Crypto Is Now a Stablecoin Industry: Report

Analysis

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 interoperability.

2024-2025: Regulatory Recognition and GENIUS Act The GENIUS Act, introduced in 2024 and signed July 18, 2025, recognized stablecoins as formal payment instruments, akin to debit card networks, ACH transfers, and wire systems. It mandated 1:1 reserves in high-quality assets (Treasuries/cash), AML/KYC compliance, and banned uncollateralized algorithmic models. Triggered by UST’s collapse and a $200 billion market cap by mid-2024, the GENIUS Act encouraged institutional adoption while constraining permissionless innovation. 2025: Current Market and Infrastructure By September 2025, stablecoins reached a $300 billion market cap, with 25.2 million monthly senders, $27 trillion in annual transaction volume, and ~$100 billion settled since 2023. USDT maintains >60% dominance but relies on general-purpose chains using volatile gas tokens, not optimized for institutional scale. New networks include Arc (Ondo-backed, $500 million TVL), Tempo (Stellar-based, cross-border focus), and Paxos Global Dollar Network (PayPal, Mercado Libre integration).

Fintechs (Robinhood, Kraken) and banks (JPMorgan, BNY Mellon) engage in stablecoin issuance and network partnerships, but infrastructure gaps limit scalability and compliance readiness. Types of Stablecoins Stablecoins are broadly categorized into fiat-backed, crypto-backed, algorithmic and hybrid. They are distinguished by their backing mechanisms and yield distribution models, which can be further categorized into yield-bearing and non-yield-bearing forms, as well as centralized and decentralized. Each form has unique characteristics in terms of peg stability, collateral composition, liquidity depth, ability to distribute yields and risk profiles. Let’s start with the first. Non-yield-bearing, centralized stablecoins These are managed by single entities and backed by fiat reserves. They prioritize transactional efficiency and peg stability over income generation. They maintain reserves in high-quality liquid instruments such as cash, short-term U.S.

Treasuries, or government money market funds and they ensure rapid settlements without distributing any form of interest to holders. Tether’s USDT is the largest stablecoin by market cap exceeding $180 billion. It relies on a mix of Treasuries, cash equivalents, and other short-term assets, supported by excess reserves that guarantee redemptions at par. It’s built to ensure deep liquidity across exchanges and low transfer costs. USD1 is a newer entrant that incorporates government money market funds into its reserves but adheres to the same non-yielding model. It maintains robust pegs with minimal deviations yet face risks tied to issuer solvency and potential regulatory restrictions. First Digital’s FDUSD is also backed by Treasuries and cash but focuses more on centralized exchange integrations without offering native yields. FDUSD one of the primary stablecoin issuer offering zero trading fees on Binance.

Yield-bearing, centralized stablecoins These stablecoins introduce conditional returns through issuer-platform partnerships, though yields are absent in self-custody or on non-participating platforms. Circle’s USDC is backed by cash at reserve banks and investments in government money market funds holding short-dated Treasuries and reverse repurchase agreements, offering yields of approximately 4-5% exclusively on platforms like Coinbase, where reserve income is shared. Paxos’s PYUSD is issued under New York Department of Financial Services oversight with reserves in Treasuries and cash and provides discretionary yields within PayPal and Venmo ecosystems. It also extends to broader networks like the Global Dollar Network to foster interoperability among selected partners including Kraken, Robinhood, and Mastercard. This network powers USDG which is a MiCA-compliant USD stablecoin issued in Singapore and the EU that enables banks to join shared infrastructure for economic upside without full issuance burdens.

MetaMask’s mUSD (MetaMask USD) is the first native stablecoin from the self-custodial wallet MetaMask. It is issued by Stripe’s Bridge with a 1:1 backing in dollar-equivalent reserves backed by short-term U.S. Treasuries and cash equivalents. It integrates directly into the MetaMask wallet to offer seamless on-ramping, swaps, and cross-chain bridging on Ethereum and Linea. Since its launch in mid-September 2025, mUSD’s circulating supply has surged over 500% to approximately $100 million as of October 19, 2025 - fueled largely by speculation around a potential MASK token airdrop tied to MetaMask’s upcoming rewards program. While it maintains a non-yield-bearing base for broad accessibility, mUSD does allow for yield capture via the MetaMask’s Stablecoin Earn feature, that allows deposits into Aave lending pools for 4-5% APYs on compatible assets like USDC or USDT. As we have seen, whilst these arrangements enhance appeal for custodial users, they all introduce platform dependency and vulnerabilities to regulatory changes that could limit pass-through mechanisms which could eventually impact i) the accessibility of yields and ii) the accessibility of the underlying stablecoin.

aUSD (Agora) represents an institutional-grade evolution in this category. Backed 1:1 by USD reserves in cash and short-term Treasuries, custodied by State Street and managed by VanEck, with quarterly PwC audits for transparency. Conditional yields of 4-6% APY via earnAUSD wrappers on Monad and Upshift, blending Treasury interest with delta-neutral DeFi strategies (e.g., basis trading). Revenue-sharing models recycle yields into partner incentives for liquidity. Non-yield-bearing, decentralized stablecoins This form of stablecoin architecture employs onchain mechanisms such as over-collateralization or synthetic hedging to sustain their dollar pegs without distributing interest. MakerDAO’s DAI, for instance, requires borrowers to deposit assets like ETH or staked ETH at collateralization ratios of 150-175%, with stability fees accruing to a protocol surplus rather than holders. Its peg is maintained through automated liquidations and auctions.

Sky’s USDS, is an evolution of Maker’s framework, and demands higher collateralization to around 270% channeling fees into system buffers. On the other side USDf maintains a minimum 116% cushion with assets that are less volatile such as stablecoins and BTC as a redemption safeguard. Another example is Ethena’s USDe which adopts a delta-neutral strategy, pairing spot collateral (e.g., ETH) with offsetting short perpetual futures positions, supplemented by a modest liquidity buffer, yielding zero until staked. These designs account for approximately $20 billion in market cap within the broader $283.2 billion landscape and prioritize transparency and DeFi interoperability but remain susceptible to smart contract vulnerabilities, collateral volatility, liquidation risks, and counterparty exposure - particularly since many of their hedging positions depend on centralized venues that could fail or restrict access during stress events (as seen on October 10).

Moreover, when the market turns bearish, short perpetual positions used to maintain delta neutrality can incur persistent negative funding rates, adding to the overall cost of maintaining the hedge. Yield-bearing, decentralized stablecoins These stablecoins are debt-based and actively distribute income to holders, often through staking wrappers that enable auto-compounding without issuing new tokens. Staked versions like sDAI, sUSDe, sUSDS, and sUSDf transform their base assets into productive instruments drawing yields from perpetual funding rates, liquid staking rewards, stability fees, treasury coupons from over-collateralized vaults or even leveraging interest from institutional lending. To ensure peg stability, each stablecoin adopts its own independent stability mechanisms. Here below we explore fxUSD, crvUSD, syrupUSD, USR, YU, alUSD a bit more in details: f(x) Protocol’s fxUSD for example employs sophisticated automated rebalancing mechanisms called the Liquidation Brake which proactively adjusts leverage ratios by burning fxUSD from a stability pool or repaying debt via keepers.

This system minimizes hard liquidation risks and preserves user exposure during market fluctuations. On the other side, Curve’s crvUSD employs LLAMMA - an innovative Liquidity-Linked Asset Management Mechanism and Automated Market Maker for soft liquidations which enables gradual collateral sales in Curve pools to prevent sharp depegs and maintain peg stability even during volatility. This mechanism went into action on October 10, 2025 amid the $19 billion crypto liquidation cascade where crvUSD experienced a minor depeg to $1.02 due to delayed Pegkeeper responses and which then in turn LLAMMA restored equilibrium. Another example is syrupUSD by Maple Finance which exemplifies decentralized lending using overcollateralized BTC/ETH loans in DeFi pools across Ethereum, Solana, Arbitrum, and Plasma. To mint syrupUSD, users deposit into lending pools while earning an average of 6-10% APY from borrower interest and staking in vaults (Midas, Drift perps, Kamino, Orca), auto-compounded via ERC-4626 standards.

Peg maintenance is done via arbitrage and liquidity incentives. USR by Resolv Labs pushes boundaries with a dual-token model. Fully backed by ETH/BTC at overcollateralized ratios, hedged delta-neutrally (long spot + short perps on Hyperliquid) and maintains peg via 1:1 minting/redemption with stables and RLP as tokenized protection. Yields delivers 8-15% returns with 5-10% base, 20%+ in maxiUSR vaults from ETH staking, perps funding rates, and RESOLV governance token revenue, auto-compounded in stUSR. YU by Yala leverages Bitcoin collateral for DeFi yields, overcollateralized by BTC at 150-200% CR, minted via MetaMint for cross-chain use on Arbitrum, Base and Solana. Peg is maintained via Omnichain Peg Stability Module for 1:1 USDC swaps and automated liquidations. And yields at 5-12% APY come from Ethena/Babylon staking, RWA vaults, and Pendle, with Yay-Agent AI automation alUSD (Almanak) offers a self-repaying loan model.

Overcollateralized by stablecoins such as DAI/USDC in Yearn vaults, it maintains peg maintenance via synthetic hedging and automated repayments. Yields are generated from vault farming, Pendle/Curve LP fees, and borrower fees, boosted by AI strategies. Yield-bearing, fiat-collateralized, centralized stablecoin (USDY) This is the case of BlackRock’s BUIDL, Franklin Templeton’s BENJI, and Ondo’s USDY. They function as tokenized shares of regulated reserves invested in short-dated Treasuries and repos and they deliver 4-5% yields directly to whitelisted holders. Access is restricted to accredited investors and emphasizes institutional-grade custody. Two innovative stablecoin models are: USD0 by Usual, a RWA-backed Liquid Deposit Token backed 1:1 by short-term US Treasuries such as USYC, with peg maintenance via mint engine, CBR (Counter Bank Run), and transparency oracles for verifiable reserves.

USDO by OpenEden is the first regulated Bermuda DABA stablecoin with rebasing yields. It is backed 1:1 by tokenized US Treasuries and generates yields via Treasury rebasing. Hybrid Stablecoins Two great examples of hybrid stablecoins are Frax Finance’s FRAX and Cap Money’s cUSD: FRAX employs a fractional-algorithmic design that blends partial collateralization with assets like USDC and RWAs and supply modulation for efficiency. It distributes yields via its wrapper SFRXUSD that yields around 4-5% through Treasury exposures and forward mechanisms like FXB. On the other side, Cap Money’s cUSD innovates by outsourcing yield generation to competing protocols such as EigenLayer-backed credit markets that can offer variable, competitive returns that minimize issuer-specific risks. Overall, purely algorithmic stablecoins that rely solely on supply-demand dynamics have declined due to historical failures like Terra’s UST while commodity-backed options like PAXG, pegged to gold, maintain stability but see limited adoption.

Yields Sources For fiat-collateralized stablecoins, yields primarily originate from investments in Treasuries and fixed-income instruments. Issuers like Circle or BlackRock’s BUIDL allocate reserves to short-dated T-bills and repurchase agreements, passing through yields of 4-5% net of fees, aligning closely with the risk-free rate of the front-end Treasury curve Decentralized variants, such as MakerDAO’s sDAI, derive income from stability fees charged on over-collateralized loans and integrations with real-world assets, while Ethena’s sUSDe captures perpetual futures funding rates - spreads between spot and derivatives markets - augmented by staking rewards from liquid tokens, contributing to its 7-12% APY range Innovative models expand these avenues. Frax Finance’s SFRXUSD leverages Treasury exposures and algorithmic adjustments to deliver consistent 4-5% APYs, enhanced by forward mechanisms like FXB, while Cap Money’s cUSD aggregates yields through competitive bidding among external protocols, including restaking on platforms like EigenLayer, achieving rapid growth to $67 million in circulation Paxos’s USDG, through its network, enables yield-sharing arrangements with partners, leveraging reserve income from Treasuries and cash to offer competitive returns in compliant jurisdictions.

Broader ecosystem mechanisms, such as lending pools and liquidity provision, contribute by earning interest on deployed reserves or fees from DeFi activities, with platforms lending reserves or integrating stablecoins into automated market makers. Yields range from 4% for low-risk Treasury-backed options to over 12% for volatile strategies like perpetual hedging, though they entail risks of dilution from supply growth or smart contract vulnerabilities. For instance, Falcon’s high-yield model at one point exceeding 10% drew criticism for its reliance on volatile collateral and leveraged positions, raising concerns about potential depeg risks despite its strong onchain optics. The cumulative foregone yields from non-yielding stablecoins, exceeding tens of billions, have driven demand for these income streams, bridging traditional finance’s risk-free rates with blockchain’s dynamic opportunities, and fueling the surge to 25.2 million monthly senders.

Regulatory Framework The regulatory landscape for stablecoins has matured significantly by 2025 to balance innovation with strict money laundering measures and systemic infrastructural risks. In the United States, the GENIUS (Guiding and Establishing National Innovation for U.S. Stablecoins) Act establishes a federal oversight framework for stablecoins. It mandates that issuers operate as chartered banks or trusts, maintaining 1:1 reserves in high-quality assets like cash and treasuries with monthly attestations and audits to ensure transparency. It also enforces AML and KYC protocols and prohibits uncollateralized algorithmic models and interest pass-through for non-securities stablecoins, exempting tokenized funds like BUIDL. MiCA regulation ( European Union’s Markets in Crypto-Assets ) requires e-money institution licenses, reserve segregation, transparency disclosures, and daily volume caps of €200 million for non-euro pegs and 1 million transactions.

The United Kingdom’s forthcoming framework, anticipated in late 2025, is expected to introduce holding limits and bank-equivalent supervision while in Asia, Singapore and Hong Kong enforce licensing regimes with stringent reserve and AML standards. Regulatory clarity for stablecoins allows banks to experiment now while preparing for future evolution and naturally open the door to opportunities across well established financial institutions. Strategic Considerations: Issuing their own stablecoin giving them full control and reserve interest, but high technical and regulatory hurdles Supporting existing stablecoins like USDC or PYUSD for rapid market entry, ceding economic benefits to issuers Joining networks like Paxos’s Global Dollar Network to integrate partners like PayPal and Mercado Libre, balancing investment with interoperability and shared growth. Strategic Implications : Centralized regulatory clarity enables institutional participation but limits permissionless innovation and DeFi integrations Stablecoins allow banks to retain economic benefits without triggering deposit erosion Global compliance frameworks create opportunities for cross-border stablecoin networks but impose high operational costs Conclusion As we have seen, stablecoins have quietly become the foundation of onchain finance tapping into the U.S.

dollar for stability. And what started as an experiment to “hold value” in a market of chaos is now powering trillions in payments, trades, and savings. Today, most yields come from the same place they do in traditional finance - Treasuries and fixed-income instruments. Issuers like Circle, Paxos, and BlackRock have turned stablecoin reserves into efficient yield machines, offering 4-5% returns that mirror the risk-free rate. On the DeFi side, projects like MakerDAO, Ethena, and Frax have taken those same principles and reimagined them through smart contracts, delta-neutral strategies, and staking rewards that can reach well into the double digits. But the real story here isn’t just about who’s paying what yield - it’s about trust, transparency, and the gradual merging of two worlds. Regulation has finally caught up. The GENIUS Act, MiCA, and similar frameworks have given stablecoins formal recognition as payment instruments, creating space for banks, fintechs, and DeFi protocols to coexist under a clearer rulebook.

So, as the $300 billion stablecoin market keeps growing, the big question isn’t whether stablecoins will stay - they’re already here to stay. The question is what kind of stability we want to build next : one owned by banks and fintechs, or one that stays open, composable, and truly decentralized. Either way, one thing’s clear - the “stable” in stablecoin now carries more meaning than ever.