Stablecoins have quietly achieved what few imagined just a few years ago. In 2024, dollar-pegged crypto tokens handled $27.6 trillion in on-chain transactions – surpassing the combined annual volume of Visa and Mastercard. 

These digital dollars, once a niche experiment on the fringes of cryptocurrency, are now bridging the gap between decentralized technology and mainstream finance. PayPal’s launch of its own USD stablecoin and big banks preparing similar moves signal that stablecoins have emerged as a foundational pillar of the digital economy. Yet this rapid ascent hasn’t come without drama. High-profile failures – most notably TerraUSD’s collapse in 2022, which erased hundreds of billions in crypto market value in mere days – shook market trust and provoked regulators worldwide. Still, in the wake of both triumphs and setbacks, stablecoins continue to evolve into a more mature, resilient, and indispensable part of global finance.

From Tether to Terra: The Evolution of Stablecoins

The concept of a “stable coin” – a cryptocurrency engineered to maintain a steady value – first emerged around 2014. That year saw the debut of Tether (USDT), a token pegged to the U.S. dollar and backed (in theory) by cash or equivalents. Around the same time, early experiments like BitUSD explored crypto-collateralized models, while projects such as NuBits pioneered early algorithmic stablecoin designs. These first-generation stablecoins established three distinct approaches:

• Fiat-Collateralized Stablecoins: Like USDT (and later USD Coin (USDC)), these hold reserves in traditional assets (cash, Treasurys, etc.) to match their outstanding tokens. They offer simplicity (1 token equals $1 in reserve) aiming to keep value stable via trusted collateral.
  
  
• Crypto-Collateralized Stablecoins: The poster child here is DAI, launched by MakerDAO in 2017. DAI is backed by cryptocurrency (primarily Ether and other assets) deposited in smart contracts. To account for crypto’s volatility, DAI is over-collateralized (users must lock in, say, $150 of Ether to generate $100 of DAI) and managed by decentralized governance. This model removes reliance on traditional banks but can strain to hold its peg during wild market swings.
  
  
• Algorithmic Stablecoins: In the late 2010s, a bolder idea took shape – stablecoins governed by algorithms rather than hard collateral. TerraUSD (UST) became the emblem of this approach. Instead of cash reserves, UST attempted to hold its $1 peg via a sister cryptocurrency (LUNA) and arbitrage incentives. For a while, it worked as a self-contained digital currency system – until it didn’t.
  
  

By the early 2020s, stablecoins from these categories flourished side by side. USDT became the industry’s liquidity workhorse and grew to a staggering $143+ billion market cap by 2025, riding on its early-mover advantage and multi-chain availability (Ethereum, Tron, Solana and more). 

USDC, launched in 2018 by Circle, carved out a role as a more transparent, regulated alternative – reaching about $58 billion in circulation. Meanwhile, DAI offered a decentralized dollar for crypto purists, typically maintaining a market cap in the single-digit billions. Each model had its trade-offs: fiat-backed coins offer simplicity but require trust in issuers’ reserves, while decentralized ones champion openness but can be complex and capital-inefficient.

The evolution wasn’t all smooth growth. In May 2022, the world witnessed how unstable a stablecoin could become. TerraUSD (UST), then a top-five stablecoin, imploded virtually overnight after billions in UST deposits were pulled from its anchor protocol, breaking its $1 peg. The algorithmic “magic” failed spectacularly – UST plummeted to mere cents, wiping out over $40 billion in combined UST and LUNA value and sending shockwaves through the crypto market. 

This collapse wasn’t just a blow to investors; it became a case study in stablecoin risk. Confidence in algorithmic designs evaporated, and policymakers seized on Terra’s failure as proof that stablecoins could pose systemic dangers without proper safeguards. Other mishaps reinforced the lesson: small euro-pegged stablecoins and experimental tokens lost their pegs, and even stalwarts like USDC wobbled briefly in March 2023 when a major reserve bank failed, reminding users that fiat-backed stablecoins depend on real-world banking stability.

These crises reshaped the stablecoin landscape. In their aftermath, surviving projects doubled down on transparency and reserve quality. Leading issuers began publishing regular attestation reports; Circle (USDC’s issuer) prided itself on full reserve audits and compliance, and even historically opaque Tether started disclosing more details (albeit while paying a $41 million CFTC fine in 2021 for earlier reserve misrepresentations). 

The market’s message was clear: trust is paramount. Decentralized communities also learned to be more cautious – MakerDAO, for instance, overhauled DAI’s model to rely partly on real-world assets, reflecting an evolution toward stability first. By the mid-2020s, the dominant stablecoins were those firmly backed by traditional assets or over-collateralized crypto. Algorithmic stablecoins, while not entirely gone, retreated to a tiny niche on the fringes.

Mainstream Embrace: Wall Street and Big Tech Jump In

Stablecoins are gaining traction with financial institutions, bridging traditional banking and the crypto world.

Not long ago, the word “stablecoin” barely registered in boardrooms of banks or fintech firms. Today, some of the biggest names in finance and tech are actively issuing or using stablecoins. In 2023, PayPal shook the payments industry by launching PYUSD, its own U.S. dollar stablecoin. For a payments giant with hundreds of millions of users, creating a crypto token was a bold endorsement of this technology’s promise. PayPal’s PYUSD is fully backed by dollar deposits and U.S. treasuries, effectively making it a digital version of the dollars people hold in their PayPal accounts. The message was clear: stablecoins aren’t just for crypto traders anymore – they’re for everyone, from casual PayPal users to merchants who can now settle payments in seconds.

Big banks have also shed their reticence. JPMorgan was an early mover with its private JPM Coin (used internally for corporate payments), but now others are poised to follow on public networks. Standard Chartered, a major global bank, recently announced a Hong Kong dollar stablecoin project, and Bank of America’s CEO indicated the bank is ready to launch a dollar stablecoin as soon as U.S. regulations allow. 

In fact, a consortium of major U.S. banks – including JPMorgan, BofA, Wells Fargo, and Citi – have explored a jointly operated stablecoin or tokenized deposit system to modernize interbank settlement. Their motivation is simple: stablecoins enable faster, uninterrupted movement of funds, avoiding the delays and downtime common with legacy banking systems, particularly for cross-border transactions. Rather than compete against crypto’s inherent efficiency, traditional financial players see stablecoins as a practical way to leverage blockchain’s speed and reliability.

Payment processors and card networks are on board, too. Visa in particular made headlines by integrating USDC (USD Coin) into its payment settlement network, allowing merchants to receive card payments in USDC on Ethereum and even on Solana for faster throughput. In trials, Visa successfully used USDC to settle transactions daily with partners like Crypto.com, cutting out the need for slow correspondent banking in the middle. Similarly, Stripe enabled businesses to pay freelancers in stablecoins and is exploring how stablecoins can facilitate cross-border e-commerce. Even FinTech apps like Revolut or Robinhood have added stablecoin features, letting users seamlessly swap to stable assets or send money abroad at low cost. This broad adoption by trusted brands has lent stablecoins new credibility.

All these advantages explain why stablecoins are no longer seen as a crypto novelty but as a new kind of financial infrastructure. It’s telling that nearly 98% of all stablecoin value is pegged to the U.S. dollar – effectively projecting U.S. monetary power into the internet-native economy. Even governments have taken note; some see private stablecoins as complementing their currency’s reach, while others feel pressured to roll out central bank digital currencies (CBDCs) in response. 

Either way, stablecoins have forced a rethink of how value moves in the modern era. The involvement of institutions like PayPal, Visa, and global banks suggests a future where traditional finance and digital assets converge – with stablecoins acting as the connective tissue.

The Stablecoin Advantage: A Faster, Smarter Money Network

Why exactly have stablecoins caught on so quickly, and what makes them superior to legacy payment rails? In essence, stablecoins combine the trust of fiat money with the technological prowess of blockchain networks—offering faster, always-on settlement, dramatically lower transaction costs, global accessibility, and programmable money that seamlessly integrates with digital applications and smart contracts.

These advantages explain why stablecoins grew from basically zero to over $200 billion in circulation in less than a decade. Importantly, stablecoins ride on multiple blockchain networks, and competition there has further improved their utility. 

For instance, Ethereum was the original home for most stablecoins, but as usage surged, fees on Ethereum spiked. Rather than be limited by that, stablecoin issuers expanded to cheaper, high-throughput chains. Tron, for example, became a popular network for Tether (USDT), especially in Asia, because transactions are fast and virtually free. By 2023, the supply of USDT on Tron even surpassed that on Ethereum as Tether moved over $70 billion of USDT onto Tron to meet demand for low-cost transfers. 

Similarly, stablecoins have gained ground on Solana for speedy transactions and on various Layer-2 networks like Arbitrum or Polygon that offer scaling benefits. This multi-chain presence ensures stablecoins can serve different communities, from high-frequency traders on Ethereum to remitters on Tron, with optimal performance.

Critically, the open nature of stablecoins also allows transparent tracking of where value flows (more on that later). For businesses and even central bankers, this transparency can be an asset: imagine having granular data on how digital dollars move around the world in real time. It’s a stark contrast to the opacity of cash or even bank deposits. We’re essentially witnessing the emergence of a faster, smarter money network – one that doesn’t replace traditional banking outright, but augments it in important ways. And as more institutions integrate stablecoins, the line between “crypto finance” and “traditional finance” keeps blurring.

Backbone of DeFi: Yield, Liquidity, and Institutional Strategies

Beyond payments and remittances, stablecoins have become the backbone of decentralized finance (DeFi). Across crypto markets today, stablecoins serve as foundational assets—facilitating trading pairs on exchanges, providing collateral for lending platforms, and underpinning liquidity in yield-generating protocols. Their stable value makes them an ideal entry point for institutions exploring DeFi strategies, transforming these tokens from niche crypto instruments into essential building blocks of the digital economy.

‍Stablecoins underpin virtually every corner of DeFi. On decentralized exchanges like Uniswap or Curve, stablecoin-to-stablecoin trading pools facilitate billions in volume with minimal slippage, providing crypto markets with forex-like liquidity. In lending markets such as Aave or Compound, stablecoins are the most borrowed and lent assets. Users park stablecoins to earn interest, while others borrow them to leverage trades, all programmatically determined by supply-demand. The reason is simple: traders and investors trust that 1 USDC will be 1 USD tomorrow, so it’s a low-volatility asset to deploy, akin to cash in traditional finance. 

In recent years, yield-bearing stablecoins have emerged as a significant evolution in the crypto economy, further bridging traditional and decentralized finance. Unlike earlier stablecoin yield strategies that relied heavily on crypto-native mechanisms such as liquidity pools that carry significant counterparty risk, new-generation platforms like Ondo, Ethena, and Pendle are connecting stablecoins directly to real-world financial instruments, most notably U.S. Treasuries.

Ondo Finance, for instance, enables users to hold stablecoins backed by short-term U.S. Treasury bonds, effectively providing exposure to government-backed yields directly on-chain. Similarly, Ethena’s USDe offers yield by maintaining reserves in liquid Treasuries, transparently converting traditional low-risk assets into crypto-native, yield-bearing stablecoins. Pendle innovates differently by tokenizing future yields, allowing users to trade or lock in stablecoin yields derived from RWAs, thus introducing sophisticated yield-trading and hedging capabilities.

The traction these projects have gained underscores significant market interest: the total circulation of yield-bearing stablecoins surged dramatically from roughly $1.5 billion at the beginning of 2024 to more than $11 billion by mid-2025, now accounting for approximately 4.5% of the total stablecoin market. This growth signals a clear demand for stable returns that mirror traditional financial products. By integrating stablecoins with RWAs like Treasuries, these platforms don't just offer attractive yields; they also enhance capital efficiency and provide stronger connections between digital assets and traditional financial markets. 

Data Intelligence: Mapping the Stablecoin Economy with Attribution

As stablecoins weave themselves into the fabric of global finance, one of their underappreciated features is transparency. Every stablecoin transaction happens on a public ledger, in raw form this is a firehose of data – millions of transactions & wallet addresses. But with the right analytics and attribution intelligence, this data becomes incredibly powerful. 

Who is actually using stablecoins? Where are funds flowing? What risks hide in those rivers of liquidity? Answering these questions is vital for compliance professionals, regulators, and traders alike, and it’s where a data-first approach shines. At Elementus, we leverage this transparency by overlaying blockchain data with an identity layer—linking wallets to real-world entities and clustering associated addresses. This mapping confirms who controls the funds, how liquidity flows between entities, and where potential risks exist, enabling users to make informed, data-driven decisions.

Why does this matter? Context is everything when looking at stablecoin flows. For example, seeing a spike of $1 billion in USDT moving on-chain is interesting; seeing that it originated from a major Asian exchange’s wallet and flowed into dozens of smaller addresses linked to OTC brokers is far more useful. It might indicate a large fund or institution reallocating funds. Similarly, when Terra’s UST was collapsing, on-chain forensics were able to trace how panic withdrawals from Anchor flowed into exchanges and who might’ve profited from shorting. 

For compliance teams, attribution is a godsend. With hundreds of billions in stablecoin liquidity the risk of illicit use is a serious concern. But sophisticated monitoring can flag if an address was involved in hacks, ransomware, sanctions violations, or darkmarket activity. Elementus uses patented algorithms to derive risk scores for wallets based on their transaction history & counterparty affiliations. For instance, if even a small percentage of a wallet’s funds came from a mixer or blacklisted source, that drives its risk score up. Compliance officers can set thresholds such as “alert me if more than 2% of incoming funds are associated with nefarious services”, automating the detection of suspicious flows. With accurate attribution data, it's possible to clearly trace funds, no matter how complex their path.

Whether you’re a DeFi trader analyzing liquidity flows, an institution measuring market exposure, or a compliance analyst tracing suspect funds, having a contextual on-chain map is the new edge. It turns raw blockchain data into actionable & asymmetrical intelligence.  Elementus provides the technology needed to clearly identify risks, spot meaningful opportunities, and confidently navigate a rapidly evolving blockchain landscape.