Stablecoins have become one of the most important tools in cryptocurrency and digital finance. They are designed to combine the advantages of blockchain technology with the price stability of traditional currencies.
Stablecoins' market cap, July 2025 | Source: DefiLlama
In 2025, the stablecoin market has grown to over $255 billion as of July, making it a key part of trading, payments, and decentralized finance (DeFi). This guide explains what stablecoins are, how they work, why they are in focus this year, their types, uses, risks, and future outlook.
What Is a Stablecoin?
A stablecoin is a type of cryptocurrency that is pegged to the value of an external asset such as the US dollar, euro, gold, or other financial instruments. The goal is to provide price stability in contrast to the high volatility seen with cryptocurrencies like Bitcoin and Ethereum.
For example, 1 Tether (USDT) is designed to always be worth approximately $1. This stability makes stablecoins useful as a medium of exchange, a store of value, and a bridge between crypto assets and traditional money.
Stablecoins first emerged in 2014 and have since become an essential part of the crypto ecosystem, accounting for over 60% of total cryptocurrency transaction volume globally by 2025.
How Do Stablecoins Work?
An overview of how a centralized stablecoin works | Source: Global X ETFs
Stablecoins are designed to keep their price steady, even in a volatile crypto market. To do this, they use two main methods: collateralization and algorithmic supply control. Both approaches have advantages and risks, and understanding them is key before you use stablecoins.
1. Collateralization: Backed by Real Assets
Most stablecoins are collateralized, meaning they are backed by reserves held by the issuer. For every stablecoin in circulation, there is an equivalent amount of value stored in a secure reserve. This could be in the form of fiat currency (like US dollars), cryptocurrencies (like Ethereum), or commodities (like gold).
When you hold a fiat-collateralized stablecoin such as USD Coin (USDC), you’re essentially holding a digital token that represents one US dollar. The company behind USDC, Circle, holds actual US dollars and short-term government bonds in reserve to maintain this 1:1 ratio. Circle also publishes regular, independent audits so users can verify the reserves and trust that every USDC is fully backed.
This setup allows you to redeem your stablecoins for the underlying asset at any time, as long as the issuer’s reserves are sufficient and accessible.
Read more: Circle IPO (2025) Everything You Need to Know About CRCL, Valuation, What It Means for Crypto Market
2. Algorithmic Stablecoins: Controlled by Code
Some stablecoins take a very different approach. Instead of holding reserves, they use algorithms and smart contracts to keep their price stable. These systems automatically adjust the supply of the stablecoin based on demand.
For example, when the price rises above the target (like $1), the algorithm releases more tokens into circulation to lower the price. If the price drops below the peg, the system reduces supply to push the price back up.
This method can work in theory, but it has proven risky in practice. A major example is TerraUSD (UST), which lost its peg in 2022. A sudden wave of sell-offs overwhelmed the algorithm, leading to a complete collapse of the stablecoin’s value and billions in losses for users.
What Are Proof of Reserves and Transparency for Stablecoins?
Paxos uses Chainlink Proof of Reserve to verify collateralization of its stablecoins | Source: Chainlink
For stablecoins to be trustworthy, transparency is critical. Many issuers now provide “proof of reserves” through third-party audits or blockchain-based reporting. This allows users to independently verify that the issuer actually holds the assets backing the stablecoins in circulation.
For example, Tether (USDT), the largest stablecoin by market cap with a market cap of nearly $160 billion, publishes quarterly reports detailing its reserve composition, though it has faced criticism in the past over transparency. Circle’s USDC and Paxos’ Pax Dollar (USDP) have taken stronger steps by offering frequent audits and detailed disclosures about their reserves.
Why Are Stablecoins in Focus in 2025?
Stablecoins are surging into the spotlight this year, driven by a mix of market momentum, corporate moves, and high-level policy shifts. A powerful crypto bull run has brought renewed attention to digital assets. Bitcoin has already climbed approximately 15% year-to-date, nearing its all-time high of $112,000. Adding to the momentum, former President Trump has adopted a pro-crypto stance, issuing executive orders that establish a Strategic Bitcoin Reserve and a Crypto and AI advisory council. His administration has also signaled openness to stablecoin growth and is moving forward with the GENIUS Act, legislation that aims to formalize and support stablecoins as part of the U.S. financial system. Inspired by President Donald Trump's pro-crypto stance, ventures such as World Liberty Financial’s USD1 stablecoin, further underscore the renewed confidence and interest within political and corporate spheres.
Stablecoin inflows by country | Source: Chainalysis blog
Meanwhile, institutional adoption is also accelerating in 2025. PayPal’s stablecoin, PayPal USD (PYUSD), launched in 2023 and continues to expand its user base. Meanwhile, Circle achieved a major milestone in 2025 by listing on the NYSE and applying for a U.S. national trust bank charter, raising its valuation to nearly $18 billion, underscoring growing investor confidence in compliant, regulated stablecoin platforms. Another key development is Ripple’s introduction of RLUSD in late 2024, a fully-backed stablecoin integrated into its cross-border payment system. RLUSD stablecoin has rapidly gained traction, with its circulating supply reaching over $455 million and growing nearly 50% in June alone.
Regulation remains central to stablecoins’ increased relevance. The GENIUS Act, passed by the Senate in June 2025, mandates full reserve backing, monthly audits, and federal-state oversight, a first for U.S. stablecoin law. Europe’s MiCA regulation, effective since mid-2024, prohibits algorithmic stablecoins and requires rigorous custody and redemption standards. Throughout Asia, digitization efforts, such as Singapore’s licensing regime, Japan’s fintech-driven framework, and China's experiments with offshore yuan stablecoins, reflect a global push to standardize stablecoin governance.
Read more: Top Euro‑Pegged Stablecoins to Know in 2025
Key Use Cases: What Are Stablecoins Used for?
Most popular use cases of stablecoins | Source: Chainalysis blog
Stablecoins have become essential in both crypto markets and real-world financial applications. Their price stability makes them highly versatile, supporting trading, payments, DeFi, and wealth preservation. In 2025, their growing adoption reflects a shift from niche crypto tools to everyday financial instruments.
1. Trading and Liquidity
Stablecoins are a critical tool for crypto traders and investors. They act as a safe haven during periods of high volatility, allowing you to quickly move funds without converting back to fiat. For example, when Bitcoin’s price swings by 5% in a single day, traders often park their gains in USD Coin (USDC) or Tether (USDT) to avoid exposure to further price drops. Stablecoins also provide deep liquidity on exchanges, facilitating faster trades and tighter spreads.
BingX offers a wide variety of stablecoins, including USDT, USDC, PYUSD, and more, giving users flexible options to manage risk and maintain liquidity. Explore and buy stablecoins on BingX to take advantage of market opportunities and protect your portfolio during volatile conditions.
2. Cross-Border Payments
Sending money across borders traditionally involves high fees and slow settlement times. Stablecoins solve this by enabling near-instant, low-cost transfers. For instance, Ripple’s RLUSD stablecoin is now integrated into global remittance corridors, reducing transaction costs by up to 70% compared to SWIFT-based systems. In emerging markets like Latin America and Sub-Saharan Africa, stablecoins have become a lifeline for cross-border payments and remittances, often trading at a premium due to high local demand.
3. Decentralized Finance (DeFi) and Earning Yields
Stablecoins power the DeFi ecosystem by providing a stable unit of account for lending, borrowing, and liquidity provision. You can deposit stablecoins like DAI or USDC into DeFi platforms such as Aave or Compound to earn yields ranging from 3% to 8% annually, depending on market conditions. Yield-bearing stablecoins such as Ondo USDY and Hashnote USYC, introduced in 2024, have further expanded opportunities by paying interest directly to holders from assets like U.S. Treasuries.
4. Hedge Against Inflation and Wealth Preservation
In countries with high inflation or currency devaluation, stablecoins serve as a digital dollar alternative. In places like Argentina and Turkey, where inflation exceeded 50% in 2024, residents increasingly turned to USDT and PYUSD to preserve purchasing power. With stablecoins, users can hold value in a strong foreign currency without needing access to a traditional bank account.
5. Everyday Payments and Commerce
Stablecoins are also finding use in daily transactions and online commerce. PayPal’s PYUSD is now integrated into its payment network, allowing users to pay merchants, send peer-to-peer transfers, and even withdraw funds to bank accounts, all while avoiding fiat currency conversion fees and delays in traditional finance.
What Are the Different Types of Stablecoins?
Stablecoins use different mechanisms to maintain their peg to a stable asset like a fiat currency, commodity, or other reference value. Here’s a breakdown of the main types you’ll encounter in 2025.
1. Fiat-Collateralized Stablecoins
Fiat-collateralized stablecoins are the most common type and are backed 1:1 by reserves of traditional currencies like the US dollar or euro held in bank accounts. This means every stablecoin you hold is supported by real-world cash or cash equivalents, such as short-term government bonds. Examples include Tether (USDT), USD Coin (USDC), Ripple USD (RLUSD), and PayPal USD (PYUSD). These stablecoins are easy to use and highly liquid, but they rely on centralized issuers and third-party audits to prove their reserves.
2. Crypto-Collateralized Stablecoins
These stablecoins are backed by cryptocurrencies instead of fiat money. To reduce risks from crypto volatility, they are often overcollateralized, holding more value in reserves than the stablecoins issued. For example, MakerDAO’s DAI is pegged to the US dollar but backed by Ethereum and other crypto assets locked in smart contracts. This system is more decentralized and transparent, but its complexity and reliance on crypto prices can make it harder for beginners to understand.
3. Commodity-Collateralized Stablecoins
This type of stablecoin is backed by physical assets like gold, silver, or oil. Each token represents a claim on a fixed amount of the underlying commodity, and some even allow redemption for the physical asset. Pax Gold (PAXG) and Tether Gold (XAUT) are popular examples. Commodity-backed stablecoins give you exposure to real-world assets without needing to store them yourself, but they depend on centralized custody and regular audits for trustworthiness.
4. Algorithmic Stablecoins
Algorithmic stablecoins maintain their peg without holding reserves. Instead, they use algorithms and smart contracts to automatically increase or decrease supply based on demand. Projects like Frax (FRAX) and Ampleforth (AMPL) follow this model. While innovative and highly scalable, algorithmic stablecoins have a mixed track record, with notable failures like TerraUSD (UST) highlighting their vulnerability during market stress.
5. Yield-Bearing Stablecoins
Yield-bearing stablecoins are a newer category that combines price stability with passive income. They are typically backed by assets such as U.S. Treasury bonds, and holders earn interest directly from these reserves. Ondo USDY and Hashnote USYC are two leading examples. These stablecoins appeal to investors seeking returns, but their yields depend on interest rates and are subject to tighter regulatory oversight.
6. Hybrid Stablecoins
Hybrid stablecoins blend features from other categories to improve stability and resilience. For example, they may combine fiat backing with algorithmic adjustments or include diversified collateral like fiat, crypto, and commodities. Frax’s newer models and upcoming projects like Reserve’s RToken ecosystem are examples of this hybrid approach. While promising, hybrid systems are still evolving and may involve higher technical complexity for users.
Stablecoins vs. CBDCs vs. Cryptocurrencies
Stablecoins, CBDCs, and cryptocurrencies like Bitcoin are all digital assets, but they serve different purposes and work in very different ways. Stablecoins are issued by private companies and are designed to maintain a stable value by pegging to real-world assets such as the US dollar or gold. This makes them useful for trading, payments, and as a safe store of value during crypto market volatility. For example, USD Coin (USDC) and Tether (USDT) are both pegged 1:1 to the US dollar and backed by reserves like cash or Treasury bills.
Central Bank Digital Currencies (CBDCs), on the other hand, are issued directly by governments and function as digital versions of a country’s fiat currency. They are legal tender, meaning they are backed by the full faith and credit of the issuing government. Unlike stablecoins, CBDCs are centralized and controlled by central banks. China’s digital yuan and the European Central Bank’s digital euro are examples of CBDCs aiming to modernize payment systems and improve financial inclusion.
In contrast, cryptocurrencies like Bitcoin and Ethereum are fully decentralized. They are not backed by any asset or authority and their prices are determined entirely by supply and demand in the market. Bitcoin, for instance, is often seen as “digital gold” due to its scarcity and resistance to censorship, but its price volatility makes it less practical for everyday payments. This is where stablecoins bridge the gap, offering the speed and flexibility of crypto with the stability of traditional currencies, while CBDCs seek to bring these benefits under government control.
How to Buy Stablecoins on BingX: A Step-by-Step Guide
Buying stablecoins on BingX is quick and beginner-friendly. Follow these steps to get started:
Step 1: Create and Verify Your BingX Account
Go to BingX.com or download the BingX app. Click “Sign Up” and register with your email or phone number. Complete the identity verification (KYC) process to unlock full trading features and higher withdrawal limits.
Step 2: Deposit Funds into Your BingX Wallet
After logging in, go to your “Wallet” and click “Deposit.” You can deposit crypto (like Bitcoin or Ethereum) from another wallet or buy crypto using your local currency through the BingX fiat gateway. Supported payment methods include credit/debit cards, bank transfers, and third-party services like Simplex or Banxa.
Step 3: Search for Your Preferred Stablecoin
Navigate to the “Spot” section on the platform. In the search bar, type the ticker symbol of the stablecoin you want to buy, such as USDT, USDC, PYUSD, or USDE. BingX supports a wide variety of stablecoins, so you can choose one that fits your needs.
Step 4: Place Your Order
Select the trading pair (e.g., USDC/USDT) and choose your order type. For beginners, a market order is the easiest option, allowing you to buy instantly at the current market price. Enter the amount you want to purchase and confirm your order.
Step 5: Store or Use Your Stablecoins
Once purchased, your stablecoins will appear in your BingX wallet. You can keep them there for trading or use them for DeFi activities and cross-border payments.
Key Considerations Before Investing in Stablecoins
Before you buy stablecoins, it’s important to understand the risks involved. Most stablecoins rely on collateral reserves like cash or Treasury bills, but if these reserves are poorly managed or not fully transparent, the stablecoin could lose its peg to the underlying asset. Regulatory risks are also a factor. Governments worldwide are introducing new laws for stablecoin issuers, which could affect how certain stablecoins operate in your region.
Another point to consider is centralization. Fiat- and commodity-backed stablecoins depend on private companies, which have the power to freeze accounts or block transactions if required by regulators. Algorithmic stablecoins carry even higher risks, as past failures like TerraUSD (UST) have shown how quickly they can collapse during market stress. To minimize exposure, focus on well-established stablecoins with clear audits and strong regulatory compliance.
What to Expect from Stablecoins in 2025 and Beyond
The stablecoin market is projected to grow significantly in the coming years, with some estimates suggesting it could surpass $500 billion by 2028. This growth will likely be fueled by increased institutional adoption, tighter regulatory frameworks, and new innovations such as yield-bearing stablecoins. These developments could also see stablecoins more deeply integrated into traditional payment systems, making them a vital part of global finance.
However, their long-term role is not without challenges. Regulatory uncertainty remains in many regions, and technical risks such as de-pegging or system failures have yet to be fully resolved. Competition from central bank digital currencies (CBDCs) may also impact how stablecoins are used in everyday transactions.
As a beginner, it is important to approach stablecoins with careful consideration. Choose those issued by trusted entities with strong regulatory compliance, transparent audits, and clear backing. Staying informed about the latest regulations and market trends will help you make better decisions as the stablecoin landscape continues to change.