Stablecoin fundamentals

As stablecoins see rapid adoption and the regulatory space evolves, many financial institutions (FIs) are still wondering where to begin. Neira Jones, industry advisor, keynote speaker, and author, breaks down the fundamentals of stablecoin builders, infrastructure providers, and market essentials.

What are stablecoins? Definitions and categories

In the rapidly evolving landscape of digital finance, stablecoins occupy a unique position. They are digital tokens designed to track the value of real-world assets, most commonly fiat currencies like the US dollar, pound sterling, or euro. Their primary objective is to offer a mechanism for value transfer that combines the speed and programmability of blockchain technology with price stability relative to a reference asset. However, stability is an objective, not an inherent guarantee. While stablecoins aim to avoid the extreme volatility seen in cryptocurrencies like Bitcoin, their ability to maintain a peg depends entirely on their design, governance, and reserve quality. History has shown that when these mechanisms fail, the ‘stable’ label can quickly become a misnomer. The ecosystem comprises four main categories, each with fundamentally different collateralisation models, risk profiles, and use cases. Understanding these distinctions is essential for anyone evaluating stablecoins as a strategic option.

Fiat-backed stablecoins represent the most widely adopted and operationally mature category for business payments and treasury operations. These tokens aim to maintain a 1:1 value with a fiat currency through direct backing by cash reserves and short-term government securities held by regulated custodians. The issuer mints new tokens only when receiving equivalent fiat deposits and burns them upon redemption. Tether (USDT) and Circle’s USD Coin (USDC) exemplify this model. As of the end of 2025, USDT dominates with a market capitalisation of approximately USD 186.6 billion, whilst USDC sits at approximately USD 77 billion.

When properly structured, this category offers the highest degree of transparency and regulatory compliance, making it the primary focus for enterprise adoption.

Commodity-backed stablecoins are pegged to physical commodities such as gold or oil. Whilst conceptually interesting for hedging, they remain relatively niche compared to their fiat-backed counterparts.

Crypto-collateralised stablecoins maintain their target value through over-collateralisation by other cryptocurrencies. Because the underlying collateral (such as Ethereum or Wrapped Bitcoin) is volatile, these protocols employ over-collateralisation as a protective mechanism: users might deposit USD 150 of collateral to generate USD 100 in stablecoins, with the excess serving as a buffer against price fluctuations. While innovative, this approach introduces complexity and liquidation risks, making it primarily relevant for decentralised finance (DeFi) rather than mainstream B2B settlements.

Algorithmic stablecoins attempt to maintain their peg through algorithmic mechanisms and incentive structures rather than physical reserves, relying on market participants to arbitrage the price back to its target. This category has a notoriously poor track record, with several high-profile projects collapsing when confidence evaporated, and the algorithms entered ‘death spirals’ (most notably Terra’s Luna in 2022, which lost approximately USD 40 billion in value). These are generally unsuitable for institutional financial applications and in practice confined to speculative contexts.

Synthetic (e.g. USDe, USDX) and hybrid (e.g. DAI, USDJ) stablecoins, which combine elements of multiple mechanisms (such as collateralised assets with algorithmic stabilisation or fractional reserves), represent emerging variants that sit between these primary categories, though they remain nascent and are not currently deployed at scale for mainstream institutional payments. This chapter concentrates exclusively on fiat-backed stablecoins, as they currently offer the most viable path for B2B transactions, institutional treasury operations, and cross-border payments.

FEATURE	FIAT-COLLATERALISED	COMMODITY-COLLATERALISED	CRYPTO-COLLATERALISED	ALGORITHMIC	SYNTHETIC
BACKING ASSET	Fiat currencies (e.g. USD)	Tangible assets (e.g. gold)	Cryptocurrencies (e.g. ETH)	None (algorithmically managed)	Various assets (derivatives, other stablecoins)
COLLATERALISATION	Yes, 1:1 with fiat	Yes, 1:1 with commodity	Yes, often over-collateralised (e.g. 1.5:1 or more)	None	Varies (can be multiple assets)
PEG TYPE	Hard peg	Hard peg	Soft peg with fiat	Soft peg with fiat	Soft peg with fiat
REDEEMABILITY AGAINST UNDERLYING ASSET	Usually redeemable for fiat	Often redeemable for physical commodity	Redeemable for crypto collateral	Not directly redeemable	Redeemable based on mechanism (e.g. derivatives, other stablecoins)
ISSUER	Centralised entity	Centralised entity	Decentralised protocols	Decentralised protocols	Decentralised protocols
TRANSPARENCY	High, regular audits	High, regular audits	On-chain verification	Algorithmic transparency	Complex, often on-chain
REGULATION	Typically regulated	Typically regulated	Varies, often less regulated	Typically unregulated	Typically unregulated
MARKET CAPITALISATION	Largest	Moderate	Moderate	Smaller	Emerging
RISK FACTORS	Counterparty risk, regulatory risk, lack of transparency in reserves, bank run risk, smart contract risks (for blockchain interactions)	Counterparty risk, price volatility of underlying commodity, storage and insurance costs, regulatory risk, smart contract risks (for blockchain interactions)	High volatility of collateral, smart contract vulnerabilities, liquidation cascades during market stress, over-collateralisation inefficiency	De-pegging risk during market stress, complex mechanisms may fail, lack of intrinsic value, vulnerability to speculative attacks, smart contract vulnerabilities	Smart contract vulnerabilities, complex mechanisms may be opaque, interdependence on other crypto assets, potential for cascading failures in linked systems
USE CASES	Payments, remittances, trading pair on exchanges, store of value	Store of value, commodity exposure in crypto markets, trading	DeFi applications, lending, borrowing, yield farming	DeFi applications, experimental finance models	Complex DeFi strategies, derivatives trading, risk management
EXAMPLES	USDT, USDC, PYUSD	PAXG, XAUt	WBTC, LUSD, DUSD (Davos.xyz)	USDD, DUSD (Defichain), AMPL	USDe, USDX

The stablecoin value chain explained

Stablecoins do not exist in isolation. Rather, they operate within a complex ecosystem where value flows through multiple layers of infrastructure, from issuance through to end-user adoption. Understanding this value chain is essential for anyone seeking to evaluate stablecoins strategically or implement them operationally.

Issuance and reserve management

At the foundation of the stablecoin value chain sits the issuer: the entity responsible for creating and destroying stablecoins whilst managing the reserves that back them. Major issuers, including Tether, Circle, Paxos, and First Digital Trust, operate as registered financial entities, often holding banking licences or operating under regulatory frameworks that permit them to issue electronic money tokens.

The issuer’s primary responsibility is custodial integrity. For fiat-backed stablecoins, reserves must be held at regulated financial institutions, segregated from the issuer’s own corporate funds, and regularly audited. Circle has pioneered transparency by publishing daily attestations of USDC reserves, whilst Paxos maintains third-party audits. This reserve backing provides the foundation for institutional trust, though it is not without risk; the safety of the stablecoin is ultimately tied to the creditworthiness of the custodians holding the cash and bonds.

Reserve composition matters enormously. High-quality reserves consist primarily of cash and short-term government securities from stable sovereigns (US Treasuries, UK gilts, German Bunds, or comparable instruments), which provide liquidity without introducing significant credit risk. Conversely, when reserves include corporate debt, equities, or longer-duration instruments, both credit risk and liquidity risk increase materially, particularly during market stress when redemption pressures intensify, and exit velocity accelerates.

Infrastructure and blockchain networks

Once issued, stablecoins exist as tokens on distributed ledger networks. The choice of blockchain infrastructure fundamentally shapes the stablecoin’s speed, cost, and security.

Major blockchain networks hosting stablecoins include Ethereum (the largest by volume, offering vast liquidity for institutional transfers), Solana (known for high speed and low transaction costs, attracting high-frequency settlement), and Tron (significant transaction volume, particularly in Asia-Pacific). Multi-chain deployment has become standard practice, enabling users to choose the network matching their specific needs, whether that is the deep liquidity of Ethereum for large institutional transfers or the low fees of Solana for high-frequency settlements.

Infrastructure providers represent the critical ‘plumbing’ layer. Fireblocks specialises in digital asset custody and settlement infrastructure, enabling institutional clients to securely hold stablecoins whilst automating complex treasury operations. Companies like Chainalysis provide blockchain monitoring and compliance intelligence, whilst BitGo offers institutional-grade custody solutions. These providers handle the unglamorous but essential work of ensuring stablecoins can be integrated into institutional operational frameworks securely.

Distribution and access

Stablecoins reach end users through multiple channels, including on-ramp platforms, exchanges, and wallet solutions. Centralised exchanges (CEXs), including Coinbase, Binance, and Kraken, act as the primary entry point, where customers can purchase stablecoins with fiat currency and hold them in custodied wallets. Decentralised exchanges (DEXs) and automated market makers (AMMs) like Uniswap enable peer-to-peer swaps of stablecoins against other cryptocurrencies or tokens, operating 24/7 without custodial intermediaries. Non-custodial wallets such as MetaMask provide users with direct control over their private keys and stablecoin holdings, whilst white-labelled wallet providers like MoonPay and Privy enable applications and merchants to integrate stablecoin functionality into their platforms without significant technical investment.

Merchant acceptance and enterprise payments

A distinct layer comprises fintechs and payment processors that facilitate merchant acceptance and enterprise-level usage. Companies like Stripe, Checkout.com, Worldpay, and Nuvei have integrated stablecoin settlement capabilities directly into their merchant acquiring infrastructure. This allows a merchant to accept a card payment in fiat currency but receive the final settlement in USDC, enabling faster access to working capital and reduced banking delays. Since 2022, Checkout.com has allowed merchants to settle transactions in stablecoins, demonstrating how digital assets can augment existing payment flows rather than replacing them. Similarly, Worldpay, partnering with Visa and blockchain networks including Solana and Ethereum, shows how incumbents are using stablecoins to improve back-end settlement speeds between issuers and acquirers.

Institutional services and integration

Stablecoin-as-a-Service (SCaaS) providers represent an emerging category focused on simplifying institutional deployment. Rather than building native blockchain capabilities, SCaaS providers package issuance, custody, and compliance into managed services, allowing brands and banks to launch their own stablecoins without developing extensive in-house blockchain expertise. Providers such as Paxos (which powers PayPal’s PYUSD), Anchorage Digital, and Quantoz (operating under European regulatory frameworks) exemplify this model, enabling institutions to offer branded stablecoins whilst outsourcing the technical complexity.

Rather than resisting stablecoins, major banks are actively reshaping the landscape by issuing proprietary tokens and building blockchain infrastructure themselves. JP Morgan has deployed JPM Coin for institutional settlements and is testing deposit tokens on public blockchains. Santander is exploring retail-accessible stablecoins through Openbank, whilst leading a consortium of international banks investigating the issuance of ‘1:1 reserve-backed digital money’. SWIFT, traditionally a messaging network, is co-leading Project Agorá with the BIS and 41 private firms to tokenize cross-border payments on a unified ledger. This transformation reveals a critical insight: rather than being displaced by stablecoins, traditional financial institutions are actively shaping the future of digital value transfer by becoming issuers and infrastructure builders themselves. The competitive dynamic is not ‘stablecoins vs. traditional finance’, but rather ‘traditional finance integrating stablecoins into their core operations’.

End-user adoption patterns

At the terminus of the value chain sit the ultimate users. Adoption patterns differ dramatically across segments.

Institutional adoption has accelerated across regions. According to a Fireblocks survey of 295 financial institutions conducted in March 2025, adoption rates vary significantly: 50% in North America, 53% in Asia-Pacific, 58% in Europe (using or planning to use stablecoin payments), and 71% in Latin America. B2B payments represent the largest use case globally, reaching USD 36 billion in annualised payment volume, with cross-border flows accounting for approximately half of all stablecoin transaction volume, driven by the compelling value proposition of faster settlement and 24/7 availability. However, this must be contextualised within the broader cross-border payments landscape. Global companies transfer nearly USD 23.5 trillion across borders annually, incurring approximately USD 120 billion in transaction fees. Against this scale, stablecoins represent less than 0.2% of total cross-border flows. In Latin America, particularly, firms engaged in cryptocurrency activities cite cross-border payments as their primary use case, indicating adoption momentum within the cryptocurrency ecosystem, yet reflecting adoption among a subset of digitally native businesses rather than wholesale displacement of traditional cross-border infrastructure.

Retail adoption, by contrast, remains nascent. Data indicates that only 10% of on-chain stablecoin transactions originate from genuine retail participants, with the vast majority driven by trading, arbitrage, and institutional flows. Yet retail stablecoin transfers under USD 250 reached record levels in 2025, with USD 5.84 billion transacted in August alone, suggesting expanding grassroots engagement. The average USDT transaction stands at approximately USD 4,920, with substantial regional variation. Cross-border institutional transfers in North America average USD 35,016, whilst Asia-Pacific institutional flows average USD 11,493. This distribution reflects a market where retail participation is growing in absolute terms, yet remains structurally dominated by professional and institutional activity.

Examples across the value chain

The ecosystem demonstrates sophisticated integration across multiple layers. Coinbase operates across multiple value chain layers simultaneously: as an exchange providing liquidity, as a qualified custodian securing stablecoin holdings, and as an equity stakeholder in Circle, the primary USDC issuer. This multi-layered engagement demonstrates how exchanges have evolved beyond simple trading platforms into comprehensive infrastructure providers within the stablecoin ecosystem.

Checkout.com exemplifies the merchant processor layer. Since launching its stablecoin settlement solution in 2022 in partnership with Fireblocks, it became the first payment service provider to offer automatic fiat-to-stablecoin conversion for merchants. During its initial pilot, Checkout.com facilitated settlement of over USD 300 million in USDC and enabled 24/7 weekend merchant payouts, breaking the traditional 9-to-5 settlement window.

Worldpay, the global payments processor handling USD 2.5 trillion in annual transactions, expanded into stablecoin settlement early. In April 2022, it became the first global merchant acquirer to offer direct USDC settlement. In May 2025, Worldpay partnered with BVNK to enable stablecoin payouts to customers across 180+ markets, allowing corporate clients to make near-instant cross-border payments without holding or managing digital assets directly.

Shopify has emerged as a major merchant platform for stablecoin adoption. In June 2025, Shopify launched early access to USDC payments on Coinbase’s Base network, allowing merchants worldwide to accept USDC through Shopify Payments and Shop Pay whilst receiving settlements in local currency without foreign transaction fees. The integration includes 1% cashback incentives for customers.

PayPal expanded stablecoin reach through its ‘Pay with Crypto’ feature, launched in July 2025, enabling US merchants to accept over 100 cryptocurrencies, including USDC and USDT, with automatic conversion to USD or PayPal’s PYUSD stablecoin. The service offers 0.99% merchant fees (approximately 90% cheaper than credit card rates) with settlement within minutes.

Fireblocks exemplifies the infrastructure provider role. By offering digital asset custody and settlement automation, they enable banks and corporates to handle stablecoins without managing private keys directly.

Stripe’s Crypto Payments offering enables businesses to accept stablecoins across Solana, Ethereum, and Polygon, with settlement converting to USD in the merchant’s Stripe balance and transactions finalising in under one second on Solana with fees below one cent.

These examples illustrate a consistent pattern across the stablecoin ecosystem: rather than wholesale replacement of traditional finance, stablecoins are being integrated as complementary tools within existing payment and treasury infrastructure. Exchanges, processors, and infrastructure providers each occupy distinct layers of the value chain, collectively enabling institutions to leverage stablecoins where they deliver clear operational advantages.

Conclusion

Stablecoins represent a technological evolution in value transfer, particularly for cross-border and B2B settlements. However, they function as complementary tools within the payment ecosystem rather than a wholesale replacement for traditional finance. The value chain spans from issuer-level reserve management through blockchain infrastructure, distribution platforms, merchant processors, and institutional service providers, ultimately serving a market that is currently dominated by institutional rather than retail demand.

The evidence throughout this chapter reveals integration rather than disruption. Traditional payment processors and global acquirers are becoming active participants in the tokenized economy, partnering with blockchain networks to augment their capabilities. Yet stability remains an objective, not a guarantee. Retail adoption, despite record transfer volumes, reflects the persistent psychological and practical barriers to mainstream use.

For decision-makers, the strategic imperative is to evaluate stablecoins rigorously within specific use cases where they deliver measurable value: cross-border B2B flows, treasury operations, and merchant settlement. Success depends on a clear-eyed assessment of both capabilities and risks.

This editorial is part of the Global Stablecoins Report 2026. Explore how stablecoins are moving from hype to utility for banks, merchants, and fintechs.

About the author

With over 25 years of experience in financial services and technology, Neira Jones is a renowned expert in payments, fintech, and cybersecurity. As a strategic board advisor and non-executive director, she guides organisations on innovation and regulatory compliance. Neira is an Amazon best-selling author, professional speaker, trainer, and e-learning course creator. Her expertise is recognised through numerous accolades, including listings in top influencer rankings for payments, fintech, and cybersecurity. Neira serves on the UK Payment Systems Regulator panel and holds a fellowship with the British Computer Society.