FUNDAMENTALS OF CRYPTO
Stablecoins
Stablecoins sit at the intersection of blockchain technology and traditional finance. They’re designed to combine the decentralised, borderless nature of cryptocurrency with the price stability of fiat currency.
This guide breaks down exactly what stablecoins are, how they function as a digital currency, why they matter in the evolution of global payment processing, and the regulatory landscape surrounding them.
What is a Stablecoin?
A Stablecoin is a digital token built on a blockchain that aims to maintain a stable value relative to a reference asset such as a government currency (e.g: the U.S. dollar), or a commodity (e.g., gold). This stability differentiates them from highly volatile cryptocurrencies like Bitcoin or Ethereum as stablecoins achieve their value through being pegged to the value of real world currency, not its market cap. As Stablecoins are digital versions of traditional currency, their existence runs on the blockchain. This allows their use case to be sent peer‑to‑peer across borders without relying on banks, whilst recording all transactions on a transparent ledger.
Types of Stablecoins
There are a number of different Stablecoins circulating the crypto landscape, with some being more prominent than others. The main types include:
Fiat-collateralised Stablecoins
Tokens backed by cash or cash‑equivalent reserves (e.g., short‑term Treasury bills). Issuers hold these reserves in custodial accounts and redeem tokens at a 1:1 ratio. The two most recognisable fiat backed stablecoins currently dominating the industry include USDC and USDT, however there are a number of alternative Stablecoin options that an investor can proceed with such as RLUSD, BUSD, and the first of Australia’s market; AUDD.
Commodity‑backed Stablecoins
Tokens pegged to commodities like gold or oil. A notable example is Tether Gold (XAUT), which can be redeemed for physical gold stored in vaults. Whilst less utilised in the Stablecoin world, commodity-backed stablecoins can be a wise selection for investors looking to remain hedged against USD.
Crypto‑collateralised Stablecoins
Tokens backed by other cryptocurrencies, often over‑collateralised to protect against price volatility. MakerDAO’s DAI uses a combination of Ether and other crypto assets locked in smart contracts at around 150 % collateralisation. These forms of stablecoins are far less popular over your traditional fiat pegged stablecoins. Examples include: USDE, USDS, & DAI.
Algorithmic Stablecoins
Tokens that attempt to maintain their peg through algorithms that expand or contract supply. While appealing in theory, algorithmic designs are fragile; the collapse of TerraUSD (UST) in 2022 showed how they can fail when market confidence falters.
Each design trades off trust and decentralisation. Fiat‑backed & commodity-backed coins require trusting custodians and audits. Crypto‑collateralised coins rely on volatile collateral and smart contracts. Algorithmic coins seek pure decentralisation but carry greater technical and market risk.
Use Cases and Significance
Stablecoins in some aspects hold a greater use case ability than cryptocurrency in the current climate. As a stable form of digital currency, Stablecoins unlock access to multiple new financial applications:
Payments and remittances
Stablecoins act as a medium of exchange on blockchains, enabling low‑cost, near‑instant cross‑border payments without traditional correspondent banking. Merchants can accept stablecoins without worrying about price swings. Residents of countries with unstable currencies use dollar‑pegged stablecoins to preserve purchasing power and send remittances with lower fees.
Liquidity for trading and DeFi
Crypto traders use stablecoins as the on‑chain “cash” they park funds in between trades. Stablecoins provide the base currency for decentralised finance (DeFi) applications such as lending, borrowing and yield farming, where users supply stablecoins to earn interest.
Bridge between traditional finance and crypto
As regulatory clarity improves, payment processors like Stripe and fintech companies like PayPal have begun supporting Stablecoin transactions, allowing consumers and businesses to settle in digital dollars.
Programmable money
Because stablecoins run on blockchains with smart‑contract support, they can be programmed for automated payments, escrow and conditional transfers. This programmability could enable micro‑payments and machine‑to‑machine commerce as artificial intelligence agents transact autonomously.
Risks, Challenges and Regulation
While Stablecoins don’t fluctuate in value as compared to your typical cryptocurrency assets, they are not entirely risk‑free in nature.
Note: Before listing the potential concerns, it’s important to highlight that most fiat-collateralised stablecoins are pretty well exempt from majority of the following events:
Reserve Quality and Run Risk
Stablecoins promise redemption at par, so their credibility depends on the quality and liquidity of reserves. Some issuers hold uninsured bank deposits or other risky assets that may not be readily liquidated in stress scenarios. Without strong capital and liquidity requirements, an unexpected surge in redemptions could trigger a run, destabilising both the Stablecoin and its banking partners.
Algorithmic Failure
Algorithmic stablecoins maintain their peg by adjusting supply or linking to a volatile governance token. If market confidence evaporates, the mechanism can spiral out of control; as seen with TerraUSD (UST) when its price dropped by more than 60% after its supporting token LUNA collapsed.
Regulatory Scrutiny
Regulators worldwide are moving to subject Stablecoin issuers to rules similar to those for payment systems and banks. In October 2025 the United States enacted the GENIUS Act, clarifying that payment stablecoins are neither securities nor insured deposits and allowing both bank and nonbank entities to issue them. The law restricts issuers’ activities to issuing and redeeming stablecoins and requires regulators to draft capital, liquidity and risk‑management standards within 18 months. It also mandates comparable rules for foreign issuers serving U.S. residents and directs the Financial Crimes Enforcement Network (FinCEN) to ensure anti‑money‑laundering compliance. These measures aim to safeguard financial stability and consumer protection as the Stablecoin market grows.
Regulators are also concerned about concentration and financial stability. As Stablecoin adoption grows, network effects could lead to a few dominant issuers, increasing systemic risk. International bodies like the Financial Stability Board have recommended that Stablecoin issuers maintain high‑quality reserves, undergo regular audits and offer clear redemption rights.
Future Outlook and Role in Global Finance
This is our stance on the future of Stablecoins:
When we look at gold or silver in today’s economy, we value them as prized financial commodities, yet we typically don’t use them for transactional purposes. Instead, we use them as a hedge against cash. This is how we view most cryptocurrency projects as a whole will unfold.
While we always reinforced the idea that Cryptocurrency was designed to be spent, not sold… It’s quickly becoming more & more apparent that price volatility is simply far too great for this to become a reality anytime soon. Fortunately, Stablecoins just as easily fill that position in a more purposeful way. Taking into consideration international transaction processing across multiple differing currencies, Stablecoins have the ability to provide a pegged 1:1 money format, substantially lowering processing fees & removing all personnel overhead frontrunning the transaction. One click payments become a welcomed reality as opposed to multi-business day transaction processing times & excess fees.
As a simplified overview, your everyday activities will see no change in how we buy and sell goods in stores, however from a back-end perspective, our payment processors will utilise Stablecoin on-ramping/off-ramping instead of the traditional fiat system. It won’t be as if you now have to select from ‘Savings, Credit, Stablecoin’ every time you access an EFTPOS machine. Transacting with stablecoins will become seamless in every way.
Right now, the future of stablecoins depends on public trust and effective regulation. Without sound reserve management and comprehensive oversight, stablecoins could fragment the monetary system. From a regulation standpoint, robust frameworks like the GENIUS Act and similar initiatives worldwide could help stablecoins operate safely at scale, bridging the gap between traditional finance and the digital economy.
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