Overview of Mainstream Stablecoins: The Essential Investment Guide for 2025

In 2025, the enthusiasm for the crypto market remains strong. Bitcoin breaks through the $100,000 mark, and the importance of stablecoins becomes increasingly evident. According to the latest data, there are nearly 200 stablecoins in circulation with a total market capitalization exceeding $212 billion. In this thriving ecosystem, choosing the right stablecoin is crucial for investors.

Why Have Stablecoins Become an Essential Need in the Crypto Market?

The core value of stablecoins lies in their name—stability. Compared to the price volatility of Bitcoin and Ethereum, stablecoins can maintain a relatively fixed value, usually pegged to fiat currencies (like USD) or other assets. This characteristic makes them an important bridge connecting traditional finance and the crypto world.

From practical applications, stablecoins play an irreplaceable role in the following scenarios:

• Transaction Settlement: Investors can quickly switch from volatile assets to stablecoins to avoid frequent fiat conversions
• Cross-Border Transfers: Low cost and fast speed, especially suitable for remittance scenarios
• DeFi Ecosystem: As primary assets for lending, liquidity mining, and other activities
• Asset Protection: Acting as a “safe haven” during market turbulence
• Financial Inclusion: Providing digital financial tools for underserved populations

Blockchain data shows that trading activity of stablecoins continues to rise, making them a vital source of liquidity in the crypto market.

How Do Stablecoins Work? Four Main Models Explained

Stablecoins may seem simple but are backed by various technical implementations. Based on collateralization methods, they can be divided into the following four categories:

Fiat-Collateralized Stablecoins

This is the most straightforward and common model. Issuers hold reserves of fiat currency (like USD, EUR) in a 1:1 ratio. When users purchase stablecoins, the issuer locks the corresponding fiat in a bank account. Users can redeem 1:1 for fiat at any time.

Risks for this type mainly come from two aspects: first, trust in the issuer—if the issuer misappropriates reserves or goes bankrupt, the stablecoin loses backing; second, regulatory risks—different countries have varying attitudes towards stablecoins, and strict regulations may limit their use.

Representative Projects:

• Tether (USDT): The first stablecoin, launched in 2014, once exceeded a market cap of $14 billion, and remains one of the largest stablecoins
• USD Coin (USDC): Issued jointly by Circle and Coinbase, with a market cap of about $7.652 billion, favored by institutions for its high transparency and compliance
• Ripple USD (RLUSD): A new entrant launched by Ripple at the end of 2024, operating on both XRP Ledger and Ethereum

Commodity-Collateralized Stablecoins

These stablecoins are not backed by fiat but by gold, silver, or commodities as reserves. Each token represents a certain amount of physical assets. The advantage is the potential for appreciation of the underlying commodities, but liquidity and exchange convenience are less than fiat-backed stablecoins.

Representative Projects:

• Paxos Gold (PAXG): 1 token = 1 ounce of London gold, stored with approved custodians
• Tether Gold (XAUT): Gold-backed stablecoin, similar concept to PAXG

Crypto-Asset-Collateralized Stablecoins

These stablecoins maintain value through over-collateralized crypto assets. For example, to generate $100 worth of stablecoins, one might need to collateralize $150 worth of Ethereum or other cryptocurrencies. This design aims to address the volatility of crypto markets.

This model is fully decentralized but introduces technical complexity and capital efficiency issues. Over-collateralization means lower capital utilization for users and also entails risks from smart contract vulnerabilities and collateral price fluctuations.

Representative Projects:

• Dai (DAI): MakerDAO’s flagship product, operating with over-collateralized ETH and other assets, with a circulation of about $4.285 billion
• Synthetix USD (sUSD): Synthetic stablecoin generated by the Synthetix protocol

Algorithmic Stablecoins

This category is the most innovative and risky. They do not rely on physical collateral but use algorithms to automatically adjust supply to maintain price stability. When market demand is high, supply increases; when demand drops, supply decreases.

While this mechanism sounds ideal, it has significant flaws. The collapse of TerraUSD (UST) in 2022 is a typical example—when market confidence wavered, the algorithm failed to support the price effectively, leading to a chain reaction and massive losses.

Representative Projects:

• Ampleforth (AMPL): Adjusts supply daily based on price deviations from the target
• Frax (FRAX): Hybrid model, gradually evolving from algorithmic to fully collateralized

Mainstream Stablecoins in the Market

Tether (USDT): Consolidating the Dominance of the Veteran

USDT was launched in 2014 and is a pioneer in stablecoins. Over the past decade, it has maintained the top position due to its liquidity and broad exchange support.

Latest data shows USDT’s market cap exceeds $14 billion, with over 109 million wallets. This reflects its extensive penetration from retail to institutional users. Tether’s profits in the first three quarters of 2024 reached $7.7 billion, demonstrating strong profitability. USDT is deployed across multiple major blockchains, from Ethereum to BSC, Tron, and more, ensuring ubiquitous availability.

USD Coin (USDC): The Compliance Challenger

USDC, issued jointly by Circle and Coinbase, has a circulation of about $7.652 billion, making it the second-largest stablecoin. Compared to USDT, USDC emphasizes regulatory compliance and transparent operations, with monthly public audits of reserves. This attracts many institutional investors.

USDC’s advantage lies in backing from top exchange Coinbase and expanding ecosystem applications, especially in DeFi.

Ripple USD (RLUSD): The Ambitious Upstart

Ripple launched RLUSD in mid-December 2024, reaching a market cap of over $53 million within a week. This stablecoin operates on both XRP Ledger and Ethereum, optimized for cross-border payments.

RLUSD emphasizes speed and low cost, with monthly reserve audits enhancing trust. Initial support includes platforms like Uphold and other global exchanges, with expansion plans underway.

Ethena USDe：Innovative Yield Model

USDe, launched by Ethena Labs in February 2024, employs a unique “Delta-neutral” strategy. Simply put, it involves shorting ETH on exchanges while staking ETH on-chain, aiming to achieve stability and generate yield. This design allows USDe holders to earn a relatively good annualized return.

Within 10 months, USDe grew from zero to a market cap of $6.32 billion, with rapid growth. By the end of 2024, Ethena introduced USDtb, combining BlackRock and Baillie Gifford’s cash fund products to further diversify yield. These initiatives attracted widespread market attention, and the ENA governance token also gained capital interest.

DAI (DAI): The DeFi Native

DAI is MakerDAO’s flagship product, utilizing over-collateralization, with a 12-year operational history (launched in 2017). Its current circulation is about $4.25 billion, ranking among the top four stablecoins.

DAI’s core advantage is full decentralization—no single issuer, governed by DAO, with users able to generate and burn tokens freely. This makes it a preferred asset in DeFi applications. It plays a key role in lending, liquidity mining, and other activities. For those without access to traditional finance, DAI offers a stable digital asset alternative.

First Digital USD (FDUSD): A New Choice in Asia

FDUSD, issued by Hong Kong’s First Digital Limited in June 2023, reached a market cap of $1 billion within six months and is now about $1.45 billion. Initially operating on Ethereum and BSC, it has expanded to chains like Sui.

FDUSD’s rapid growth benefits from transparent reserve management and strategic partnerships with major exchanges. After some exchanges ceased issuing their own stablecoins, FDUSD became a key alternative.

PayPal USD (PYUSD): Traditional Giants’ Experiment

PayPal launched PYUSD in August 2023, leveraging its millions of users. Unexpectedly, adoption has been slower than expected. Latest data shows a market cap of about $3.71 billion, ranking eighth.

Despite slow growth, PayPal continues expanding PYUSD’s use cases. In May 2024, it launched on Solana to improve transaction speed, and in September, enabled US merchants to transact with crypto, further integrating digital currency functions.

Usual USD (USD0): The RWA Wave

USD0, launched by Usual Protocol in early 2024, focuses on “Real-World Asset” (RWA) collateralization. Its reserves mainly consist of US short-term Treasuries, supporting a 1:1 peg. This model combines the security of traditional finance with the flexibility of DeFi.

Latest data shows USD0’s market cap exceeds $1.2 billion, with a 24-hour trading volume of about $204 million. Its transparency in RWA and DeFi friendliness attract significant institutional attention. The governance token USUAL empowers community decision-making.

Frax (FRAX): A Model of Evolution

FRAX, launched by Frax Finance in December 2020, is known for its “Fractional Algorithmic Collateralized” model, combining algorithmic mechanisms with partial collateralization. In 2023, it was upgraded to fully collateralized (v3) through community voting to enhance stability.

Its current market cap is about $644 million, maintaining a solid position in the DeFi ecosystem. Its continuous technological evolution reflects the project team’s responsiveness to market feedback.

Ondo US Dollar Yield (USDY): A Representative of Stable Yield

USDY, launched by Ondo Finance in early 2024, is backed by short-term US Treasuries and bank deposits. Unlike typical stablecoins, USDY’s value grows over time, providing holders with passive income.

With a market cap of about $448 million, USDY mainly targets overseas individual and institutional investors. It is deployed on Ethereum and Aptos, offering multi-chain options.

Risks to Watch Out for When Investing in Stablecoins

Before choosing stablecoins, these risks should be carefully considered:

Regulatory Risks: Governments worldwide are increasingly cautious about stablecoins. In 2023, Singapore’s MAS completed its first stablecoin regulatory framework, requiring issuers to maintain sufficient reserves. Stricter regulations may be introduced globally, directly impacting stablecoin operations.

Technical Risks: Stablecoins depend on complex smart contracts and blockchain infrastructure. Code bugs, security vulnerabilities, or hacking attacks could lead to fund losses. This risk is especially critical for on-chain collateralized stablecoins.

Market Risks: Despite the name “stable,” they can lose their peg under extreme market conditions. Historical instances show stablecoins deviating from their targets. Rapid growth and market concentration could also pose systemic risks.

Trust Risks: Transparency and credibility of issuers are vital. Any misappropriation of reserves or mismanagement could cause the entire project to collapse.

Conclusion and Investment Advice

Stablecoins have evolved from fringe innovations to fundamental infrastructure of the crypto ecosystem. From fiat-backed to RWA innovations, from centralized to decentralized forms, stablecoins are continuously evolving to meet diverse investor needs.

When selecting stablecoins, consider liquidity, risk levels, yield mechanisms, and use cases comprehensively. Tether and USDC offer the highest liquidity and market acceptance, DAI represents the decentralized future, and emerging stablecoins provide yield or innovative features.

Understanding each stablecoin’s working principles, risk characteristics, and applications will help make more informed investment decisions. In this world of opportunities and risks, knowledge is the best shield.