The global stablecoin market has achieved a significant milestone, surpassing a total market capitalization of $250 billion. These digital assets, which are pegged to stable reserves like fiat currencies, have become essential to the cryptocurrency ecosystem. They function as a medium of exchange, improving liquidity and reducing volatility across digital asset markets.
Major regulatory developments, such as the U.S. GENIUS Act and Hong Kong’s Stablecoin Draft Bill, are accelerating the establishment of clearer legal frameworks worldwide. The market is currently dominated by two major players: Tether (USDT), which holds a 61.2% market share, and Circle (USDC), with a 24.4% share. The latter is leveraging its compliance-focused approach to advance toward an initial public offering (IPO).
The Role of Stablecoins as a Medium of Exchange
Stablecoins are a type of cryptocurrency designed to maintain a stable value by being pegged to traditional assets, most notably fiat currencies like the U.S. dollar. They emerged from a practical need within crypto markets: the difficulty of moving between digital assets and cash efficiently.
Before stablecoins existed, converting cryptocurrencies into cash was often slow and costly. This inefficiency led to limited liquidity and high price volatility. By serving as a digital equivalent to traditional money, stablecoins allow users to seamlessly trade between various cryptocurrencies and cash equivalents. This has significantly enhanced market liquidity and contributed to lower volatility among major digital currencies.
After more than a decade of development, the stablecoin market has expanded rapidly. Recent legislative actions, including the passage of the GENIUS Act by the U.S. Senate in May 2025 and the enactment of the Stablecoin Draft Bill in Hong Kong, signal growing regulatory clarity and acceptance.
The Stablecoin Ecosystem: Participants and Processes
The stablecoin market consists of both primary and secondary markets, each involving several key participants working together to ensure functionality and trust.
Primary Market: Issuance and Management
In the primary market, stablecoins are created and issued primarily to institutional players such as exchanges and authorized dealers. The issuance process involves:
- Issuers: Companies that create and manage the stablecoin.
- Custodians: Banking or financial institutions that hold reserve assets (e.g., cash, treasury bonds) equivalent to the stablecoins in circulation.
- Asset Managers: Entities that manage these reserve assets to generate yield.
Funds collected from issuing stablecoins are held in reserve on a 1:1 basis. These reserves are often invested in low-risk, liquid assets such as short-term U.S. Treasury bonds. Revenue is earned through the returns on these investments, while custodians and asset managers charge fees for their services.
Secondary Market: Trading and Liquidity
The secondary market is where users and investors trade stablecoins. This occurs mainly on cryptocurrency exchanges. Key participants include:
- Exchanges: Platforms that facilitate the buying and selling of stablecoins.
- Market Makers: Entities or individuals that provide liquidity, enabling smoother and faster transactions for traders.
This layered ecosystem ensures that stablecoins remain liquid, stable, and widely usable across different trading scenarios.
Market Leaders: USDT and USDC
The stablecoin landscape is dominated by two major assets: Tether’s USDT and Circle’s USDC. Together, they account for over 85% of the total market.
Tether (USDT): The Market Pioneer
Tether Limited launched USDT in 2014, making it the first and largest stablecoin by market capitalization. It currently holds a 61.2% share of the stablecoin market. The company’s early entry has granted it significant market recognition and adoption.
Tether generates profits by investing its reserve assets in instruments such as U.S. Treasury bonds and gold. However, its reserves have sometimes included commercial papers and even other cryptocurrencies like Bitcoin, raising questions about transparency and risk.
Circle (USDC): The Compliant Contender
Circle introduced USDC in 2018, and it has grown to become the second-largest stablecoin, with a circulating supply of $61 billion and a 24.4% market share as of May 2025.
Circle’s main advantage lies in its strict compliance measures. USDC’s reserves consist solely of cash and short-term U.S. Treasuries, aligning with emerging regulatory requirements for “high-quality liquid assets.” The company holds licenses from major regulators, including the U.S. Financial Crimes Enforcement Network (FinCEN) and the European Union’s Electronic Money Institution (EMI). These factors have positioned Circle favorably under new stablecoin laws and are supporting its current push for an IPO.
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Frequently Asked Questions
What is a stablecoin?
A stablecoin is a type of cryptocurrency that is pegged to a stable asset, such as a fiat currency or a commodity. This design helps minimize price volatility, making it suitable for everyday transactions and as a bridge between traditional finance and digital assets.
How are stablecoins regulated?
Regulation varies by jurisdiction. The U.S. recently passed the GENIUS Act, and Hong Kong implemented the Stablecoin Draft Bill—both aiming to provide clearer guidelines for issuance, reserve management, and consumer protection. Compliance often involves regular audits, transparency in reserve reporting, and obtaining relevant financial licenses.
What are the primary uses of stablecoins?
Stablecoins are widely used for trading cryptocurrencies, remittances, and as a safe-haven asset during market volatility. They enable fast and low-cost cross-border transactions and serve as an essential liquidity tool within crypto exchanges.
What risks are associated with using stablecoins?
Key risks include regulatory changes, potential de-pegging events where the stablecoin loses its peg to the underlying asset, and concerns around the transparency and quality of reserve holdings. Users should choose stablecoins from issuers with strong compliance and clear reserve reporting.
Can stablecoins be used globally?
While stablecoins are accessible worldwide, their legality depends on local regulations. Some countries, like China, currently prohibit their use. Always check your local laws before engaging in stablecoin transactions.
What is the difference between USDT and USDC?
The main differences lie in their reserve structures and compliance levels. USDT reserves may include a broader range of assets, while USDC reserves are limited to cash and short-term U.S. Treasuries. USDC also operates under stricter regulatory oversight, making it a preferred choice for users prioritizing compliance.
Conclusion
The stablecoin market continues to mature, supported by stronger regulatory frameworks and increasing adoption. As key players like Tether and Circle enhance their offerings and compliance, these digital assets are poised to play an even greater role in the future of finance. Still, participants must remain aware of regulatory shifts and asset-backed risks when engaging with stablecoins.
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