The Bitcoin white paper published in 2009 described 'peer-to-peer electronic cash.' Many people, reading this sentence for the first time, instinctively connect it with real-life scenarios like 'salary,' 'grocery shopping,' and 'contract settlement.'
More than a decade has passed, and what we see is more like another picture: Bitcoin resembles a speculative asset, with its fluctuations resembling an emotional curve; what truly supports the daily trading, lending, market-making, and settlement in the crypto world, however, is stablecoins—something that appears more 'mundane' and even more like traditional finance.
Behind this, the principles of currency operation are at work.
The true underlying demand for currency: it is not just about "decentralization," but also about "predictable settlements."
When discussing money, it is easy to get caught up in the three major functions outlined in textbooks. Those are certainly important, but if we shift our perspective slightly lower, we will find a more hardcore premise: money must let everyone use it "without hesitation." The essence of money is a carrier of trust, and trust needs an anchor—otherwise, no one dares to "receive without asking" when collecting payments.
The Bank for International Settlements (BIS) calls this state "monetary uniformity": money is money, regardless of its form, when paid it is settled at face value, without having to ask "which family is it from?" or "what discount is applied?".
Once "uniformity" is broken, the trouble is not "occasionally losing a bit," but rather transactions will become awkward: quotes need to include a risk premium, contracts require conversion clauses, payees need to select issuers, and even need secondary markets to provide quotes at any time. The BIS states more directly: the so-called "a little bit is fine" is actually a false proposition; small deviations will be amplified through the trading network, ultimately causing the currency to lose the ability to coordinate economic activity.
Once you understand this, it is not difficult to see why "stability" is a prerequisite for the existence of stablecoins.
Why it is difficult for Bitcoin to serve as everyday money: volatility is not the only problem, but it is fatal enough.
The volatility of Bitcoin makes it difficult to serve as a unit of account, a point that has been discussed extensively. But more critically: when the price of an asset is primarily driven by "whether it will be more expensive in the future," it naturally resembles an investment rather than a unit used for pricing and settlement.
Of course, you can use Bitcoin to buy coffee; technically, there is no problem. The difficulty in reality is that merchants do not want to change prices daily, nor do they want to bear the risk of "immediately dropping 10% after receiving it"; consumers are also reluctant to spend something they believe "might continue to rise." The more people treat it as an asset to hoard, the less it resembles circulating currency.
Thus, Bitcoin ultimately resembles the "asset" side of the monetary system: used for value storage, hedging, and expressing preferences for assets beyond certain sovereignty.
But to form real economic activity in the crypto world, one piece is still missing. Stablecoins are that missing piece—they are not meant to replace Bitcoin, but to complete the missing part in the crypto economy: a settlement unit that can be widely accepted at face value.
What exactly do stablecoins solve: moving "dollar settlement" onto the chain.
The simplest value of stablecoins is to provide a settlement asset that everyone is willing to accept at face value on the blockchain, allowing the price system to function. Without stablecoins, the blockchain economy cannot form real pricing—goods, contracts, and wages cannot be written using stable units, and the entire ecosystem must repeatedly rely on fiat currency for entry and exit.
In terms of scale, it is no longer a niche toy. The U.S. President's Working Group on Financial Markets wrote in its 2021 report: as of October 2021, the issuance scale of leading stablecoins exceeded $127 billion, growing nearly 500% in a year (the tone of this report is very "official": it acknowledges that stablecoins may bring faster and more inclusive payments while directly placing "run risks" and "regulatory gaps" on the front page.
Looking at more recent on-chain usage data, Visa launched an on-chain stablecoin dashboard in 2024, mentioning in its 2025 summary: the circulation of stablecoins returned to nearly historical highs in 2025, approaching $250 billion; with about 47 million monthly active users. It also made a very realistic "noise reduction": after excluding activities like bot market-making and arbitrage, the transfer volume over the past 30 days was adjusted from $39 trillion to $8.175 trillion (Visa, 2025).
Stablecoins are already a busy settlement track, but their part that truly resembles "retail payments" is actually quite small. They are more like the wholesale settlement layer of the crypto world: exchanges, market makers, and DeFi protocols move liquidity on top of it. Interestingly, the contradiction between decentralization and currency stability is addressed here: on-chain circulation remains decentralized, while value anchoring borrows from dollar credit, each taking advantage of its strengths.
"Where does stability come from: reserves, redemption, and the invisible chain of trust."
The stability of stablecoins is essentially a promise: if you hold 1 coin, you can exchange it for 1 dollar (or equivalent assets). But promises are not valuable; what is valuable is execution. The essence of money is a carrier of trust, and trust needs an anchor— for stablecoins, the anchor is the quality of reserve assets and the credibility of the redemption mechanism.
Circle's USDC will release third-party attestation reports. For example, in the report from January 2024, it states in detail: as of January 31, the circulation of USDC is approximately $26.739 billion, with corresponding reserve assets fair value of approximately $26.790 billion; the reserve composition includes the Circle Reserve Fund (a government money market fund holding U.S. Treasury and repos) and segregated cash accounts at regulated financial institutions.
Tether's USDT also has third-party attestation. For example, as of June 30, 2024, Tether disclosed its reserves to be approximately $118.436 billion, with liabilities related to the issuing entity of about $113.102 billion, and a net worth of over $5.334 billion; the reserves include approximately $80.949 billion in U.S. Treasury bonds, as well as repos, money market funds, Bitcoin, precious metals, other investments, and secured loans.
The composition of reserves between USDC and USDT makes one thing clearer: stablecoins are not "stabilized out of thin air"; they increasingly resemble a type of on-chain money market tool. The closer the reserves are to cash/short-duration government bonds, the more they resemble "digital cash"; once more complex risk assets, maturity mismatches, or liquidity uncertainties appear in the reserves, the market will begin to price it— even a slight discount will be amplified during times of stress.
Bank runs are not a theoretical issue: USDC taught everyone a lesson that night in March 2023.
In March 2023, during the turmoil in the American banking sector, USDC experienced a very typical "break in the trust chain."
The BIS's research paper writes very directly when reviewing past events: at that time, Circle disclosed that $3.3 billion in cash was held in Silicon Valley Bank, and after the news broke, USDC immediately fell below $1; only after the U.S. government announced protection for SVB depositors did the situation ease.
The most painful part of this matter is not how much it has "fallen," but rather that it exposes the vulnerabilities of stablecoins: the price of stablecoins is influenced not only by the true quality of reserves but also by the way information is disclosed. The same piece of information disclosed during weak market sentiment can become the trigger for a bank run; when disclosed during strong confidence, it may reinforce the anchoring.
The BIS's conclusion even has a somewhat counterintuitive aspect: transparency can increase the risk of bank runs in some cases, while lowering it in others.
"Stability" has never been a static attribute, but rather a market relationship that is continuously validated. Algorithmic stablecoins without reserve anchors are more fragile—an extreme example is the collapse of Terra/UST within three days in 2022, evaporating hundreds of billions of dollars.
The cost of stablecoins: they are not the endpoint of a new monetary system, but rather an extension of the old system.
Viewing stablecoins as "the dollar of the crypto world" easily leads to a misunderstanding: it seems they can replace traditional finance. In reality, the larger stablecoins become, the more they rely on the support of traditional finance and regulatory boundaries.
The BIS made a judgment in its 2025 annual economic report: stablecoins have some potential in tokenization, but when measured against the three standards of "uniformity," "elasticity," and "integrity/cleanliness," they are not sufficient to become the backbone of the monetary system.
Uniformity has been mentioned: as "digital bearer instruments," stablecoins circulating on public chains find it hard to be accepted at face value at any time. Elasticity is more realistic: most stablecoins need to "first inject dollars" to issue more—this is a cash prepayment constraint, different from the credit creation mechanisms and central bank liquidity provision in modern banking systems. Integrity is sharper: the pseudo-anonymity of public chains makes stablecoins naturally easier to be used to bypass compliance boundaries.
This has already become a hard constraint in anti-money laundering frameworks. The FATF, in 2024, conducted statistics on the implementation of virtual asset regulation by various countries: since virtual assets were included in anti-money laundering standards in 2019, 75% of jurisdictions worldwide are still "partially compliant or non-compliant" with key requirements; the legislative, regulatory, and enforcement progress of travel rules remains slow, while the use of stablecoins is also rising, including risks associated with illegal activities.
Regulation is also accelerating the process of pulling stablecoins "back into the system." The U.S. PWG suggested to Congress in 2021 to establish a federal prudential regulatory framework and even proposed to include payment-type stablecoin issuers under the regulation of insured deposit institutions, while also strengthening regulation of key links like custodial wallets. Over in the EU, ESMA clearly stated in its January 2025 statement: under the MiCA framework, national regulatory authorities should promote crypto asset service providers to implement compliance requirements related to non-compliant stablecoins as soon as possible, and no later than the end of the first quarter of 2025.
Stablecoins have come to this point, and the answer is actually becoming clearer: they are not a "currency revolution detached from national credit," but rather an overflow of dollar credit onto a new trajectory.
Conclusion: Why stablecoins are "inevitable" and where they might be headed.
The inevitability of stablecoins does not come from some grand narrative, but from a very simple fact: as long as there are transactions, lending, and leverage on the chain, there is always a need for a settlement unit that can be widely accepted at face value. Without it, the price system is hard to stabilize, contracts are difficult to write, and liquidity will be forced to repeatedly traverse exchanges and bank channels, leading to higher costs.
However, the boundaries of stablecoins are equally clear: they cannot provide "monetary uniformity, elasticity, and integrity" out of thin air, nor can they scale up in the long term while bypassing regulation. Their strength lies in transforming "dollar settlement" into a programmable, 24/7 on-chain service; their weaknesses also stem from the same place—they must always account for the real world: where the reserves are, whether redemption is smooth, and how compliance boundaries are enforced.
If a stronger form appears in the future, it will likely resemble what the BIS envisions: on a regulated unified ledger, placing central bank settlement assets, commercial bank currencies, and asset tokenization together, making "settlement at face value" a default option on-chain.)
By that day, stablecoins may still exist, but more as a "transitional interface"—what people want is more efficient digital cash and settlement, not a set of credit currencies that depreciate daily.