A Guide to Stablecoins: Why Stable, Why Now
Why? Because while tokens like ETH and SOL are incredible for innovation and growth, they move fast in price. That volatility makes them harder to use as everyday money. Developers, businesses, and users all need something more predictable. That’s where stablecoins step in.
They’re programmable dollars for Web3: liquid enough for traders, stable enough for payments, flexible enough for builders, and transparent (or not) depending on the model.
Right now, stablecoins are at the centre of the hype cycle, and this hype has real weight behind it. From USDC and USDT to ecosystem-native designs like HYPE or new models like Ethena’s $USDe, the race to define the future of digital money is on.
In this guide, we’ll cover:
- What a stablecoin actually is
- Why they matter
- Why new ones keep launching
- What builders need to consider
- How to choose a chain strategy
- Why now is the tipping point
1. What’s a Stablecoin?
At its core, a stablecoin is designed to do one thing: stay stable. Most peg themselves to the US dollar, which makes them the closest thing crypto has to digital cash. But the way a stablecoin is built changes everything about its risk profile, adoption potential, and long-term survival.
Fiat-backed stablecoins like USDC, USDT, and PayPal’s PYUSD are the easiest for people to grasp. For every $1 token, there’s a dollar (or short-term Treasury bill) sitting in a bank account. This makes them simple, liquid, and attractive to institutions, but also centralized and stoppable. Issuers can freeze wallets, regulators can intervene, and trust depends entirely on the issuer’s banking relationships.
On the other side, you’ve got crypto-backed stables like DAI, crvUSD, or LUSD. Here, users lock up crypto like ETH or stETH and mint stablecoins against it. These are fully on-chain and transparent, which aligns with crypto’s ethos, but they’re also inefficient. You might need to lock up $150 worth of ETH to mint $100 worth of stablecoins. If the market crashes, liquidation spirals can put the whole system under pressure.
Then there’s the experimental zone: algorithmic or hybrid models like Ethena’s $USDe, Hyperliquid’s HYPE stable, or FRAX. Instead of relying solely on fiat reserves or over-collateralisation, these stables use yield strategies, smart contracts, or supply-demand mechanics to hold the peg. Done right, they’re scalable and sometimes even reward holders with built-in yield. Done wrong, they collapse spectacularly, as we saw with Terra’s UST.
No one has built the “perfect” stable yet. That’s why new models keep appearing. Everyone’s still chasing the sweet spot between trust, scalability, and decentralisation.
2. Why Do Stablecoins Matter?
Stablecoins are the glue that makes crypto practical. Without them, DeFi would collapse back into pure speculation. With them, Web3 starts to look like a usable financial system.
Every DeFi protocol, from AMMs and lending markets to derivatives platforms, runs on stablecoin pairs. Pull that out, and liquidity disappears. Traders use them to move in and out of positions. Developers use them as a base asset for smart contracts. Investors use them to park value without leaving the ecosystem.
Beyond DeFi, stablecoins are already reshaping payments. Sending USDT across borders is faster and cheaper than any traditional wire transfer. For freelancers, remittances, or global payrolls, that’s real utility, not just theory. In high-inflation countries like Argentina or Nigeria, stablecoins are literally a lifeline. People use them because they’re more stable than local currencies.
For businesses, stablecoins act as a bridge. Companies can settle invoices, manage treasuries, and pay teams without worrying about volatility swings in ETH or SOL. For developers, they’re programmable cash: tokens that slot neatly into lending protocols, insurance contracts, DAOs, or any other on-chain app.
They’re not just hype. Stablecoins are what make crypto usable.
3. Why Are New Stablecoins Being Created?
If USDT and USDC already dominate, why do we keep seeing new ones pop up? Because no single model solves every problem.
Centralized stables work, but they come with censorship and regulatory risk. That creates space for decentralized alternatives like DAI or crvUSD. Those designs are capital inefficient, which makes them harder to scale. Hybrid and experimental models, like Ethena’s $USDe or FRAX, try to solve those issues, often by building yield into the stable itself to make it attractive to hold.
Chains and exchanges also have their own motivations. Launching a “native stable” locks in liquidity and keeps users inside their ecosystem. Think of it like building your own walled garden. Once people are holding your stable, they’re more likely to stay and use your apps.
Institutional players are another factor. Banks, payment processors, and fintechs are experimenting with stablecoins because they see them as programmable settlement rails. For them, it’s less about yield and more about efficiency, compliance, and global reach.
So it’s not about cloning USDT. It’s about solving the gaps: decentralisation, scale, yield, and mainstream adoption.
4. What to Consider When Building a Stablecoin
Launching a stablecoin is not as simple as deploying an ERC-20 contract. It’s designing a financial system that people need to trust with their money. If you’re building one, here’s what will make or break you.
Regulation: the first gate
Europe’s MiCA framework requires licensing, reserve transparency, and disclosures. The US remains murky, with draft bills but no unified law. Asia is experimenting with regulatory sandboxes, giving teams controlled environments to test new designs.
No matter your model, you’ll run into obligations like KYC and AML for users, Travel Rule compliance for cross-border transfers, and in some jurisdictions, licensing as an e-money or payments provider. Compliance isn’t optional anymore. If you don’t plan for it upfront, you’ll find yourself blocked by exchanges, banks, and fintech partners.
💡 USDC publishes monthly attestation reports from top accounting firms. That transparency is what makes it trusted by institutions, even when the US banking system itself feels shaky.
Collateral model: the heart of trust
Fiat-backed stables scale fast, but they live and die by banking partners. Lose your bank account and you risk losing your peg. Crypto-backed stables are transparent and censorship-resistant, but inefficient and exposed to liquidation spirals during crashes. Hybrid models that blend fiat, crypto, and RWAs are flexible and can scale, but they’re complex, harder to audit, and force you to manage a mini balance sheet in real time.
💡 MakerDAO’s DAI survived multiple bear markets thanks to over-collateralisation and liquidation auctions. But over time it leaned heavily on USDC, a decentralised stable ironically tied back to a centralised one.
Technical standards: don’t cut corners
ERC-20 is fine, but the ecosystem is evolving. ERC-4626 vaults make yield-bearing stables easier to build. ERC-7540 is emerging as a framework for tokenising RWAs.
Beyond design, you need robust audits. A single exploit in liquidation logic, oracle dependencies, or reserve accounting can collapse confidence overnight. Oracles are another weak spot. Too much reliance on a single feed creates systemic risk. Transparency tools matter as well: live dashboards showing reserves, collateral ratios, and peg health are now expected, not optional.
💡 Terra’s UST collapsed not just because of flawed design but because users didn’t understand how the peg was maintained. When cracks appeared, panic moved faster than any patch.
Adoption plan: launch is just the start
Seeding liquidity, getting into wallets and exchanges, and building fintech partnerships are non-negotiable. Trust is the real adoption driver. Publish reserve attestations, keep bug bounties open, and have a crisis comms plan ready. When a peg wobbles, your response decides whether people stick with you or dump you.
💡 Tether (USDT) has survived endless FUD because it is everywhere. Liquidity is so deep across exchanges that even when trust dips, traders keep using it. Network effects can outweigh design flaws.
5. Chain Strategy: Where You Launch Matters
Choosing a chain is as strategic as choosing your collateral. Launch on the wrong one and you’ll struggle for liquidity and adoption. Launch on the right one and your stablecoin can become ecosystem money.
Ethereum is the obvious starting point. It’s the original hub with deep liquidity, endless integrations, and strong institutional trust. The trade-off is gas fees and slower scaling compared to newer environments. Still, if you want credibility, Ethereum remains the flagship chain where investors, regulators, and developers take you seriously.
💡 Circle anchored USDC on Ethereum first to earn credibility, then expanded cross-chain once adoption was secure.
Layer 2s are where most new growth is happening. They don’t just offer cheaper transactions, each has a culture and community that shapes adoption.
- Arbitrum is the degen playground. It has deep liquidity and an active DeFi user base constantly stress-testing new protocols. If your stable can thrive here, it’s battle-tested.
- Optimism is smaller in raw DeFi volume but tightly aligned with Ethereum governance. It’s also powering the OP Stack, which chains like Base are built on. That makes it a good launchpad if you want to be part of Ethereum’s scaling roadmap.
- Base, backed by Coinbase, isn’t just another L2, it’s an on-ramp for retail users. If you’re aiming at consumer payments, payroll, or remittances, Base gives you distribution directly through Coinbase’s millions of users.
- Linea, ConsenSys’ zkEVM, comes with MetaMask integration. That means distribution potential straight into the most widely used Web3 wallet, even if liquidity is still early.
💡 Coinbase has already funneled millions of users into Base-native apps, giving stables built here retail distribution from day one.
Solana brings unmatched speed and low fees, making it ideal for consumer payments and high-frequency trading. While the chain has faced downtime challenges, its performance profile makes it attractive for builders focused on scale and user experience.
💡 UXD on Solana experimented with a delta-neutral stable, showing how Solana’s design space supports unique mechanics that wouldn’t work elsewhere.
Stellar was built from the ground up for payments and remittances. Its focus has always been on cross-border transfers, with low fees and fast finality making it especially strong in emerging markets. Unlike many chains that added payments later, Stellar started with this as its mission, and it already has partnerships with NGOs, fintechs, and even central banks. For stablecoins designed to move money globally, Stellar is one of the most practical rails.
💡 The Argentine fintech ecosystem has leaned on Stellar rails to move stablecoins in and out of pesos, proving its value as a cross-border payments network.
Bridges are the connective tissue. Users expect stablecoins everywhere, which makes multi-chain expansion attractive. But bridges are still crypto’s biggest attack vector, and each expansion adds security and liquidity complexity.
💡 The $325M Wormhole exploit showed just how risky multi-chain bridges can be if security isn’t prioritised.
The lesson is simple:
- Ethereum gives you credibility.
- L2s give you scale and vibrant communities.
- Solana gives you speed and UX advantages.
- Stellar gives you payments-first rails with real-world adoption.
There’s no one-size-fits-all. The strongest stablecoins don’t deploy everywhere at once. They launch where liquidity, users, and developer communities already live — then expand deliberately.
6. Why Now?
I was at a Blockchain and Beers event recently, a monthly community event hosted by Linum Labs when the inevitable question came up: “Why now?” Stablecoins have been around for years. They were hyped in 2017, pushed again in 2020, and yet here we are in 2025 asking if this is finally their moment. The answers around the room hit on something worth sharing here.
- Real demand: In high-inflation economies, people aren’t waiting for crypto Twitter to tell them what’s next. They’re already living off stablecoins. In Argentina, Nigeria, Turkey, and beyond, stablecoins are a safer bet than local currencies. That’s grassroots adoption you can’t fake.
- Regulatory clarity: Instead of bans, we’re finally seeing frameworks. Europe’s MiCA sets licensing standards. Asia is experimenting with regulatory sandboxes. Even in the US, fragmented as it is, the conversation has shifted from if to how. That unlocks institutional confidence.
- Technology maturity: For years, scaling stablecoins meant fighting gas fees. Now L2s, zk-rollups, and efficient bridges have caught up, making stablecoin transfers cheap and fast at scale. You can actually design for payments, not just speculation.
- Institutional buy-in: From fintechs like PayPal, to banks, to central banks piloting their own versions, stablecoins are no longer just a degen tool. They’re being tested as settlement rails for the global economy.
💡 Stellar’s partnerships with NGOs and fintechs show how stables are already being used in humanitarian aid and cross-border payroll. Real-world adoption at scale.
All of this converges into a tipping point. Stablecoins aren’t just another cycle. They’re shaping up to be the first real mainstream use case for Web3, money people will use daily without even realising it’s powered by blockchain.
The race isn’t about if stablecoins will win. It’s about which models and ecosystems will define them and gain mass adoption.
2025 feels like the year they finally step out of the crypto bubble and into the real economy.
.jpg)
.jpg)
