Author: Han Weili, Vice Dean of the School of Software, Fudan UniversitySource: Study Times, September 10, 2025, Page 6
Introduction:Currently,the total market capitalization of global stablecoins has exceeded US$280 billion.they are widely used in scenarios such as transaction settlement, cross-border payments, and asset tokenization. Their development not only impacts the digital financial ecosystem but also poses new challenges to financial risk prevention and control. The application of stablecoins relies on market trust in them. This trust stems from both the transparent and verifiable mechanisms built on the underlying technology and the reliability and regulatory guarantees of the anchoring mechanism. A deep understanding of the technical principles and trust underlying its "stability" is essential for seizing future opportunities for digital financial innovation and balancing potential regulatory risks. Amid the accelerating penetration of digital finance into the global trade system, cryptocurrencies like Bitcoin and Ethereum have garnered widespread attention. However, their volatile price fluctuations have hindered their adoption as mainstream payment platforms. Stablecoins like Tether (USDT) and USDC, through their peg to fiat currencies, retain the advantages of blockchain-based payments, such as efficient circulation and low costs, while avoiding the instability and other drawbacks of traditional cryptocurrencies. Consequently, they have become a hotspot for digital financial innovation. Recent legislation and regulations introduced in the United States, the European Union, and Hong Kong, China, have laid a compliant foundation for the development of stablecoins. Stablecoins are gaining favor with compliant investors worldwide and are gradually integrating into the mainstream financial system. Currently, the total global market capitalization of stablecoins has exceeded $280 billion, and they are widely used in scenarios such as transaction settlement, cross-border payments, and asset tokenization. Their development not only impacts the digital financial ecosystem but also poses new challenges for financial risk prevention and control. The adoption of stablecoins relies on market trust, which stems from both the transparent and verifiable mechanisms built by the underlying technology and the reliability and regulatory assurance of the anchoring mechanism. Therefore, a deep understanding of the technical principles and trust logic behind their "stability" is essential for seizing future opportunities for digital financial innovation and navigating potential regulatory risks. Stablecoins are digital assets issued based on blockchain technology, maintaining their price stability relative to fiat currencies through an "anchoring mechanism." Initially used as a medium for direct exchange in cryptocurrency transactions, they later evolved into underlying assets for participation in financial activities such as lending and staking within the decentralized financial ecosystem. Beyond cryptocurrency trading, stablecoins, due to their near-instant settlement speed, low transaction costs, and 24/7 borderless circulation, are increasingly being used in cross-border payments and trade settlements. The development of stablecoins has evolved from exploration to standardization. In 2014, Tether officially launched USDT, a stablecoin backed 1:1 by fiat currency, introducing the value of the US dollar to the cryptocurrency market. Thanks to its intuitive peg model, USDT quickly achieved widespread adoption and became the primary value stabilization tool in the crypto ecosystem. In 2017, MakerDAO issued DAI, pioneering the "over-collateralized crypto asset + smart contract liquidation" model and driving the development of decentralized stablecoins. In 2020, the decentralized finance boom fueled a surge in demand for stablecoins. Stablecoins introduced the concept of "stability" to the high-risk crypto market, allowing these complex financial activities to proceed relatively safely and efficiently. In 2022, the algorithmic stablecoin UST collapsed due to algorithmic failures, attracting global regulatory attention. The introduction of regulatory laws and regulations in 2025, such as the United States' "Guiding and Establishing a National Innovation Stablecoin in the United States Act" (the "GENIUS Act") and Hong Kong's "Stablecoin Ordinance," laid a foundation for compliance in the stablecoin industry and provided market participants with clearer expectations for its development direction. Since then, stablecoins have entered a new phase of "compliant development." The current stablecoin market exhibits two distinct characteristics: First, concentration at the top. As of August 2025, the total stablecoin market capitalization exceeded $280 billion, with USDT holding a dominant position with approximately 60% of the market share, followed closely by other stablecoins such as USDC. This reflects the market's deep trust in off-chain assets, such as fiat-collateralized models. Second, reliance on mainstream public blockchains. Ethereum, Tron, and Solana account for the majority of the stablecoin market capitalization and trading volume. As of August 2025, the market capitalization of stablecoins on Ethereum exceeded $137 billion. Furthermore, the accelerated entry of traditional financial institutions and the improvement of regulatory frameworks are driving the expansion of stablecoins into scenarios such as cross-border payments and the tokenization of real-world assets (RWA). The technical principles of stablecoins. The value stability and secure operation of stablecoins rely on underlying technologies such as blockchain and smart contracts. While different types of stablecoins have different technical implementation paths, their core principles all share the principles of "reliable anchoring, transparent mechanisms, and secure transactions." First, there are differences in the technical implementation of different types of stablecoins. Based on their anchoring mechanisms, stablecoins can be categorized into three main types: off-chain asset-collateralized, on-chain asset-collateralized, and algorithmic stablecoins. Off-chain asset-collateralized stablecoins are the most common type of stablecoin, backed by an off-chain reserve of equivalent fiat currency or equivalent assets (such as short-term bonds or gold). The technical implementation primarily involves asset custody, audit verification, and a redemption mechanism. USDT and USDC are representative examples of this type of stablecoin. Secondly, on-chain asset-collateralized stablecoins use over-collateralization of on-chain assets (such as Ether) to support the stablecoin's value. Taking MakerDAO's DAI as an example, users pledge crypto assets such as Ethereum to a smart contract. The system then generates a corresponding amount of stablecoins based on a required collateralization ratio (e.g., 150%). When the value of the collateralized assets drops, causing the collateralization ratio to fall too low, the system automatically triggers a liquidation mechanism, selling some of the collateralized assets to maintain the value of the stablecoin. The purpose of over-collateralization is to mitigate the risks associated with the volatility of on-chain assets. Thirdly, algorithmic stablecoins use an algorithm-driven supply and demand mechanism to support the stablecoin's value. Its core principle is to automatically adjust the supply of stablecoins through smart contracts: when the price exceeds the anchor value, the protocol increases the supply through methods such as additional issuance; when the price falls below the anchor value, the protocol reduces the supply through methods such as buybacks and bond issuance, thereby guiding the price back to its normal value. Secondly, blockchain provides the trust infrastructure for stablecoin operations.First,stablecoins are expected to gradually penetrate into areas such as supply chain finance and real estate tokenization, driving their transformation from a single payment tool to mainstream financial infrastructure;Second,the regulatory environment is becoming increasingly mature, and the regulatory frameworks of major economies such as the United States, the European Union, and Hong Kong, China will provide clear compliance guidance for stablecoin issuers, further attracting various institutions to participate in market layout;Third,technological innovation is accelerating breakthroughs, and some solutions that effectively improve the scalability of the underlying network and the privacy protection capabilities that can take into account regulation are expected to be implemented. To address the various challenges facing the development of stablecoins, a multi-dimensional, comprehensive response strategy is necessary: At the regulatory technology level, we should increase R&D investment, promote the development of a regulatory infrastructure for the global blockchain ecosystem, and leverage big data and artificial intelligence technologies to ensure orderly, compliant innovation within the stablecoin ecosystem. We should promote the development of a standardized smart contract development system, introduce AI-driven auditing tools to automate the detection of code vulnerabilities, and integrate regulatory rules into contracts to a greater extent, effectively reducing systemic risks. Regarding enhancing the reliability of anchoring mechanisms and reserve management, by establishing a real-time proof-of-reserve system and engaging independent third-party auditing firms, we can urge issuers to proactively and transparently disclose asset details and operational data, thereby strengthening user trust in stablecoins and fostering market consensus. In terms of systems and governance, we should promote international collaboration, establish consistent regulatory collaboration processes, and reduce cross-border compliance barriers. At the same time, we should strengthen domestic user education, improve the public's digital financial literacy, enhance users' risk awareness, and curb fraud and other illegal and irregular activities.
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