On-chain tokens fully backed by T-bills and cash reserves, stablecoins emerged as an answer to the volatility of assets like Bitcoin

On-chain tokens fully backed by T-bills and cash reserves, stablecoins emerged as an answer to the volatility of assets like Bitcoin, giving investors an opportunity to escape price instability without cashing out altogether.

Over the last decade, it’s fair to say ‘crypto dollars’ have become a much-needed bridge between the worlds of TradFi and Web3, as well as an efficient way of locking in profits amid the continual flux and flow of the crypto market.

Which is why it wasn’t exactly surprising when, last month, the market cap of stablecoins hit an all-time high of $238 billion following 19 months of consecutive gains. Indeed, the market grew by 2.12% in April alone. As reported by CoinDesk Data, non-USD fiat stablecoins were one of the biggest winners, rising 30% to a $533 million market cap.

$238 billion is a huge figure, to be sure. But it’s still a fraction of the overall crypto market capitalization of $3.2 trillion. Now, the US Treasury is estimating that stablecoins could reach $2 trillion within the next three years, driving demand for short-term treasuries.

Why stablecoins?

The utility of stablecoins is easy to appreciate given the hegemony of the US dollar, which is the fiat asset to which most stables are pegged. One of the best use-cases for crypto dollars is for cross-border payments, where both sender and receiver enjoy rapid settlement, low fees, and 24/7 availability.

Some days, stablecoins settle more value than PayPal and Western Union. During the first quarter of this year, the total volume of transactions involving stables also exceeded the total of payments facilitated by Visa. We are not talking about a niche offshoot of the crypto world here.

The use of stablecoins in a TradFi context has certainly accelerated their growth. Recently, Mastercard teamed up with OKX and Nuvei to expand stablecoin payment capabilities, aiming to make it easier for consumers to spend them and merchants to receive them. Dutch bank ING, meanwhile, is developing its own stablecoin project in tandem with a few other unnamed banks.

Against this backdrop, is it any wonder the Treasury’s recent 18-page report into stablecoins suggests it will be a $2 trillion market cap by 2028? The document cites growing institutional interest, improving regulatory frameworks, and a diversity of on-chain use cases as key drivers.

USD isn’t the only show in town

Although most stablecoins remain pegged to the US dollar, concerns about dollar dependence have been voiced by some. Boris Bohrer-Bilowitzki, for one: the CEO of Layer-1 blockchain Concordium has stressed the need for multi-currency diversification, warning that excessive dollar dependence could destabilize the entire crypto market.

An enterprise-focused platform, Concordium has carved out a niche in stablecoin issuance with its built-in trust and compliance. Powered by zero-knowledge proof (ZKP) technology, it boasts a unique identity layer that ensures verified yet private user interactions. Uniquely, it also lets institutions issue stablecoins natively at the protocol level without smart contracts – reducing risks seen on networks like Ethereum.

Those stablecoins aren’t all USD-pegged either; Concordium handles issuance for projects whose stablecoins are backed by fiat currencies like British pound sterling and the UAE Dirham. What’s more, the permissionless chain supports advanced PayFi features like time releases and secure ID-based geofencing for cross-border transactions.

The approach of this regulator-friendly platform reflects a growing trend toward safer, more compliant fintech solutions. In Europe, a clear regulatory picture has helped in this regard: the EU’s Markets in Crypto Assets Regulation (MiCA) governs digital currencies in the bloc, and the breakaway UK government has just released draft legislation for regulating crypto assets within its own borders.

Little by little, we are seeing closer integration of TradFi and Web3, at least where regulation is concerned. The number of global financial institutions holding stablecoins as assets under management (AUM) is also on the rise.

As adoption and legislation continue to evolve, stablecoins – whether pegged to the greenback, fiat, gold or some other dependable commodity – will surely command a progressively bigger piece of the overall crypto market, straddling the worlds of TradFi and DeFi with aplomb.