Stablecoins: Institutional Game-Changer or Web3’s Trojan Horse?

Stablecoins anchor the digital asset ecosystem, bridging traditional finance and blockchain technology. In 2025, their combined market value is expected to approach $230 billion. Typically pegged to fiat currencies like the US dollar, they offer price stability in volatile markets, combining the trust of conventional money with the efficiency of decentralized systems.

Who are the stable titans and innovators?

Tether (USDT) leads the stablecoin market with a $140 billion market cap, backed by centralized reserves. Circle’s USDC, valued at $56 billion, earns institutional trust through transparency and audited 1:1 USD reserves. PayPal USD (PYUSD), issued by Paxos, has leveraged PayPal’s network to surpass $1 billion since its 2023 debut. Ripple’s RLUSD, launched in 2024 under NYDFS oversight, brings 1:1 bank-backed reserves (overcollateralized at 107% of supply as of March 2025) with XRP Ledger-Ethereum compatibility, reaching approximately $110 million by January 2025.

Centralized stablecoins dominate the $227 billion market. USDT leads with $140.5 billion (61.9%), followed by USDC at $55 billion (24.2%). USDS (formerly DAI) stands out as a leading decentralized alternative at $8.68 billion, with $3.46 billion in legacy DAI still circulating.

Built on Sky protocol (formerly MakerDAO), USDS maintains its peg through a diversified collateral pool, including crypto assets, U.S. government bonds, and other stablecoins. The late 2024 rebranding from DAI to USDS introduced new features like freeze functionality, reflecting the protocol's evolution toward broader institutional adoption.

Ethena’s USDe, with a $6 billion market cap, ranks third among stablecoins, maintaining its peg through a delta-neutral strategy that combines staked collateral and futures positions. Yield stems from staking and perpetual contracts, backed by a Reserve Fund of stablecoins and tokenized treasuries. Despite trade war volatility, USDe held firm, dipping briefly to $0.9991. Centralized stablecoins lead with regulatory grounding and adoption, while decentralized peers prioritize DeFi ingenuity. The sector adapts to tightening frameworks like the EU’s MiCA and the proposed U.S. GENIUS Act, shaping a dynamic future.

Benefits Driving Adoption

Stablecoins are poised to transform cross-border payments, cutting settlement times from days to minutes and reducing costs by up to 80% compared to traditional systems. What is a stablecoin if not a remedy for inefficiencies that drain businesses of over $120 billion yearly in fees, excluding losses from delays and locked liquidity? They offer a compelling alternative.

JPM Coin demonstrates stablecoins’ treasury potential, enabling programmable payments triggered by specific events and automating corporate cash management. While JP Morgan Coin operates on a permissioned blockchain, offering controlled access and specific features for its clients, layer-1 blockchains like Stellar provide a more open and transparent platform for programmable payments, allowing for greater visibility and trust in transaction processes across a broader ecosystem.

Circle’s USDC surges ahead, with circulation up 78% year over year and hitting $1 trillion in monthly volume by late 2024. Paxos broadens its reach, rolling out Global Dollar (USDG) in Singapore and Lift Dollar (USDL) in the UAE. USDL is also available in LATAM through partnerships with Ripio, Buenbit, Manteca, and Plus Crypto across multiple chains.

Stablecoins built on networks like Stellar and Ethereum harness smart contracts for automation, enhancing flexibility and efficiency. The Stellar Anchor platform seamlessly connects them to traditional banking. Programmability and cross-chain capabilities drive near-instant, cost-efficient transactions, processing $200 billion across key blockchain networks.

The impact of stablecoins goes deep.

These digital assets processed $27.6 trillion in transactions during 2024, transforming finance through programmable, borderless value exchange. Operating on open blockchain networks, they enable near-instant global transfers while powering an expanding ecosystem of smart contracts and decentralized applications.

Stablecoins as DeFi’s Trojan Horse

Stablecoins may be DeFi’s Trojan Horse. Institutions embrace them as a safe bridge to blockchain—offering fiat-like stability with manageable exposure. However, this misses the more significant shift. Stablecoin adoption pumps liquidity into DeFi, a $110 billion ecosystem. Stables together are twice that value and play a substantial part in the liquidity required for lending and trading without intermediaries.

DeFi’s liquidity pools surged in 2024, fueled by increasing stablecoin inflows. Take USDC—it rocketed in market cap by 78% in 2024 and reached $56 billion by February 2025. Yield leaders like Aave, Morpho, and BeeFi allow users to earn a yield on stablecoins that consistently beat bank rates. At the same time, Compound lets them borrow against crypto collateral without a credit check. Uniswap saw record volume in January 2025, driven mainly by increased demand for digital assets and stablecoins in DeFi.

Centralized stablecoins lead the market, yet decentralized contenders like USDS and Ethena’s USDe ($6.02 billion) carve out space with yield-generating mechanics. Though a smaller segment, they counter the trend where institutional backing bolsters regulated stablecoins through robust compliance and risk frameworks—enhancing, not reducing, intermediary oversight.

Institutions Face a Choice

Stablecoins and DeFi push banks toward a critical choice: adapt or risk irrelevance. Stablecoins bring tangible benefits: cross-border payments bypass intermediaries, cutting days to seconds and slashing expenses. They also create revenue streams: banks can issue their own stablecoins and provide new services. One could settle trades in an instant or supply companies with a reliable digital dollar for global supply chains.

Issuing stablecoins lets banks take charge—shape digital plans, grab DeFi shares, and stay ahead. According to FV Bank, Stablecoin payments are set to eclipse wire transfers in 2025. By blending USDC, USDT, and PayPal’s PYUSD for deposits and payouts, they note users ditch wires after tasting stablecoins’ swiftness and tracking. Société Générale-FORGE’s MiCA-compliant EURCV on Stellar, bridging Solana and Ethereum, proves banks are turning digital-native. Stablecoins shifted from test tech to core finance, handling $6 trillion in trades last year.

Yet stablecoin advantages come with real risks. Regulation remains chaotic as global lawmakers wrestle over whether they’re currencies, securities, or something else. The EU’s MiCA requires 1:1 backing and daily attestations, while the U.S. Clarity for Payment Stablecoins Act provides a framework but limits non-bank issuance to $10 billion.

Without consistent rules, compliance becomes tricky, undermining stability. TerraUSD’s $60 billion crash in 2022 shows how pegs can shatter. This event led to MiCA explicitly banning algorithmic stablecoins in the EU.

Other concerns included Tether’s reserves, which have historically included assets like commercial paper. These raise worries about risk if underlying debts falter, though recent efforts aim for greater transparency.

A Stellar Approach

Banks need a blockchain that delivers—fast enough to compete, scalable enough for growth, and compliant from day one. Stellar fits that mold, and it is designed for stablecoin issuance and management, as well as broader digital asset issuance.

For institutions wondering how to make a stablecoin, Stellar provides a comprehensive platform with tools and documentation to guide the process. Additionally, it supports general asset issuance, enabling banks to issue digital assets beyond just stablecoins.

Transactions settle in 3-5 seconds, fees sit at $0.00001, and it handles over 1,000 transactions per second—numbers that outpace traditional payment networks. Unlike proof-of-work chains chewing through energy, the Stellar Consensus Protocol locks in security and speed without the waste, tracking with ESG priorities.

Stellar tackles regulation head-on, giving banks handling stablecoins an edge. It embeds KYC and AML tools, such as asset freezes and travel rule compliance. These tools cut through legal uncertainty, a must as stablecoins flood DeFi and challenge old finance. The platform’s APIs and SDKs simplify setup, allowing banks to issue stablecoins without blockchain mastery.

Proof is already in motion: Stellar supports USDC, a leading stablecoin, alongside Wirex’s WUSD and MoneyGram’s on-chain remittances.

Stellar has also emerged as a leader in tokenizing US treasuries, reflecting the strong global demand for this asset class and positioning itself as a preferred platform for institutions looking to engage with digital assets. Rather than stablecoins being a Trojan Horse that eventually eats legacy finance, it appears that banks are steering the shift.

Steering the Shift

The institutional adoption of Stellar shows a nuanced picture, but it is not one of a Trojan Horse.

WisdomTree has successfully launched 13 digital funds and a gold token through WisdomTree Prime, which are now available in 41 states representing 75% of the US population. At the end of 2024, WisdomTree announced that these funds would also be available on its institutional platform, Connect.

Through the Stellar anchor network, users can access MoneyGram’s global agent locations to seamlessly convert cash to USDC and vice versa—supporting fast, low-cost remittances using stablecoins.

This paints a more balanced picture for institutions—one where banks adapt alongside blockchain technology rather than being displaced by it. As regulations and technological developments intertwine, time will tell whether DeFi will ultimately transform TradFi from the inside out.

Learn more about stablecoins and how Stellar is enabling traditional financial institutions to innovate with them here:

https://stellar.org/learn/what-are-stablecoins