Crypto Assets ultimately produced something beyond imagination: stablecoin

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

1. The world's largest stablecoin issuer Tether has made nearly $13 billion in profits with less than 200 employees.

2. Trump's inauguration and the reversal of the United States' regulatory stance on digital assets;

3. Stripe acquired the stablecoin infrastructure company Bridge for $1.1 billion to coordinate cross-border transactions.

As someone makes a fortune in the thriving ecosystem, regulation becomes increasingly clear.

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

To provide multiple perspectives, we draw unique insights from leading contributors at the forefront of stablecoin transformation.

Let's start learning!

Definition of stablecoin

Stablecoins are typically liabilities denominated in US dollars, backed by assets with equal 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 bonds ) collateral.

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

The fundamental determinant of the utility of stablecoins is their "peg" to the underlying reference asset ( US dollars ). This peg is maintained through two mechanisms: primary redemption and the secondary market. First, can I immediately redeem my stablecoin liabilities for an equivalent amount of reserve backing? If not, is there a deep and durable secondary market where market participants can buy or accept my stablecoin liabilities at the pegged exchange rate?

Due to the unpredictability of the secondary market, we also believe that primary redemption is a more enduring pegging mechanism. Furthermore, it is worth noting that there are many attempts at low-collateral or algorithmic stablecoins, which lack support, and we will not elaborate on these in this guide.

It is important to note that stablecoins do not come out of thin air. When you hold a dollar deposit at a bank, the bank is responsible for holding your dollars, ensuring that you can use them, and allowing you to transact with others using dollars.

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, and rules and terms for transactions.

For example, a certain stablecoin is issued based on the ERC-20 token standard, which stipulates the following 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 consensus mechanism of the blockchain, ensure that no user can transfer more tokens than they hold, commonly referred to as the double-spending problem (. In short, the blockchain acts like an append-only database or a ledger, having an initial state and recording every transaction that has occurred within its closed-loop network.

All assets on the blockchain are held by account )EOA, wallet (, or smart contracts. When specific conditions are met, smart contracts can receive and transfer assets. EOA ownership, meaning the ability to trade assets from a public address, is enforced by the underlying blockchain's public-private key encryption scheme, which binds each public address to a private key one-to-one. If you have 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 ( such as DAOs or AI agents ) to programmatically trade stablecoins without human intervention.

The "trust" in the accuracy of the system stems from the execution and consensus mechanisms of the underlying blockchain (, such as the Ethereum Virtual Machine ) EVM ( and Proof of Stake (. Accuracy can be demonstrated through the initial state of the blockchain and the publicly auditable history of each subsequent transaction. Transaction settlement is managed around the clock by a globally distributed network of node operators, which allows the settlement of stablecoins to be unaffected by traditional banking hours. To compensate for the service provided by node operators, transaction fees are charged during transaction processing ) Gas ), which is typically denominated in the native currency of the underlying blockchain (, such as ETH ).

These definitions may seem somewhat pedantic, even rebellious to some, but this concise and practical overview provides our readers with an appropriate common ground. So, let's start with the more interesting part: how did we get to this point?

The History of Stablecoins

12 years ago, stablecoins were still a fantasy. Now, the company that issued the world's second largest stablecoin USDC is preparing to sell or go public. Its S-1 filing provides first-hand information from the founders, detailing the creation of USDC.

We invited the founders of the world's largest stablecoin ( USDT ) and the third largest stablecoin ( DAI ) to share their entrepreneurial stories.

( Tether: The Birth of a King

Back in 2013, the cryptocurrency market was in the wild west era, and the main places to access and trade Crypto Assets were some cryptocurrency exchanges. Given that Crypto Assets were in their early stages, the regulatory environment at that time was even more ambiguous than it is now: exchanges were advised to follow "best practices," which meant only accepting Crypto Assets deposits and making Crypto Assets withdrawals like BTC deposits and BTC withdrawals. This meant that traders were forced to convert dollars into Crypto Assets on their own, a mandatory regulation that hindered the widespread adoption of Crypto Assets. In addition, traders needed a place to escape the severe price fluctuations 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-backed Crypto Assets liability supported by a dollar reserve—enabling traders to cope with exchange and market volatility through dollar-denominated liabilities. In 2014, he brought this idea to one of the largest exchanges at the time. Ultimately, he partnered with that exchange to create Tether, an independent entity with the necessary currency transmission licenses to integrate with a broader network of banks, auditors, and regulatory agencies. These providers were crucial for Tether to manage reserve assets and handle complex fiat transactions in the background while allowing the exchange to maintain its "pure Crypto Assets" positioning.

The 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 full two years, this concept seems to have been stillborn.

By 2017, Phil noticed that the adoption rate of USDT was increasing in some regions. After investigation, he found that export companies began to view USDT as a faster and cheaper alternative to regional dollar payment networks. Eventually, these companies started to use USDT as collateral for imports and exports. Around the same time, Crypto Assets natives began to notice the increasing liquidity of USDT and started using USDT as margin for cross-exchange arbitrage. 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. Since issuance and redemption are always conducted within a regulated framework, while tokens circulate freely on blockchains like TRON and Ethereum, USDT has achieved 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 method of payment.

Today, the circulating value of USDT is nearly $150 billion, far exceeding the circulating amount of USDC at $61 billion. Many people call Tether the company with the highest per capita profit in the world.

Phil Potter is a prominent figure in the Crypto Assets field, and his ideas are quite unique.

However, we cannot refer to him as an "outsider" in the traditional financial world; he is the type 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 crowned himself as 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, BTC opened at around $13 and broke through $700 by the end of the year, giving early adopters plenty of reason to believe that Crypto Assets could truly replace our financial system.

However, the subsequent economic downturn forced Rune to accept one fact: the ultimate utility of Crypto Assets depends on the management of this volatility. "Stability is beneficial for business," Rune concluded, giving rise to a new idea.

In 2015, after witnessing the failure of the "first" stablecoin, Rune collaborated with Nikolai Mushegian to design and build a USD-pegged stablecoin. However, unlike Phil, he lacked the connections to execute a similar strategy and had no intention of creating 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. Could he utilize the native asset ETH to issue a stablecoin based on it? If the volatility of the underlying reserve asset ETH is as significant as 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), such as $50(, thereby creating a collateralized stablecoin liability backed by ETH reserves. To ensure the solvency of the system, smart contracts set a liquidation threshold), such as when the price of ETH falls to $70###, once breached, third-party liquidators can sell the underlying ETH assets to eliminate the DAI debt. Over time, new modules have emerged to simplify the auction process, set interest rates to regulate the issuance of DAI, and further incentivize third-party liquidators aiming for profit.

This clever solution is now known in the Crypto Assets space as "Collateralized Debt Position ( CDP )" stablecoin, a concept that has sparked the interest of dozens of imitators. The key to the system's ability to operate without centralized gatekeepers lies in the programmability of Ethereum and the transparency provided by the public blockchain: 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.

As the circulation of DAI( and its sister project USDS) exceeds 7 billion USD, the creation of Rune has developed into a systemically important pillar within decentralized finance( DeFi). However, in a rapidly changing competitive landscape, it has become increasingly difficult to manage the ideological appeal of escaping a collapsing system; the capital inefficiency of CDPs and the lack of an efficient and direct redemption mechanism stifle its scalability. Recognizing this reality, MakerDAO began a significant transformation towards traditional reserve assets( such as USDC) in 2021 and will shift towards BlackRock's tokenized money market fund( BUIDL) by 2025. During this transformation, MakerDAO( is now Sky) through the tokenized prize pool, the tokenized money market fund( MMF) RFP managed by Steakhouse Financial with a value of 1 billion USD, and a 220 million USD private credit fund issued in collaboration with BlockTower Credit and Centrifuge for blockchain-native securities, establishing its position as the most critical liquidity provider for tokenized assets.

![Explaining the past and present, a stablecoin practitioner's guide](