The stablecoin race

The digital asset is poised to redefine the global financial infrastructure

The world of digital finance is undergoing a profound transformation as stablecoins move into the mainstream, disrupting traditional finance and emerging as tools for geopolitical and financial contests.

Stablecoins are designed to maintain a stable value by being pegged to reserve assets like the US dollar, serving as a bridge between traditional finance and digital assets. What began in 2014 with BitUSD as a niche experiment has morphed into an asset with a market capitalisation of US$223 billion as of May 2025, accounting for over 10% of the crypto asset ecosystem.

Some stablecoins are tied to cryptocurrencies or commodities like gold or oil; others use algorithmic methods to manage supply and demand without collateral. The most popular stablecoins, such as USDT, USDC, and DAI, are pegged one-to-one to the US dollar, making them less volatile than bitcoin or ethereum.

Stablecoins now account for over 75% of crypto trades, enabling instant settlements and offering 24/7 availability without fiat conversion delays. Binance, for instance, processes over $76 billion in daily trade volume, largely in stablecoins. 

These tokens also serve as collateral for lending and borrowing in crypto transactions, attracting corporate treasuries like MicroStrategy to hold cash in USDC and participate in lending programmes that generate average yields of 3%-8%, significantly better than traditional bank deposits.

Meanwhile, overseas workers from Mexico to the Philippines increasingly use stablecoins for remitting money home, saving on high fees charged by traditional channels. Citizens in countries like Argentina, Nigeria and Turkey hold USDT and USDC to counter local currency devaluation that can exceed as much as 100% annually.

US pushes stablecoin

The US has intensified efforts to position dollar-pegged stablecoins as a strategic asset since Donald Trump’s return to the White House. On July 18, Trump signed a law establishing the first comprehensive federal framework for dollar-backed stablecoins. According to Trump, the move makes good on his pledge to “bring back American liberty and leadership” and to make the country “the crypto capital of the world”.

That same week, two complementary bills passed through the House of Representatives prohibiting creation of central bank digital currencies (CBDCs) and assigning oversight of all digital assets to either the Securities and Exchange Commission or the Commodities Futures Trading Commission. The bills are now under review by the Senate.

The US moves are aimed at maintaining dollar-pegged stablecoins as the global standard, reinforcing the greenback’s status as the world’s reserve currency while mitigating financial risks associated with unregulated cryptocurrencies.

The US stablecoin model promotes private-sector innovations to digitise the dollar without burdening the Federal Reserve’s balance sheet, unlike the centrally controlled CBDC model favoured by China and the European Union.

Larry Summers, a former US treasury secretary, suggested that stablecoins could extend the reach and influence of the US dollar in the digital age, similar to the eurodollar phenomenon where dollar-denominated deposits held outside the US effectively created a parallel dollar system.

Tether’s USDT now processes more daily transactions than Visa, with over $50 billion changing hands every 24 hours, while Circle’s USDC is the preferred settlement tool for institutional crypto traders. “Every USDT or USDC transaction overseas is essentially exporting dollar hegemony,” Michael Casey of CoinDesk said in a podcast last year.

Some analysts suggest that dollar-linked stablecoins could boost demand for US Treasury securities. With the market cap of stablecoins expected to double to $500 billion in three years, they argue that stablecoin reserves could significantly contribute to addressing US debt issues.

But the US government’s annual borrowing of one trillion dollars is to refinance existing debt, not for new spending. Instead of creating fresh demand, Treasury investors may simply shift to stablecoin reserves. The impact would be modest. And in a crisis, since stablecoin reserves must remain liquid for redemptions, stablecoin issuers may need to dump Treasuries, exacerbating market stress.

Stablecoin’s true value to the US lies in ensuring that the next generation of global payments operates through US financial infrastructure. Ultimately, whoever controls the standards for stablecoins will control the future of money.

Developments in Asia

China has banned all crypto trading and mining on the Mainland since 2021, with no signs of a policy shift. Hong Kong serves as a controlled gateway for China to experiment with cryptos without exposing the Mainland financial system to risk.

“China wants to build renminbi-linked digital payment alternatives that reduce reliance on the dollar system, without triggering capital flight or losing financial control. Hong Kong is the perfect testing ground for this delicate balance,” Winston Ma, a law professor at New York University, explains in his book The Digital War.

In October 2022, the Hong Kong government issued a policy statement on the development of virtual assets. By June 2023, a licensing regime for virtual assets trading platforms took effect, with 11 licenses issued since, including industry heavyweights like HashKey and OSL.

This year, the government published a second policy statement on digital assets and conducted consultations on regulations for virtual asset dealing services and custodial services.

The Stablecoins Ordinance, one of the first of its kind globally, became effective recently. It mandates that all fiat-referenced stablecoins in Hong Kong, whether pegged to the Hong Kong dollar, US dollar, euro, renminbi or other currencies, must be licensed. Only licensed issuers, regulated trading platforms, authorised banks, and firms regulated by the Securities and Futures Commission can offer stablecoins to the public.

All issuers must meet requirements on financial resources, reserve asset management, and redemption guarantees. Issuers must maintain a paid-up share capital of at least HK$25 million ($3.2 million) and ensure that the value of reserve assets matches the par value of stablecoins in circulation.

“Hong Kong is seeking to establish a regulatory regime that reflects local circumstances and aligns with international standards. We hope to promote the healthy, responsible and sustainable development of digital assets in Hong Kong, consolidating the city’s role as an international financial centre,” said Eddie Yu, chief executive of the Hong Kong Monetary Authority.

Other Asian countries like Singapore and Japan are also vying to establish themselves as digital asset hubs while preventing an influx of foreign currency pegged stablecoins, though with different strategies.

Singapore is positioning itself as the Switzerland of digital assets: neutral, business-friendly, and globally connected. Two years ago, the city state introduced a regulatory framework for stablecoins aimed at fostering innovation while managing risks.

Despite its small size, Singapore boasts 30 licensed digital payment token service providers and around 1,000 companies involved in blockchain and Web3 technology. Major players like Binance, Gemini and Coinhako are drawn to its crypto-friendly environment, which insiders describe as “goldilocks regulation” – neither too loose nor too tight.

Japan, on the other hand, has adopted a more conservative approach. Its 2023 stablecoin law is the strictest among major economies, permitting issuance only by licensed banks and trust companies. Takayuki Kobayashi, the then minister for economic security said that “Japan’s priority is financial stability above all else. We won’t sacrifice safety for speed”.

High stakes

With regulatory frameworks advancing in key economies, transactions involving regulated stablecoins are poised to boom globally. Dollar-pegged stablecoins like USDC will become safer and more integrated with traditional finance, offering viable alternatives to bank deposits for corporate treasuries, and promoting financial inclusion for millions in developing countries.

US asset management giant BlackRock’s recent entry into tokenised assets with its USD Institutional Digital Liquidity Fund underscores Wall Street’s growing interest in stablecoins.

To remain relevant, banks like US lender JPMorgan Chase and Singapore’s DBS are partnering with stablecoin issuers. And BNY and State Street are offering custodial solutions to support stablecoin reserve management while Visa and PayPal are expanding the use of stablecoins for instant settlement.

The stakes are high for Asian financial hubs. Singapore’s leadership in institutional crypto could solidify its position as the region’s premier wealth centre. Japan’s caution may safeguard its financial system but risks sidelining itself in innovation. Hong Kong’s success hinges on aligning with China’s interests while attracting global capital.

The stablecoin race is not just about technology. It’s about who controls the global financial infrastructure of tomorrow and the future of money.

*This article was published in Asia Asset Management’s August 2025 magazine under the same title.