Stablecoins Redefine Global Finance: From Stability to Systemic Shift

The "endgame" for U.S. dollar stablecoins is not just a reduction in ticker symbols — it represents a redefinition of their role in the broader financial system. According to insights from industry executives and analysts, stablecoins are evolving from simple tools for price stability into foundational infrastructure for global payments and decentralized finance (DeFi). This transformation is evident in the rapid adoption of stablecoins across cross-border transactions, DeFi protocols, and even regulatory frameworks being shaped by policymakers.

Stablecoins are broadly defined as cryptocurrencies that maintain a relatively stable value by being pegged to traditional assets such as the U.S. dollar, gold, or other commodities. They are typically categorized into four types: fiat-collateralized, crypto-collateralized, algorithmic, and commodity-backed. Of these, fiat-collateralized stablecoins such as USDT and USDC dominate the market due to their perceived stability and simplicity. These stablecoins are backed by reserves of traditional currencies, often held in 1:1 ratios with the underlying asset. This mechanism ensures that users can redeem their stablecoins for the equivalent fiat currency at any time, reinforcing confidence in the peg.

Algorithmic stablecoins, on the other hand, rely on software mechanisms rather than physical reserves to maintain value. These systems use smart contracts to adjust supply in response to price fluctuations. However, the collapse of Terra’s UST in 2022 has underscored the fragility of such models. The event, where UST rapidly depegged from the dollar and entered a “death spiral,” revealed the systemic risks associated with algorithmic design, especially in the face of market panic and insufficient liquidity.

The broader implications of these risks have prompted regulatory scrutiny. In recent years, jurisdictions such as Hong Kong and the United States have introduced new frameworks requiring stablecoin issuers to maintain full reserves, undergo regular audits, and obtain licensing. These measures aim to enhance transparency, reduce systemic risk, and build trust in stablecoin systems.

Beyond regulatory compliance, stablecoins are playing a pivotal role in transforming the global financial infrastructure. In cross-border payments, stablecoins offer a faster and more cost-effective alternative to traditional systems. For example, the use of stablecoins in the “multi-chain digital currency bridge” (mBridge) project, supported by the Hong Kong Monetary Authority, is demonstrating how blockchain can streamline international trade and reduce transaction costs. According to reports, a stablecoin-based transaction can settle in near real-time with fees often below 0.1%, a significant improvement over SWIFT transfers that can take days and charge much higher fees.

Moreover, stablecoins have become a cornerstone of the DeFi ecosystem. Their price stability allows them to function as a medium for lending, borrowing, and trading in decentralized protocols. For instance, in DeFi platforms, stablecoins are frequently used as collateral for loans or as a base for derivative contracts. This has significantly lowered entry barriers for retail investors and increased overall market liquidity.

At the same time, stablecoins are being integrated into the digital economies of countries facing high inflation. In such environments, citizens are increasingly turning to U.S. dollar-pegged stablecoins as a hedge against local currency depreciation. This trend has driven demand for stablecoins and prompted central banks to explore their own digital currencies as a regulated alternative.

As the infrastructure and governance of stablecoins continue to mature, their integration into mainstream financial systems appears inevitable. Major players such as Circle have taken steps to list stablecoin-issuing companies on traditional exchanges, signaling growing institutional acceptance. Meanwhile, A-share listed firms in China are also engaging in stablecoin-related projects, developing blockchain-based platforms and participating in regulatory sandbox trials to explore new applications in cross-border finance.