The quiet giants

Ask somebody what crypto is for and you will get an answer about investment. Look at what moves on the networks and you get a different answer: most of it is dollars. Stablecoins are tokens that promise to be worth one unit of a currency, and they became the settlement layer of the entire market and, increasingly, of payments that have nothing to do with trading.

Why they exist

A blockchain settles in minutes, around the clock, without asking permission. A bank transfer does not. Once you can hold a dollar as a token, you can move value between two exchanges at three in the morning on a Sunday, you can pay a supplier in another country without a correspondent bank chain, and you can price everything against something that does not move twenty percent in a day.

That last point is why they took over trading. Before stablecoins, exchanging one coin for another meant going through a bank, which meant banking hours. After them, the market never closes.

The three kinds, and which ones survived

Fiat-backed. The issuer takes a dollar, issues a token, and holds the dollar in cash and short-term government debt. Redemption is a promise by a company. This design now dominates completely, for the simple reason that it works as long as the reserves are real.

Crypto-collateralised. Lock up more value in volatile assets than the tokens issued, and liquidate automatically if the collateral falls. It works, it is capital-inefficient, and it survives as a smaller category with a genuine decentralisation argument.

Algorithmic. Maintain the peg with a mechanism rather than reserves. Every large attempt has failed, and the 2022 collapse of one of them destroyed tens of billions in days. The failure mode is inherent: a mechanism that mints a second token to defend a peg accelerates its own collapse when confidence goes.

The business, which is simpler than it looks

An issuer takes deposits, issues tokens that pay no interest, and invests the deposits in short-term government debt that does. The spread is the business. At scale and at non-zero interest rates, this is one of the highest-margin financial businesses in existence, which is why large payment companies, banks and retailers all announced plans once the rules arrived.

It also means stablecoin issuers are now meaningful buyers of short-term government debt, which is an odd sentence to write about a technology that began as an attempt to route around the state.

What the rules changed

Europe applied MiCA in full at the end of 2024, and the United States passed the GENIUS Act in July 2025. The two regimes differ in detail and agree on the essentials: full reserves in high-quality liquid assets, segregation from the issuer's own money, published composition, a redemption right, and a licence.

The practical effects were immediate. Exchanges delisted tokens without compliant issuers in Europe. Interest-bearing stablecoins became difficult, because paying a yield on a payment token starts to look like a deposit or a fund, which is a different licence. And the largest issuers began publishing reserve breakdowns with a frequency that would have been unimaginable in 2019.

The risks that remain

Redemption at scale. Reserves in treasury bills are safe and not instant. A redemption wave larger than the buffer forces sales into a moving market. The 2023 depeg of a large stablecoin, caused by reserves held at a failing bank, lasted a weekend and was resolved by a deposit guarantee, which is a reminder that the banking system is still underneath.

Freezing. Centralised issuers can and do freeze addresses on legal request. This is a feature for law enforcement and a contradiction of the original premise, and every user should know which of their holdings can be frozen by a company.

Concentration. A small number of issuers carry most of the supply. A failure at one would be a systemic event inside crypto and, at current sizes, a noticeable one outside it.

What to watch

Watch whether banks issue their own tokens at scale, which would turn this from a crypto product into a payments product. Watch non-dollar stablecoins, which are small and strategically important to Europe. And watch whether stablecoin payment volume that is unrelated to trading keeps growing, because that is the number that decides whether this is infrastructure or plumbing for a casino.