What Stablecoins Are—and Aren’t

The crypto world, for the most part, is nothing but a giant casino. And that’s being kind. Actual casinos at least have rules. The crypto world is still a largely unregulated Wild West. Most crypto projects lack genuine utility, user adoption, or sustainable value. Some of them are outright scams -- just ask inmates like Daren Li or Sam Bankman Fried.

Stablecoins are different. They are a type of cryptocurrency designed to keep a steady value instead of bouncing up and down like Bitcoin or Ethereum. Most of them are pegged to the US dollar, so one stablecoin is meant to always be worth about $1. (Some are tied to other currencies, or to gold, but the dollar version dominates.) Think of them as digital cash that lives on blockchain technology — reliable enough for the public, but flexible enough for complex financial tricks.

What makes stablecoins increasingly popular is simple: speed, low cost, and availability 24 hours a day, 7 days a week. Sending money across the world with traditional banks can cost 3-7% and take days. With stablecoins, a transfer can happen in seconds, for pennies. A factory in Europe can pay a supplier in Asia almost instantly. Merchants can accept payments that settle quickly in the background. 

In the crypto world, people hold stablecoins when prices are jumping around, it’s like parking your money in a safe spot for a short period so it doesn’t disappear overnight. They’re also the digital money used for trading on crypto exchanges. They facilitate all kinds of lending, borrowing, and other activities in decentralized finance (DeFi). 

Because stablecoins run on a blockchain, a real-time, public ledger, transfers are quick and visible to everyone. Gone are all the traditional intermediaries. The coins are also programmable, meaning transactions can be set to happen automatically if certain conditions are met.

Today, the total value of all stablecoins is about $320 billion. But the amount of money that moves through them every year is in the tens of trillions, already more than Visa and Mastercard handle on blockchain. In other words, stablecoins have grown from a niche crypto tool into something that’s starting to feel like real financial infrastructure.

Companies use stablecoins to move money between different offices or to manage their daily cash needs. In countries with shaky currencies or high inflation, like Venezuela, stablecoins act as a handy digital version of the US dollar that people can actually use. They mostly use Tether’s coin, USDT, often called “Binance dollars”—no bank account needed.

Stablecoins are getting a lot of attention in the US these days. Last year President Trump signed the GENIUS Act, which set basic rules for dollar-based stablecoins; rules like keeping full reserves in cash or short-term US government debt, regular reporting, and strong prohibitions against money laundering. 

A more recently proposed law, the Digital Asset Market Clarity Act, passed the House of Representatives in July 2025 with strong support from both parties. It’s now before the Senate, where it’s facing serious opposition, thanks largely to the banking lobby.

The idea behind the Clarity Act is to bring clear, predictable rules to the whole digital asset world. It tries to divide oversight between different government agencies so that companies know exactly what’s expected instead of worrying about surprise crackdowns.

The proposed law gives stablecoins official recognition and makes banks, companies, and investors feel comfortable using them for payments, trading, and other real-world uses. If passed, the Clarity Act would help stablecoins become more mainstream and trusted.

At the moment, the chances of the Senate passing the bill this year are 50/50. It’s been stuck in committee for months, mainly because of arguments over whether platforms should be allowed to pay interest-like rewards to people just for holding stablecoins.

Understandably, big banks are pushing hard against parts of the bill, especially the yield issue. Banks make most of their money the old-fashioned way: they borrow from customers at almost zero interest and lend that money out at a much higher rate. If stablecoins or the platforms around them start offering decent returns, depositors will pull money out of bank accounts and move it into stablecoins instead. 

This “deposit flight” could make it harder for banks to fund loans, especially smaller community banks. Banks argue that stablecoin companies don’t face the same strict rules or protections as traditional banks, so it’s not a fair fight. What they’re really protecting, of course, is their longstanding business model of cheap funding from deposits.

The GENIUS Act bans stablecoin issuers (e.g., Circle for USDC or Tether for USDT) from directly paying interest or yield to holders of the coins. But it says nothing explicit about third-party platforms, affiliates, or partners. The banks want the Clarity Act to close any loopholes that would let these platforms or partners pay interest.

The US administration, meanwhile, has its own compelling reason to promote the use of stablecoins. They could serve as a partial fix for servicing the massive US government debt. In recent years, as the debt has ballooned, foreign governments have been buying fewer US Treasury bonds and more gold; a trend known as de-dollarization. 

If stablecoins become widely used around the world, the companies that issue them will need to buy huge amounts of US Treasuries to back all those coins. Right now, major issuers like Tether and Circle already hold somewhere between $155 and $200 billion in short-term Treasuries. If the stablecoin market grows to trillions, that growth could create much-needed new demand for US debt.

Would that be enough to fully offset de-dollarization? Probably not. Stablecoins will mostly boost private demand from businesses and individuals, not from official government reserves. More importantly, the buying is concentrated in short-term debt rather than the longer bonds that central banks prefer.

Even $1–2 trillion in stablecoin-driven buying is meaningful at the margin but would only modestly affect total debt dynamics, especially given that federal government debt is growing at over $2 trillion annually. Still, it is real support. It recycles global appetite for dollar stability into Treasury purchases, it eases short-end funding pressure, and it buys the U.S. some breathing room. 

So, are stablecoins coming to the rescue of a US debt burden that other countries are backing away from? Is it a realistic scenario? Maybe, but as a helpful counterweight, not a silver bullet.

As someone who regularly pokes fun at Bitcoin maxis for their ridiculous price predictions, I am bemused at how some Bitcoin fans claim that the Clarity Act is great news for Bitcoin’s price. True, it helps Bitcoin by giving clearer trading rules and reducing legal uncertainty. But the biggest benefits go to stablecoins themselves. They are the practical “digital dollars” that make crypto useful for everyday payments and business. 

Many investors use Bitcoin as a store of value but find it not very useful for financial transactions. The Clarity Act turns stablecoins into the ramps and bridges on a Bitcoin-built freeway. Both win, but pretending the legislation will send Bitcoin to the moon is straight from the land of make-believe.

For all their promise, stablecoins, like most money matters, also have a dark side. Because the coins are stable and easy to move across borders, criminals love them too. In 2025, blockchain researchers estimated that $141 to $158 billion in illegal crypto activity flowed through stablecoins, sanctions evasion, money laundering, scams, and ransomware. Stablecoins made up about 84% of all illicit crypto transactions that year. 

Tether, the originator of stablecoins, in particular has faced accusations over the years of not doing enough to stop bad actors, though more recently it has frozen billions in suspicious funds. This illegal activity is still only a small percentage of the trillions in legitimate use, and most illicit transactions still use plain old dollars.

The Clarity Act seeks to put stronger anti-fraud and anti-money laundering rules on the platforms and companies involved. It builds on the GENIUS Act’s requirements for stablecoin issuers. But it won’t fix everything. A lot of illicit activity happens through private wallets or offshore services that the bill doesn’t reach. It makes the regulated, US-based part of the market cleaner and safer, but many gaps remain.

Finally, consider what might happen if the Federal Reserve cuts interest rates all the way back to near zero, as President Trump has pushed for. Since stablecoin issuers make most of their profit by investing their reserves in US Treasuries and earning interest, rates near zero would see that profit evaporate. That would hurt their business and might slow down new issuance and general adoption. 

Or perhaps, when savings accounts and money market funds pay almost nothing, people would be more willing to hold stablecoins for their convenience and usefulness in crypto and payments. Who knows? That’s what happened during the Covid-driven low-rate period of 2020 - 2022. Stablecoin use grew rapidly during the pandemic.

Stablecoins aren’t a revolutionary new form of money that will replace all other forms. They’re just dollars loaded onto a faster, cheaper, more programmable track. In the meantime, remember that those same dollars are being debased at an alarming rate. Since the year 2000, the U.S. dollar has lost almost half its purchasing power. In that same period, gold, the ultimate store of value, has gone up seventeen-fold. 

If you’re looking for a digitized store of value, as opposed to stablecoins that are useful for transactions, look to gold-backed coins (also called tokenized gold or commodity-backed stablecoins). These cryptocurrencies maintain a stable value because they’re backed by actual gold secured in vaults in places like Switzerland.

At the end of that day, the choice between dollar-backed stablecoins and gold-backed coins is a function of their intended purpose: instant utility, or long-term security.