Stablecoins: Innovation, Infrastructure and Global Regulatory Landscape

Stablecoins are evolving from crypto speculative tools into an entirely new category of digital financial infrastructure.

Written by: Jsquare Research Team

Stablecoins are evolving from crypto speculative tools into an entirely new category of digital financial infrastructure. As of August 2025, the total market capitalization of stablecoins has exceeded $271.4 billion. However, more important than the scale is the differentiation in their composition, yield mechanisms, and application scenarios.

We believe the market is undergoing a decisive transformation: shifting from mere USD tokens that pursue liquidity to composable, interest-bearing settlement assets that directly connect to real-world cash flows and enterprise systems. This article will delve into the evolution of stablecoin types and regulatory dynamics across different regions worldwide.

Stablecoin Market Scale

Stablecoins have broken out of the confines of the crypto sandbox. Supply growth is mainly driven by USDT, USDC, and emerging institutional tokens such as PayPal USD (PYUSD). Today, the annual on-chain settlement volume of stablecoins has surpassed the combined total of Visa and Mastercard — reaching $27.6 trillion in 2024 alone. Initially serving as convenient tokens pegged to the US dollar, they have now evolved into a mature, yield-bearing cross-chain cash layer. Regulators, payment networks, and financial executives are gradually treating stablecoins on par with bank money. Circle's successful IPO in June 2025, which raised $624 million with a valuation of $6.9 billion, underscores market confidence in regulated stablecoin issuers.

As of August 2025, the total supply of stablecoins in circulation stands at $269.5 billion. USDT dominates with $154.4 billion (57.3%), followed by USDC with $65.8 billion (24.4%). Other significant stablecoins include USDe ($10.5 billion), DAI ($4.1 billion), and USDS ($4.8 billion), while emerging or smaller stablecoins like FDUSD, PYUSD, and USDX each account for less than 1% of the market share. This concentration reflects both the dominance of traditional issuers and the pressure on emerging stablecoins to differentiate themselves through compliance and strategic integration with financial infrastructure.

Source: https://app.artemis.xyz/stablecoins

Stablecoins are Transforming into Yield Engines

As money market rates exceeded 4% in 2024, issuers began tokenizing US Treasury bonds and passing coupon yields to holders. Currently, the market capitalization of tokenized Treasury bonds exceeds $5.8 billion, maintaining a quarterly growth rate of over 20% despite significant interest rate volatility. A broader range of RWA (Real-World Asset) tokens — including short-term credit, accounts receivable, and even real estate shares — have pushed the total market capitalization of on-chain RWAs to $35 billion, with analysts predicting it will exceed $50 billion by the end of the year.

What made 2024 different was not just the growth in scale, but the direct linkage between on-chain yields and real-world assets (RWAs). A year ago, holding stablecoins was solely for capital preservation; today, annualized yields (APY) of 4-10% can be obtained through the following structures:

- sUSDe (Ethena): Generates yields through delta-neutral derivatives and basis trading, with a market capitalization of $3.49 billion.

- USDM (Mountain): Tokenized short-term Treasury bonds through a Bermuda-regulated wrapper, with a market capitalization of $47.8 million.

- USDY (Ondo): Tokenized short-term government bonds, with a market capitalization of $636 million.

- Plume Yield Tokens: Distributes money market fund (MMF) yields across chains, with a market capitalization of $235 million.

(Source: CoinGecko, June 17, 2025)

We believe this area deserves focused attention. Currently, over $5.8 billion in tokenized Treasury bonds are in circulation, and the scale of interest-bearing stablecoins is growing at a compound quarterly rate of over 25%. These assets blur the lines between stablecoins, money market funds, and tokenized fixed-income products.

By the second quarter of 2026, interest-bearing stablecoins will account for more than 15% of the total stablecoin supply (currently approximately 3.5%). They are no longer purely DeFi-native products but compliance-first, composability-supporting underlying assets deeply integrated into the RWA ecosystem.

Smart Money Flows: Three Trends Shaping the Next Generation of Stablecoin Leaders

1. Enterprise-Grade Integration

PYUSD is no mere marketing gimmick — this $952 million stablecoin is deeply integrated into Venmo wallets, supporting merchant reward features. JPMorgan's digital token (JPM Coin) settles over $1 billion in daily transactions within treasury systems. As stablecoins accelerate integration into ERP systems, payroll, and digital banking architectures, we expect a 10x growth in this sector.

2. Cross-Chain Interoperability

Blockchain fragmentation once constrained industry growth, but protocols like LayerZero, Axelar, and CCIP are solving this through cross-chain functionality. The next generation of mainstream stablecoins will feature the native cross-chain characteristic of "mint once, use globally".

3. Regulatory Certification as a Moat

Qualifications such as "MAS certification" and "MiCA approval" have become key differentiators in the stablecoin market, particularly creating practical distribution advantages in B2B and corporate capital flows. Tokens from compliant issuers will command a trust premium in secondary markets.

4. Improved Infrastructure Maturity

In the CeFi space, Stripe's $1.1 billion acquisition of Bridge Network signals traditional payment giants' determination to establish stablecoin channels. Within the DeFi ecosystem, liquidity hubs like Curve, stablecoin exchange pools, and collateralized lending platforms have significantly improved capital efficiency. As the ecosystem matures, stablecoins are deeply embedding into all levels of the financial system, becoming more reliable and fully functional infrastructure.

Regulatory Arbitrage Windows are Closing

Until 2023, stablecoin issuance existed in a regulatory gray area. This window is now rapidly closing, with the latest regulatory landscape as follows:

1. United States (GENIUS Act) — On July 18, 2025, the "Guaranteed Enterprises Notes and Regulated Issuance Act" (GENIUS Act) officially took effect, marking a new era in US dollar stablecoin regulation. Together with the 2025 "Clarity for Digital Asset Markets Act" (CLARITY Act), the legislation explicitly classifies compliant payment stablecoins as non-securities, aiming to provide regulatory certainty, enhance consumer protection, and maintain US competitiveness in the global digital asset market. Key provisions include:

- 100% Reserve Requirement: Stablecoins must be fully backed 1:1 by cash and short-term US Treasury securities. Reserve assets must not include high-risk assets (cryptocurrencies or credit assets are prohibited) and cannot be rehypothecated except for specific liquidity needs.

- Transparency and Certification Mechanisms: Issuers must publish monthly audited reserve reports; CEO/CFO must personally certify the accuracy of reports.

- Bankruptcy Protection Provisions: Stablecoin reserves are independently custodied; holders' redemption rights take priority over other creditors (similar to bank deposit protection mechanisms).

- Yield Ban: Prohibits algorithmic stablecoins (such as UST) and fractional reserve models; only recognizes fully collateralized "payment stablecoins"; prohibits paying interest to holders (to avoid being classified as securities).

The GENIUS Act, through strict reserve and transparency requirements, is expected to boost consumer confidence and drive wider adoption of stablecoins. A clear regulatory framework will also attract more institutional participation, solidifying US global leadership in digital asset regulation.

GENIUS Act policy link: https://www.whitehouse.gov/fact-sheets/2025/07/fact-sheet-president-donald-j-trump-signs-genius-act-into-law/

2. European Union (MiCA Regulation) — The EU's Markets in Crypto-Assets Regulation (MiCA) implements the following provisions:

- Licensing and Regulatory Requirements: Only licensed electronic money institutions or credit institutions may issue fiat-backed stablecoins (EMTs); the European Banking Authority (EBA) regulates "significant" stablecoins; euro/dollar stablecoin issuers must hold an electronic money license or banking qualification.

- Full Reserve Requirement: Reserves must be 1:1 pegged to circulation; over 60% of reserves must be held in EU banks (for major stablecoins); only low-risk assets (government bonds/bank deposits) are permitted.

- Usage Limits: For non-euro stablecoins with daily transactions exceeding 1 million or €200 million; issuers will be forced to stop scaling usage.

- Algorithmic Stablecoin Ban: Fully prohibits algorithmic stablecoins without substantial reserves; only recognizes redeemable, prudently supported tokens.

As of July 2025, the European Banking Authority has received over 50 license applications from stablecoin issuers, including major institutions like Circle (issuer of USDC) that are adjusting their operations to comply with MiCA standards.

MiCA regulation link: https://www.esma.europa.eu/esmas-activities/digital-finance-and-innovation/markets-crypto-assets-regulation-mica

3. UK Regulatory Framework — The UK treats stablecoins as regulated payment instruments, with core provisions including:

- Reserve Requirements: Only fully fiat-collateralized stablecoins are permitted; reserve assets must be highly liquid such as bank deposits/short-term Treasury bonds.

- Yield Ban: Prohibits paying interest to holders; reserve asset yields accrue to issuers (for operational costs).

- Licensing System: Issuers must obtain FCA authorization (new electronic money/payment institution licenses); must meet financial institution-level prudential standards: capital adequacy requirements; liquidity management mechanisms; T+1 redemption commitments.

- Innovation Orientation: Encourages banks and licensed institutions to issue payment stablecoins; focuses on developing cross-border remittances/micropayments and other application scenarios.

FCA regulatory guidance link: https://www.fca.org.uk/publications/consultation-papers/cp25-14-stablecoin-issuance-cryptoasset-custody

4. Singapore (MAS Regulatory Framework) — The Monetary Authority of Singapore (MAS) has introduced a tiered regulatory approach:

- Flexible Licensing System: Stablecoin issuers with a circulation below SGD 5 million may choose to operate with an ordinary Digital Payment Token License; exceeding this threshold requires applying for a Major Payment Institution License and complying with specific stablecoin rules.

- Quality Asset 1:1 Pegging: Reserve assets are limited to cash, cash equivalents, or AAA-rated short-term sovereign bonds; accepts Treasury bonds maturing within 3 months from the anchor currency's issuing country as reserves.

- Redemption Guarantee Mechanism: Users have the right to 1:1 redemption (completed within 5 business days); prohibits unreasonable redemption fees.

The additional stablecoin issuance service license introduced in March 2025 allows enterprises to focus on stablecoin business, exempting them from compliance burdens related to digital payment tokens. MAS clarified in Q2 2025 that stablecoin issuers must be banks or non-bank financial institutions registered in Singapore.

MAS policy details: https://www.mas.gov.sg/news/media-releases/2025/mas-clarifies-regulatory-regime-for-digital-token-service-providers

5. Hong Kong (Proposed Regulatory System) — Hong Kong's Stablecoin Ordinance will take effect on August 1, 2025, with core content including:

- Full Reserve Requirement: Market value of reserve assets must be ≥ face value of circulating stablecoins; limited to Hong Kong dollar cash, bank deposits, and Hong Kong/U.S. government notes/bonds.

- HKMA Mandatory Licensing: All stablecoins issued/promoted in Hong Kong (including foreign currency-backed ones) require a license; Ant Group has announced plans to apply for a license.

- Financial Institution-Level Standards: Reserve assets must be independently custodied by licensed custodians; regular submission of operational audit reports; establishment of strict AML/CFT risk control systems.

Standard Chartered Bank, Animoca Brands, and Hong Kong Telecommunications (HKT) have established a joint venture planning to issue a Hong Kong dollar stablecoin for cross-border payments. The ordinance aims to connect with digital RMB pilots and strengthen Hong Kong's position as an international financial center.

HKMA regulatory guidance: https://www.hkma.gov.hk/eng/news-and-media/press-releases/2025/07/20250729-4/

6. United Arab Emirates (UAE) Regulatory Framework — The Central Bank of the UAE (CBUAE)'s Payment Token Services Regulation, effective June 2025, establishes a stablecoin regulatory system, classifying stablecoins as "payment tokens." Represented by the dirham-backed compliant stablecoin AE Coin, the framework emphasizes reserve protection and transparency. Core provisions:

- Local Stablecoin Issuance: Only licensed institutions registered in the UAE may issue dirham-backed stablecoins; must maintain full reserves and undergo regular audits.

- Foreign Stablecoin Restrictions: Permitted only for virtual asset transactions; prohibited for local payments to maintain dirham sovereignty.

- Anti-Money Laundering Compliance: Issuers and custodians must implement strict KYC; establish transaction monitoring systems to meet AML/CFT requirements.

- Digital Dirham (CBDC) Plan: Central bank digital currency may reshape the payment ecosystem; national-led digital payment systems are prioritized.

The framework enhances confidence in local stablecoins like AE Coin through strict reserve requirements, but restricting foreign stablecoins may inhibit overall crypto market development.

CBUAE regulation full text: https://rulebook.centralbank.ae/en/rulebook/payment-token-services-regulation

7. Japan Stablecoin Policy — Japan's 2025 amendment to the Payment Services Act (PSA) established a globally leading stablecoin regulatory system, officially recognizing stablecoins as payment instruments since May 2025. Innovative points:

- Flexible Reserve Requirements: Reserve asset ratio for trust-based stablecoins relaxed to 50%; permitted to hold low-risk assets such as short-term Japanese and U.S. Treasury bonds.

- New Intermediary License: Established "electronic payment instrument/crypto asset service intermediary" category; exempts asset custody intermediaries from capital requirements.

- Bankruptcy Protection Mechanism: Drawing lessons from the 2022 FTX Japan incident; requires exchanges to keep assets within Japan.

- Enhanced Transparency: Mandatory registration of issuers with the Financial Services Agency; on-chain transaction data must meet AML/CFT reviews.

The policy is expected to promote the popularization of trust-based stablecoins, the new intermediary model can reduce transaction costs, and domestic asset retention requirements significantly enhance user fund security.

Japan stablecoin policy details: https://law.asia/japan-crypto-stablecoin-regulations-2025/

8. South Korea Stablecoin Policy

In 2025, South Korea is actively advancing stablecoin policies, focusing on legalizing won-backed stablecoins and incorporating them into regulatory frameworks to enhance economic autonomy and compete in the global digital financial market. Under President Lee Jae-myung, the ruling Democratic Party is promoting the Digital Asset Basic Act and related legislation to establish a legal framework for private enterprises to issue stablecoins, aiming to reduce reliance on U.S. dollar stablecoins like USDT and USDC. Core policy points:

- Legalization of Won Stablecoins: Legislation lifts the ban on won stablecoins; allows private enterprises to issue under strict regulation; aims to promote domestic digital transactions and reduce capital outflows.

- Capital Requirements: Issuers must maintain minimum capital of 500-1000 million won (approximately $360,000-$720,000); prevents underfunded operators from disrupting the market.

- Reserve and Transparency: 100% reserve requirement (1:1 peg); regular public disclosure of reserve audit reports; aligned with U.S. GENIUS Act and EU MiCA standards.

- Regulatory System: Dual regulation by the Financial Services Commission (FSC) and Bank of Korea (BOK); enhanced coordination mechanism for foreign exchange risk management.

- Digital Asset Ecosystem Support: Supporting legislation includes provisions for security token offerings (STO) and crypto ETFs; aims to position Korea as an Asian digital financial hub.

The policy is expected to complete legislation by the end of 2025, potentially making South Korea the first country in Asia with a comprehensive stablecoin regulatory system.

South Korea stablecoin policy details: https://coinedition.com/south-korea-new-stablecoin-regulation/

GENIUS Act — U.S. Stablecoin Standards

The GENIUS Act holds special significance as it may become a global regulatory standard. Key impacts:

1. Institutional Credibility

- Endows stablecoins with settlement asset status through Federal Reserve (Fed) regulation

- Grants them credit ratings similar to bank deposits or Treasury bills (T-bills)

2. Enterprise-Grade Programmable Currency

- Promotes enterprise financial scenario applications:

 - Treasury fund management

 - Real-time foreign exchange conversion (FX conversion)

 - ERP system integration for payments

3. Suppression of High-Risk Stablecoins

- Distinguishes regulated tokens (e.g., PayPal USD, Circle USDC)

- May force offshore/algorithmic stablecoins (e.g., USDT, crvUSD) to exit U.S. exchanges

4. Uncertainty in Yield Distribution

- Does not clearly permit issuers to distribute Treasury bill yields from reserves to holders

- This will be a key factor affecting institutional adoption

Stablecoins: Digital Eurodollars

Stablecoins are quietly replicating the 1970s Eurodollar revolution — they are becoming offshore, interest-bearing, U.S. dollar-denominated settlement systems beyond the control of sovereign monetary authorities. But unlike Eurodollars, stablecoins offer programmability, composability, and global interoperability.

This combination of technological innovation and regulatory clarity positions stablecoins as a "light sovereign," dollar-like programmable cash infrastructure. With appropriate regulatory design, stablecoins could become the most scalable form of financial globalization since SWIFT.

Evolution of Application Scenarios  

Stablecoins were initially optimized for crypto-native functions: market-neutral trading, collateral pledging, and cross-exchange arbitrage. This phase is coming to an end. The new era will focus on real-world applications:  

- Savings and payments in emerging markets: In high-inflation economies, USD stablecoins are becoming digital alternatives to bank deposits. Obtaining USD through stablecoins is generally more reliable than relying on local banking systems.  

- Cross-border remittances: Migrant workers in the Philippines, Nigeria, and Mexico have begun using stablecoins to bypass traditional remittance channels with high fees and slow settlement.  

- Tokenized cash equivalents: In developed markets, regulated stablecoins such as USDC and sUSDe will resemble tokenized money market funds, offering annualized returns of 4-8% while maintaining intraday liquidity and programmable interfaces for fintech platforms.  

What Stablecoins Will Look Like in the Future  

Future stablecoins will not only be crypto assets but also programmable, interest-bearing, API-interoperable cash equivalents that can operate across blockchains and jurisdictions. They will function similarly to tokenized money market funds, with designs emphasizing minimized trust and instant transfers. As regulatory frameworks improve and corporate adoption accelerates, we believe stablecoins will evolve from being digital wrappers of the USD to globally interoperable cash infrastructure, potentially challenging SWIFT’s position as the global settlement layer for internet-native currencies.  

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