2019) expanded collateral types (ETH, stablecoins, RWAs) and introduced $MKR governance for stability fees, collateral onboarding, and risk controls, enabling broader DeFi adoption and improved stability over SAI. 2019–2022: Rise of Algorithmic Stablecoins Algorithmic stablecoins, such as Terra UST, gained popularity for decentralization and capital efficiency, growing to $18 billion market cap by early 2022. However, UST collapsed in May 2022, losing $40 billion and depegging to $0.10 due to flawed supply-demand mechanics that highlighted risks of under-collateralized, purely algorithmic designs - spurring interest in hybrid or overcollateralized models. 2022–2023: Innovation Amid the Bear Market The 2022–2023 bear market drove robust designs addressing past failures. MakerDAO’s DAI refined 150–175% overcollateralization for transparency. Ethena USDe introduced delta-neutral hedging to stabilize pegs. Curve crvUSD launched LLAMMA for soft liquidations, mitigating sharp depegs. Frax FRAX blended fractional-algorithmic collateral with assets and supply modulation. These innovations recovered the market cap to ~$150 billion by late 2023, reinforcing transparency and DeFi inter