Breige Tinnelly, Archax
It is now widely recognised that blockchain and DLT can truly transform financial markets only when every stage, from issuance and settlement to trading and ongoing management, is executed digitally on-chain, including a digitally native payment leg. Stablecoins are unfolding as one of the most relevant cash-leg options for settlement across financial markets1, providing a much-needed bridge between TradFi and DeFi.
As the largest successful use case for tokenisation today, stablecoins are moving into mainstream commerce and financial transactions as major players weigh in, including PayPal, Visa, SocGen, BBVA and acquisitions are heating up including Stripe acquiring Bridge, Moonpay acquiring Iron, Circle acquiring HashNote. Furthermore, many jurisdictions are moving to provide regulatory clarity for stablecoins with MicaR in the EU and the GENIUS Act in the US, which together with a significant pro-crypto policy shift in the US will propel significant growth. In the near term, this will fuel demand for liquid yield bearing tokenised assets, including Money Market Funds and other digital assets. Expect these to grow at pace too in 2025.
Market Size
The success of stablecoins at the time of writing, has hit a total market cap of over $220billion and this could double in 2025 with global legislation, blockchain adoption and global payments driving the growth2. Today, Tether’s USDT is the most popular Stablecoin at around $140bn followed by Circle’s USDC at over $40bn. Expect more stablecoins to be issued in 2025 across additional currencies. Global digital adoption will stretch out the lead of stablecoins for value transacted across exchanges, which in 2024 was 46% stablecoins, 21.8% bitcoin, 24% Altcoins, 8% Ether.3 These stats alone are enough to show a serious parallel financial infrastructure.4
Understanding Stablecoins?
Stablecoins bridge the gap between volatility of cryptocurrencies and the stability of traditional fiat currencies. There are a few different species, such as stablecoins which are programmable digital currencies, pegged 1:1 to fiat currencies including USD-pegged Tether (USDT) (the most common) and USD Coin (USDC) and EUR-pegged STASIS Euro (EURS), which aim to maintain the stablecoins value relative to the pegged currency. These stablecoins, are backed by cash, short term government securities and other liquid assets held (and custodied) in regulated financial institutions. Reserves ensure each stablecoin can be redeemed for its pegged value maintaining user confidence and price stability. The quality and liquidity of reserves directly impacts a stablecoins ability to maintain its peg during market stress.
Other examples include stablecoins pegged to commodities eg. PAXG and XAUT both backed by Gold, or cryptobacked eg DAI, as well as US treasury backed, like Ondo USDY and Hashnote’s USYC (recently purchased by Circle), offering yield to holders functioning as MMFs. Finally, there are algorithmic stablecoins which maintain their value through programmed mechanisms that adjust supply based on market demand, without relying on direct collateral, e.g. Frax USDe.
What Pain Points are Stablecoins solving for today?
Stablecoins can be accessed globally and are being used as a medium of exchange and a store of value for international and interbank payments, remittances, liquidity management and as a protection against currency fluctuations. Today, stablecoins facilitate trade on cryptocurrency exchanges, where settlement in real-time enables an agile response to market changes, enhances liquidity and reduces settlement and counterparty risks. stablecoins are also used in ecommerce and supply chain finance to optimise cash flow, reduce capital requirements and enable operational efficiency for businesses through automated workflows.
Stablecoins can also enhance customer engagement by integrating into customer programs or as a payment option and, as evident from the current stats on utility of stablecoins, they enable financial inclusion, reaching underserved markets with banking limitations or limited access to fiat by offering a digital currency solution.
In financial transactions, through the benefit of blockchain technology, stablecoins enable faster, cheaper, transparent, borderless transactions, compared to those of traditional financial systems, as well as programmability whilst mitigating the risk of price volatility. They enable quick in and out of positions without converting to fiat, thereby enhancing liquidity. In DeFi applications, stablecoins serve as collateral for lending and borrowing platforms.
Current Risks and Challenges as Stablecoins integrate into the global financial system:
Other forms of digital cash, in the form of CBDC’s and Deposit Tokens, must and are being considered globally. Arguably, these alternatives will not be able to drive the scale of adoption and potential that can be achieved with stablecoins in the near to medium term.
Regulatory uncertainty exists with fragmented or absent frameworks for Stablecoin issuance, trading and use. Many jurisdictions are crafting new regulations which will reflect what regulators worry about, including the impact of stablecoins on monetary policy, the singleness of money,5 financial stability and consumer protection. Whilst regulation is welcome, there is concern that silos will result in regulatory moats. Stablecoin issuers must satisfy AML/KYC requirements, provide institutional grade reserve management practices, including attestation, and deliver on the increased calls for transparency and auditing.
Other considerations include centralisation. Most stablecoins are issued by a centralised entity and therefore considered a single point of failure and concentration of power to freeze/block accounts, transactions and alter supply, reducing user trust and autonomy and driving uncertainty as to whether they have enough reserves.
Technical vulnerabilities can also exist, depending on the blockchain, including cybersecurity, network congestion, scalability, high transaction fees and interdependence of stablecoins with other crypto assets and DeFi protocols which may create systemic risks. Issues in one part of the ecosystem can rapidly spread and impact Stablecoin value.
2025 will be the year of regulation for stablecoins, providing much needed clarity of the legal landscape across Europe, US, UK and APAC. This is welcome, but care is needed to ensure regulations are proportionate, operate effectively and enable stablecoins to remain accessible and harnessed to deliver on their true potential. One to watch over the coming year will be tokenised treasuries as an alternative to stablecoins in transactions as they have not only the clarity of regulation and stability but also return yield. Their growth has quadrupled within one year to $4bn, 300% growth curve!
How can Institutions seize the opportunity?
How should institutions navigate the opportunity presented through stablecoins and successfully address the challenges and risks in their utility?
As institutional adoption scales, so too does the need for a regulated counterparty. Stablecoin issuers and investors must expect bankruptcy-remote reserves to be held safely in bankruptcy-remote Custody where those stablecoins can also benefit from yield by placing those reserves into products like MMFs. In addition to yield, these MMFs can also be used as collateral.
Where stablecoins and MMFs are used as collateral in bilateral transactions and beyond, participants will want connectivity across a multi-asset, multi-chain, permissioned protocol for regulated participants to transfer, borrow, lend or pledge tokenised or natively digital assets, including stablecoins and securities.
Archax can provide all these services6 through its Regulated Custody, Brokerage and Exchange permissions. Furthermore, these transactions can flow through a digital Central Securities Depositary, like its’ subsidiary Montis. This complete infrastructure enables institutions to participate across the full breadth of digital assets whilst most critically incorporating the digital cash leg.
Conclusion, The success of Stablecoins – a catalyst for growing adoption and scale of digital assets?
Scaling and adopting the institutional use of blockchain has been a challenge for many years, mostly due to lack of regulatory clarity and interoperability. Headline applications showing utility of the technology by FIs has been present for some years. Arguably, the turning point happened in 2024 with the Blackrock Bitcoin ETF issuance and the Blackrock tokenised MMF, BUIDL, as well as Franklin Templeton fund, BENJ. These issuances and subsequent market participation have been happening against the backdrop of improved regulatory clarity globally and interoperability solutions progressing across chains and across entities. These, together with a push on policy and a significant change of sentiment and action in the US, not least with the GENIUS ACT and executive order on digital financial technology including a key action to “enhance US sovereignty by promoting lawful dollar backed stablecoins worldwide” have all aligned to open the gate to the industry’s best year yet in 2025.
We have already seen the start, with Stripe acquisition of Bridge and Circle’s acquisition of HashNote and the USYC Tokenised Money Market Fund the largest tokenised MMF in the world with $1.25bn market cap. This transaction enables seamless integration into TradFi markets, delivers liquidity and accessibility and fundamentally the USYC can be used as collateral in digital asset markets. In this transaction, Broadridge ($1.5trillion in tokenised repo monthly) can integrate USDC and USYC as cash leg options for collateral for optimising intraday liquidity. This in turn helps them manage liquidity ratios and lead against competitors.
This year we’ll see more stablecoin issuers, some with localised stablecoins stepping up to align with industry partners including centralised exchanges, protocols and chains, as well as some of the largest conglomerates and financial institutions. This will help with enabling integration with traditional finance use cases and opening new paths for digital assets, creating bridges and expanding the digital asset universe and buyside participation across the crypto, tokenised real-world asset and financial services ecosystems.
1 Stablecoins will continue to have the most near term impact over Deposit Tokens contained to token islands or CBDCs which are still some time away for most jurisdictions having a key role in global capital markets and now banned in the US under the new Trump administration.
2 CCData and DefiLlama
3 ChainLink
4 stablecoins_the_emerging_market_story_091224.pdf
6 Archax provides regulatory expertise, issuer structuring and support as well as reserve management support together with a robust technology infrastructure and liquidity solutions. Archax facilitates stablecoin availability across OTC markets, exchange listings, and integration with traditional finance use cases, opening new paths for digital assets.
