Stablecoins: The Bridge Between Traditional Financeand the Digital Future

Source: Brookings

Did you know that stablecoins have been around for over a decade at this point? You probably have never heard of stablecoins, nor know what they are, like me before researching this topic. 

What Are Stablecoins? 

Well, stablecoins are a form of cryptocurrency, different from Bitcoin, Ethereum, etc., due to a single unique aspect. Unlike other cryptocurrencies, which are relatively volatile in nature, stablecoins are pegged (tied) to a physical asset such as the U.S. dollar, gold, or other low-volatility commodities. This “peg” gives them relatively stable value, allowing holders to enjoy the efficiency and speed of blockchain transactions without the same level of risk associated with most cryptocurrencies. 

There are two main types of stablecoins: fully reserved and algorithmic.

Fully reserved stablecoins are backed one-to-one by high-quality liquid assets, such as fiat currencies or short-term government securities. This structure ensures that each stablecoin issued can be redeemed for an equivalent amount of the asset the coin is pegged to, helping maintain reduce volatility. The most frequent stablecoin is backed by the U.S. dollar, where every coin in circulation corresponds to one dollar held in reserve. 

Algorithmic stablecoins, on the other hand, rely on mathematical formulas rather than the exact exchange rate and quantity of the physical asset it is pegged. In essence, these coins use an algorithm to automatically regulate the amount of stablecoin currency that is available to the public in relation to its peg or the asset that the stablecoin is tied to. Functionally, if the coin trades below the value of its peg, the algorithm will reduce the amount of coins in circulation to increase the value back to what its peg is trading at, and conversely, if the coin trades above the value of its peg, the algorithm will increase the amount of coin in circulation to bring the value of the coin back down to what its peg is trading at. 

What are Stablecoins’ pros and cons?

Stablecoins bring clear benefits but also significant risks and regulatory challenges. One of their greatest strengths is stability. Due to their value being tied to tangible assets, they provide a safe way for investors to get involved with crypto. This is especially appealing for risk-averse investors, as the crypto market is known for its vulnerability to unpredictable price changes. 

Stablecoins are also efficient and programmable. Unlike Bitcoin, their supply and transactions can be managed algorithmically, enabling automated payments, lending, and other financial operations. Kenneth Worthington, an equity analyst at J.P. Morgan, notes that “stablecoins are a digital, on-chain form of fiat money. They are easy to self-custody and transact, and they are also fast, particularly in the context of cross-border money movement.” In certain cases, stablecoins can even outperform traditional fiat systems by settling transactions faster and more cheaply across existing financial infrastructure. 

However, stablecoins are not as perfect as I might’ve painted them to be. The most pressing concern is financial instability in the event of a run (a bank run in real life). If many stablecoin holders attempt to redeem their coins simultaneously, it could trigger a collapse of the currency as a whole. 

Additionally, regulation presents another major challenge. Because stablecoins exist at the intersection of finance, technology, and international law, governments struggle to classify them consistently. Some regulators treat them as securities, others as commodities, and others as banking products. Their decentralized and borderless nature also complicates oversight. Since transactions occur on global blockchains that operate beyond national boundaries, enforcing domestic financial laws becomes difficult.

In short, stablecoins are both a promising innovation and a potential source of systemic risk. They offer speed and efficiency unattainable with physical fiat money, but, due to their relative youth as currencies, the lack of infrastructure behind stablecoins leaves them operating in a legal and financial gray zone. 

Stablecoins in Our World Today 

The global stablecoin market has expanded rapidly as of late, even amidst the recent broader crypto market volatility. According to J.P. Morgan Global Research, the total market capitalization of U.S. dollar-backed stablecoins has reached approximately $225 billion, representing around 7% of the overall $3 trillion cryptocurrency market. In fact, roughly 99% of all stablecoins in global circulation are backed by the U.S. dollar. 

Teresa Ho, head of U.S. Short Duration Strategy at J.P. Morgan, notes that this segment of the market has shown resilience through uncertainty, maintaining seven consecutive months of positive market-cap growth since early 2025. Worthington also projects that the stablecoin market could reach $500 billion to $750 billion in the coming years, roughly two to three times its current size.

Bar chart depicting stablecoin transaction volumes, which have surged in 2025 and are up ~50% year over year.

This potential for growth stems from several factors. As stated previously, stablecoins are young for a reliable currency, which means the infrastructure supporting them remains underdeveloped. As reliable legal frameworks, exchange mediums, and integration with financial institutions continue to be fostered, confidence in stablecoins will likely increase. 

However, investor skepticism persists. Many still perceive stablecoins as riskier than the assets they are pegged to, questioning whether issuers can always redeem coins for their full value during market stress. Until concrete regulations are established, risk-averse investors may hesitate to treat stablecoins with the same value as the asset they are tied to. 

Stablecoins in Business 

One real-world example of stablecoins in business comes from J.P. Morgan Chase, which created a digital token called JPM Coin. This system shows how large companies are using stablecoins to capitalize on their quickness and efficiency. 

JPM Coin is a digital version of the U.S. dollar that businesses can use to send money instantly, at any time of day. It runs on a private blockchain, which is an online system that records transactions securely and transparently. Companies using JPM Coin have special digital accounts that act like regular bank accounts but can transfer money in real time. 

By working with a financial software company called Kyriba, J.P. Morgan made it easier for businesses to connect JPM Coin to their existing financial tools. This means company treasurers can move money between different parts of their business and set up automatic payments. For example, they can program the system to send money automatically when an account runs low or when a project milestone is reached. Large companies such as Siemens, FedEx, and Cargill have already tested or started using JPM Coin. The result is faster, cheaper, and more transparent management of company funding across countries. 

Here, J.P. Morgan demonstrates how stablecoins are becoming more than just a part of the cryptocurrency world and that they are now useful tools for everyday business. Their system combines the safety of traditional banking with the speed and flexibility of modern technology in the form of stablecoins. However, there are still challenges. Using blockchain with older banking systems requires careful attention to security and legal rules. And while JPM Coin is backed by real dollars held at the bank, its success still depends on people trusting both J.P. Morgan and the technology itself to truly represent the value of the money that J.P. Morgan has tied their private stablecoin to.