Important Innovations in the Final Output of Crypto Assets: Stablecoin

Last year, three major events propelled stablecoins into the mainstream:

1. Tether made nearly $13 billion in profits with fewer than 200 employees;

2. Trump's inauguration and the shift in the U.S. attitude towards the regulation of digital assets;

3. Stripe acquired the stablecoin infrastructure company Bridge for $1.1 billion.

When an ecosystem thrives, some benefit from it, and at the same time, regulation becomes increasingly clear.

If you are issuing or using stablecoins to develop your business, this guide will help you understand how experienced operators view this field.

To provide a multi-faceted perspective, we have obtained unique insights from leading contributors on the front lines of stablecoin transformation.

Let's start learning!

Definition of stablecoin

Stablecoins are typically liabilities denominated in US dollars, backed by reserves of assets with equivalent or greater market value.

There are mainly two types:

• Legal Support: Fully backed by bank deposits, cash, or low-risk cash substitutes ( such as treasury bills ) collateral.

• Collateralized debt position ( CDP ): Primarily over-collateralized by crypto native assets ( such as ETH or BTC ).

The fundamental determinant of the utility of a stablecoin is its "peg" to the US dollar. This peg is maintained through two mechanisms: primary redemption and secondary market. First, can I immediately redeem the stablecoin liabilities for an equivalent amount of reserve backing? If not, is there a deep and persistent secondary market where stablecoin liabilities can be traded at the pegged exchange rate?

Due to the unpredictability of the secondary market, primary redemptions are a more sustainable pegging mechanism. In addition, there have been many attempts at low-collateral or algorithmic stablecoins, which lack support, and this guide will not elaborate further.

It is important to note that stablecoins do not come from thin air. When you hold a dollar deposit in a bank, the bank is responsible for keeping your dollars safe, ensuring that you can use them, and allowing you to transact with others.

Stablecoins rely on blockchain to provide the same core functionality.

Definition of Blockchain

Blockchain is a global "accounting system" that includes personal assets, transaction records, as well as transaction rules and terms.

For example, Circle's stablecoin USDC is issued based on the ERC-20 token standard, which specifies the rules for successful token transfers: a certain amount is deducted from the sender's account, and the same amount is added to the receiver's account. These rules, combined with the blockchain's consensus mechanism, ensure that no user can transfer more USDC than they hold, which is commonly referred to as the double-spending problem (. In short, the blockchain is like an append-only database or a double-entry ledger, having an initial state and recording every transaction that has occurred within its closed-loop network.

All assets on the blockchain, including USDC, are held by on-chain account )EOA, wallet (, or smart contracts. When specific conditions are met, smart contracts can receive and transfer assets. The ownership of the EOA, that is, the ability to trade assets from a public address, is enforced through the public-private key encryption scheme of the underlying blockchain, which binds each public address to a private key in a one-to-one relationship. If you own the private key, you essentially own the assets in the public address. "Not your keys, not your coin." Smart contracts hold and trade stablecoins based on pre-programmed transparent logic, allowing on-chain organizations like DAOs or AI agents to programmatically trade stablecoins without manual intervention.

The "trust" in the accuracy of the system comes from the execution and consensus mechanism of the underlying blockchain ), such as the Ethereum Virtual Machine ( EVM ) and Proof of Stake (. Accuracy can be proven through the initial state of the blockchain and the publicly auditable history of each subsequent transaction. Transaction settlements are managed around the clock by a globally distributed network of node operators, which allows stablecoin settlements to be unaffected by traditional bank operating hours. To compensate node operators for this service, transaction fees are charged during processing ) Gas (, which are typically priced in the native currency of the underlying blockchain (, such as ETH ).

These definitions provide our readers with a suitable common foundation. So, let’s start with the more interesting part: how did we get to this point?

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The History of Stablecoins

Twelve years ago, stablecoins were merely a concept. Today, Circle, the issuer of the world's second-largest stablecoin USDC, is preparing for a sale or IPO. Circle's S-1 document provides first-hand information from USDC founder Jeremy Allaire, detailing the founding journey of USDC.

We invited Phil Potter and Rune Christensen to share the stories of how they founded the world's largest stablecoin )USDT( and the third largest stablecoin )DAI(.

) Tether: The Birth of a King

Back in 2013, the Crypto Assets market was in the Wild West era, with major trading venues being exchanges like Mt. Gox and BitFinex. Given that Crypto Assets were in their early stages, the regulatory environment at that time was more ambiguous than it is now: exchanges were advised to only accept deposits and withdrawals of Crypto Assets like BTC deposits and BTC withdrawals (. This meant traders were forced to convert dollars into Crypto Assets on their own, hindering the widespread adoption of Crypto Assets. Moreover, traders needed a place to escape the extreme price volatility of Crypto Assets without having to leave the "casino."

Phil Potter entered the Crypto Assets field with a Wall Street background and a pragmatic outlook, keenly identifying market bottlenecks. His solution was simple: a "stablecoin"—a dollar-denominated Crypto Assets liability backed by a dollar reserve—allowing traders to navigate exchange and market volatility through dollar-denominated liabilities. In 2014, he brought this idea to BitFinex, one of the largest exchanges at the time. Ultimately, he partnered with BitFinex to create Tether, an independent entity with the necessary currency transmission licenses to integrate with a broader network of banks, auditors, and regulatory bodies. These providers are crucial for Tether to manage reserve assets and handle complex fiat transactions in the background, while enabling BitFinex to maintain its "pure Crypto Assets" positioning.

This product is simple, but its structure is very aggressive: Tether issues dollar-denominated liabilities )USDT(, and only certain trusted entities that have undergone KYC certification can directly mint or redeem USDT for its underlying reserve assets.

However, USDT operates on a permissionless blockchain, which means that any holder can freely transfer USDT and exchange it for other assets on the open secondary market.

For a whole two years, this concept seemed to have died in the womb.

By 2017, Phil noticed that the adoption rate of USDT in regions like Southeast Asia was on the rise. After investigation, he found that export companies began to view USDT as a faster and cheaper alternative to the regional dollar payment network. Eventually, these companies started using USDT as collateral for imports and exports. Around the same time, crypto asset natives began to notice the increasing liquidity of USDT and started using USDT as margin for arbitrage across exchanges. At this point, Phil realized that Tether had built a faster, simpler, and always-open parallel dollar network.

Once the flywheel starts spinning, it will never slow down. Because issuance and redemption are always conducted within a regulated framework, while tokens circulate freely on blockchains such as TRON and Ethereum, USDT has reached escape velocity. Every new user, merchant, or exchange that accepts USDT will only enhance its network effect, increasing the utility of USDT as a store of value and a means of payment.

Currently, the circulating value of USDT is nearly $150 billion, far surpassing the circulating volume of USDC at $61 billion, and many refer to Tether as the company with the highest per capita profits in the world.

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Phil Potter is an outstanding figure in the Crypto Assets field, and his philosophy is quite unique.

However, we cannot call him an "outsider" in the traditional financial world; he is the kind of person you would expect to create the world's largest stablecoin. Rune Christensen, on the other hand, is not.

( DAI: The first decentralized stablecoin

Rune discovered it when Crypto Assets were still in their infancy and quickly dubbed himself the "Bitcoin Boss". He is a typical Crypto Assets adopter, viewing BTC and blockchain as a ticket to escape the unfair and exclusive financial order. In 2013, the price of BTC opened at around $13 and broke through $700 by the end of the year, giving early adopters ample reason to believe that Crypto Assets could truly replace our financial system.

However, the subsequent economic recession forced Rune to accept a fact: the ultimate utility of Crypto Assets depends on the management of this volatility. "Stability is beneficial for business," Rune summarized, and a new idea began to take root.

In 2015, after witnessing the failure of BitShares' "first" stablecoin, Rune collaborated with Nikolai Mushegian to design and construct a USD-pegged stablecoin. However, unlike Phil, he both lacked the connections to execute a strategy similar to Tether and had no intention of building a solution reliant on the traditional financial system. The emergence of Ethereum, as a programmable alternative to Bitcoin, allowed anyone to encode logic onto the network through smart contracts, providing Rune with a platform for creation. Can he issue a stablecoin based on it using the native asset ETH? If the volatility of the underlying reserve asset ETH is as great as that of BTC, how will the system maintain solvency?

The solution by Rune and Nikolai is the MakerDAO protocol, which is based on Ethereum and was launched in December 2017. MakerDAO allows any user to deposit $100 worth of ETH and receive a fixed amount of DAI), for example, $50(, thus creating a collateralized stablecoin liability backed by ETH reserves. To ensure the system's solvency, smart contracts set a liquidation threshold); for instance, if the ETH price drops to $70(, once breached, third-party liquidators can sell their underlying ETH assets, thereby relieving the DAI debt. Over time, new modules have emerged to streamline the auction process, set interest rates to regulate DAI issuance, and further incentivize those third-party liquidators with profit motives.

This clever solution is now known in the Crypto Assets field as "Collateralized Debt Position ) CDP ###" stablecoin, and this original concept has sparked the interest of dozens of imitators. The key to the system's ability to operate without a centralized gatekeeper lies in the programmability of Ethereum and the transparency provided by public chains: all reserve assets, liabilities, liquidation parameters, and logic are known to every participant in the market. In Rune's words, this achieves "decentralized dispute resolution," ensuring that every participant understands the rules for maintaining the system's solvency.

With the circulation of DAI( and its sister project USDS) exceeding $7 billion, the creation of Rune has evolved into a systemically important pillar in decentralized finance( DeFi). However, in the rapidly changing competitive landscape, it has become increasingly difficult to manage the ideological appeal of breaking away from a collapsing system; the capital inefficiency of CDPs and the lack of an efficient direct redemption mechanism have stifled its scalability. Recognizing this reality, MakerDAO began a significant transformation towards traditional reserve assets( like USDC) in 2021, and in 2025 it will shift towards BlackRock's tokenized money market fund( BUIDL). During this transformation, MakerDAO( is now a Sky) through the tokenized Grand Prix( Tokenized Grand Prix), a $1bn tokenized money market fund( MMF) RFP managed by Steakhouse Financial, and a $220 million private credit fund issued in partnership with BlockTower Credit and Centrifuge that issues blockchain-native securities, establishing its position as the most critical liquidity provider for tokenized assets.

stablecoin: Today's Products

The fundamental promise of stablecoins is that: any holder should be able to redeem at any time.