Stablecoins are no longer just a niche innovation in the digital asset space—they are rapidly becoming a core component of the global financial narrative. With regulatory frameworks like the U.S. GENIUS Act and Hong Kong’s newly implemented Stablecoin Ordinance, stablecoins are gaining formal recognition and legitimacy. This shift marks a pivotal moment in their evolution from crypto-native tools to foundational elements of modern financial infrastructure.
The momentum was further underscored when Circle, often dubbed the “first stablecoin stock,” listed on Nasdaq in early June. Its market capitalization briefly surpassed $50 billion, with a price-to-earnings ratio reaching 120—far exceeding traditional financial giants like Visa. This market enthusiasm reflects strong investor confidence in the long-term potential of regulated, transparent stablecoin ecosystems.
But what lies beneath the surface? What are the real business models powering today’s leading stablecoin issuers? How will regulation shape their future applications—and what impact might they have on traditional financial institutions?
To explore these questions, we turn to Jason Xia (Xia Yuchen), founder of New Horizon Capital, a seasoned investor with deep expertise in digital assets and global finance. Previously a multi-asset portfolio manager at BlackRock’s European headquarters, Xia offers a unique perspective on how stablecoins are bridging the gap between decentralized innovation and institutional finance.
The Core Business Model: Interest Arbitrage and Beyond
At their foundation, most major stablecoin issuers operate on a surprisingly simple principle: interest arbitrage.
When users exchange $1 for a stablecoin like USDC or USDT, the issuing company holds that dollar in reserve—typically investing it in low-risk, interest-bearing assets such as U.S. Treasury bills or short-term commercial paper. Over time, these investments generate significant returns.
For example, Circle earned $1.56 billion in interest income in 2024 alone**, accounting for nearly 99% of its total revenue. Similarly, Tether reported profits exceeding **$13 billion, primarily driven by its vast reserve portfolio. While some ancillary income comes from transaction fees or partnerships (such as Circle’s revenue-sharing agreement with Coinbase), the core profitability remains tied to yield generation from reserves.
This model hinges on trust and transparency. Investors and users must believe that each coin is fully backed and that reserves are regularly audited. USDC has built its brand around this promise, emphasizing full redemption, third-party audits, and regulatory compliance—key differentiators in an industry historically plagued by opacity.
First-Mover Advantage vs. Regulatory Momentum
In the battle for dominance, USDT and USDC represent two distinct philosophies.
Launched in 2014, USDT enjoys a powerful first-mover advantage. It dominates over 60–70% of the stablecoin market, underpinning countless trading pairs across global exchanges and serving as a primary tool for peer-to-peer transfers in emerging markets. Its widespread adoption has created a self-reinforcing network effect—where more usage leads to greater liquidity and acceptance.
In contrast, USDC entered the scene in 2018 with a focus on compliance and transparency. Backed by regulated financial institutions and subject to regular attestations, USDC appeals to institutional players, fintech platforms, and jurisdictions with strict regulatory standards.
Despite entering later, USDC saw its circulation grow by 40% in 2024, signaling strong momentum. However, Tether’s entrenched ecosystem remains formidable. That said, as regulators tighten oversight—especially in jurisdictions like the U.S. and Hong Kong—the competitive landscape may begin to favor compliant players like Circle.
Circle’s IPO: A Milestone with Caveats
Circle’s Nasdaq debut is more than just a corporate milestone—it symbolizes the mainstream financial acceptance of stablecoins. The surge in its stock price reflects growing optimism fueled by clearer regulatory signals and expanding use cases.
Yet, caution remains warranted. A P/E ratio of 120 suggests high expectations, but Circle’s net profit declined from $2.68 billion to $1.56 billion over the past year. Meanwhile, competition is intensifying: Tether controls most of the market share, Ripple has launched RLUSD, and traditional banks are exploring their own regulated stablecoin offerings.
For Circle to sustain its growth, it must move beyond passive yield generation and expand into real-world applications—such as the Commercial Payments Network (CPN)—that deepen integration with enterprise finance and global payment systems.
Regulatory Scarcity and Strategic Value
Hong Kong’s Financial Secretary recently emphasized a cautious approach to stablecoin licensing, suggesting only a limited number of entities will be granted approval. Early applicants include consortia led by JD Digits, Yuen Yuen Digital Currency, and Standard Chartered Bank—all now undergoing testing within the HKMA’s regulatory sandbox.
This scarcity could significantly increase the strategic value of a license—similar to how virtual banking licenses became highly prized assets in Hong Kong’s fintech ecosystem. Limited access creates high barriers to entry, allowing early adopters to establish trusted, compliant networks before competitors can enter.
However, overregulation carries risks. Excessive restrictions may push innovation offshore to more accommodating jurisdictions, undermining Hong Kong’s ambition to become a leading hub for Eastern digital finance standards.
High-Potential Use Cases: Where Stablecoins Will Thrive
While regulatory approval opens the door, real-world utility determines long-term survival.
Jason Xia identifies four high-potential application areas for licensed stablecoin issuers:
- Cross-border payments
- Decentralized Finance (DeFi)
- Tokenization of real-world assets (RWA)
- Remote payroll and retail commerce
Among these, cross-border payments stand out as the most immediate and impactful use case. Traditional international transfers often take days and incur fees of 6–12%. With stablecoins like USDC, transactions settle in minutes at costs below 3%. Companies like JD are already extending this model into supply chain financing and institutional settlements—paving the way for end-to-end digital payment ecosystems.
In DeFi, stablecoins serve as foundational assets—used for lending, borrowing, trading, and settlement. They also enable the tokenization of real-world instruments, such as BlackRock’s experimental digital bond fund. In the future, licensed stablecoin providers could partner with asset managers to issue tokenized securities directly on-chain, streamlining issuance, custody, and clearing.
👉 Explore how blockchain-based stablecoins are powering the next wave of financial innovation.
Impact on Financial Institutions: Disruption and Collaboration
The rise of stablecoins doesn’t just affect crypto markets—it reshapes traditional finance.
Banks face potential erosion of revenue from cross-border remittances and foreign exchange services. However, they also have opportunities: through custody services, issuing their own stablecoins (like JPMorgan’s JPM Coin), or integrating with existing stablecoin networks.
Moreover, stablecoins enhance financial inclusion, particularly in underbanked regions where access to reliable fiat infrastructure is limited. By enabling fast, low-cost transactions via mobile devices, they empower individuals and small businesses alike.
Yet market concentration remains a concern. As compliance becomes mandatory, only well-capitalized firms can afford the regulatory burden—leading to consolidation among large incumbents or tech-financial conglomerates. Smaller fintechs may struggle to compete unless they form strategic alliances or leverage platform-based solutions.
Toward a New Digital Currency Order?
As stablecoins expand beyond dollar pegs to include euros, yen, SGD, HKD—and even commodity-backed variants—a new question emerges: Could we see a decentralized version of the global currency system emerge on-chain?
The answer is increasingly yes. Multi-currency stablecoins already trade across blockchain networks with minimal friction. Their exchange rates could evolve into a transparent, real-time digital foreign exchange market, where arbitrage is faster and settlement is instant.
While dollar-pegged stablecoins currently dominate due to liquidity and trust, non-USD variants may gain traction if they achieve scale—especially in regional economic blocs. The rise of central bank digital currencies (CBDCs) adds another layer of complexity, potentially coexisting with—or even displacing—private stablecoins in certain jurisdictions.
Frequently Asked Questions (FAQ)
Q: What is the primary source of income for stablecoin issuers like Circle and Tether?
A: The main revenue stream is interest earned from investing user deposits in low-risk assets like U.S. Treasuries. For Circle, this accounted for 99% of its 2024 revenue.
Q: Why does USDT have such a large market share compared to USDC?
A: USDT launched earlier (2014 vs. 2018) and quickly became the default trading pair on major exchanges. Its widespread use in emerging markets for remittances and P2P payments created strong network effects.
Q: Can stablecoins replace traditional banking services?
A: Not entirely—but they can disrupt specific segments like cross-border payments and remittances. Many banks are responding by launching their own digital currencies or partnering with stablecoin platforms.
Q: How does regulation affect the stability of stablecoins?
A: Clear regulations improve transparency and trust by mandating regular audits, capital requirements, and consumer protections—key factors in maintaining price stability and user confidence.
Q: Are multi-currency stablecoins likely to become widely adopted?
A: Yes—especially in international trade and regional economies. Stablecoins pegged to local currencies (e.g., EURS, HKDC) offer efficient alternatives to traditional forex systems.
Q: What role do stablecoins play in DeFi?
A: They serve as essential building blocks—used for lending collateral, liquidity provision, trading pairs, and on-chain settlements—making them indispensable to decentralized finance ecosystems.
Keywords: stablecoin ecosystem, regulated stablecoins, cross-border payments, DeFi applications, interest arbitrage, tokenization of assets, digital currency infrastructure