Stablecoins [2025 Guide]

The stablecoin sector has matured into a £200 billion market by 2025, transitioning from early-stage experimentation to foundational financial infrastructure. These digital assets are now central to global payment systems, supported by clear regulatory frameworks such as the US GENIUS Act and Europe’s MiCA. This guide explores the key types of stablecoins, their practical use cases, and why businesses increasingly rely on them for international payments, particularly when transacting via Bitpace’s fully compliant crypto payment gateway.

Introduction: Understanding stablecoins in today’s digital economy

What defines a stablecoin?

Stablecoins are digital currencies designed to retain a consistent value, typically by being pegged to traditional fiat currencies such as the US dollar. They combine the core benefits of blockchain – speed, transparency, and global accessibility – with price stability, making them ideal for businesses looking to modernise their payment systems without the volatility of assets like Bitcoin.

Stablecoins address a longstanding barrier in crypto adoption: unpredictability. When your business accepts digital payments through Bitpace’s crypto payment gateway, using stablecoins such as USDT or USDC ensures price stability from transaction to settlement. This predictability makes financial forecasting and operational budgeting far more manageable.

Why stablecoins matter for your business

Stablecoins offer substantial advantages for businesses of all sizes. Cross-border payments are processed in real time. No more delays associated with traditional banking hours or weekend closures. Fees remain consistently low, far below the costs tied to SWIFT or international wire transfers. Additionally, you gain access to a vast user base of crypto holders who favour fast, borderless, and digital-first transactions.

For businesses operating in countries with volatile currencies, dollar-pegged stablecoins act as a shield against inflation and devaluation. Meanwhile, companies in developed economies utilise these assets for efficient treasury operations and near-instant settlements across global partners and platforms.

Types of stablecoins: How each model works

Fiat-collateralised stablecoins

Fiat-backed stablecoins are fully backed by fiat reserves, such as cash or treasury instruments, held in audited, regulated accounts. For example, when you acquire 1 USDC, the issuer, Circle, holds $1 in reserve.

How fiat-backed stablecoins operate: To issue stablecoins, the issuer receives fiat currency and mints a matching amount of digital tokens on the blockchain. These reserves are usually composed of high-liquidity assets like short-term government bonds and bank deposits. Audits are conducted regularly to confirm that reserves fully cover the outstanding supply. When you redeem the stablecoins, they are burned, and the equivalent fiat is returned to you.

Leading fiat-backed stablecoins:

• Tether (USDT): With a market cap exceeding £172 billion, USDT remains the most widely used stablecoin across crypto exchanges.
• USD Coin (USDC): Backed by over £73 billion in assets and preferred by institutions due to its compliance-first model.
• PayPal USD (PYUSD): Surpassed £1.39b within its first year, capitalising on PayPal’s global reach and user trust.

Bitpace fully supports these leading stablecoins, allowing your business to accept payments in the most credible digital currencies on the market. Thanks to Bitpace’s auto-conversion feature, you can automatically convert received funds into your preferred fiat or digital asset, minimising exposure to market volatility while streamlining treasury operations.

Crypto-collateralised stablecoins

These stablecoins achieve price stability by being backed with other cryptocurrencies, often held at a higher value than the tokens issued. Known as over-collateralisation, this approach ensures a protective buffer against the volatility of underlying assets like Ethereum. When you lock crypto assets into smart contracts, a smaller amount of stablecoins is minted, safeguarding the peg.

To maintain this system, risk management is automated via smart contracts, which trigger liquidations if the collateral’s value drops below safe thresholds. Additionally, market arbitrageurs help keep the stablecoin price aligned with its peg by exploiting any deviations on exchanges.

DAI remains the leading decentralised crypto-backed stablecoin. Operated by MakerDAO, DAI has over £4.68 billion in circulation. You can deposit ETH or other accepted cryptocurrencies to mint DAI through collateralised debt positions (CDPs). The protocol enforces a minimum 150% collateral ratio, meaning you’d need to lock up £150 in ETH to issue £100 in DAI.

However, DAI’s evolution reveals decentralisation trade-offs. d, a centralised fiat-backed stablecoin. This became a vulnerability during the March 2023 banking disruption when USDC briefly lost its peg, leading DAI to also depeg temporarily. This event underlined the complexity of maintaining true decentralisation in practice.

Commodity-collateralised stablecoins

These stablecoins are backed by physical commodities, typically gold, silver, or oil, providing a tangible store of value behind each token. Each stablecoin represents ownership of a fixed quantity of the underlying asset, which is securely stored and regularly audited. Essentially, these function as digital certificates for physical assets.

Pax Gold (PAXG) is a leading example. Each PAXG token corresponds to one troy ounce of gold held in professional vaults in London. You benefit from full audit transparency and the option to redeem tokens for physical gold, although many users prefer the flexibility and convenience of keeping it in digital form.

This model offers investors exposure to commodity markets without the logistical challenges of storage or transport. Unlike traditional gold trading hours, PAXG and similar tokens trade around the clock, making them an attractive diversification tool in digital portfolios.

Algorithmic stablecoins

These digital currencies aim to maintain a stable value without holding any collateral. Instead, they use algorithms to expand or contract supply based on market price. When the price rises above the peg, new coins are minted; when it falls below, the system burns tokens to reduce supply.

Why this model failed:
The collapse of TerraUSD (UST) in May 2022 revealed the fundamental weakness in uncollateralised algorithmic models. The system entered a “death spiral” when users began to lose confidence, leading to mass redemptions. In an attempt to maintain the peg, the protocol minted excessive amounts of its sister token LUNA, triggering hyperinflation and the total breakdown of both assets. The incident wiped out over £45 billion in market value.

Regulators now view algorithmic stablecoins with caution. In the EU, they are classified as “unbacked crypto-assets,” and some countries, like Bahrain, have banned them outright. The consensus is clear: mathematical mechanisms alone cannot replace real-world backing.

Hybrid models

Hybrid models attempt to merge algorithmic flexibility with partial collateralisation. These stablecoins dynamically adjust their collateral ratio depending on market conditions, ramping up reserves during volatile periods and reducing them when markets are stable. The idea is to improve capital efficiency while maintaining a degree of security.

Frax (FRAX) stands as the first widely known fractional-algorithmic stablecoin. When FRAX trades above £1, its protocol reduces the collateralisation ratio, and when it drops below, it increases it. This aims to stabilise the token’s value while minimising the capital locked in reserve.

However, these models remain experimental. Regulatory environments tend to favour fully-backed stablecoins, limiting the scalability and adoption of fractional systems. Until clearer frameworks emerge, hybrid models like FRAX are likely to operate at the fringes rather than the mainstream.

Market overview: Stablecoins in 2025

Current market dynamics

The stablecoin market in 2025 is marked by heavy concentration, with two major stablecoins, Tether (USDT) and USD Coin (USDC). These two tokens have become essential tools for global transactions, with Tether maintaining its role as the go-to option for crypto traders and USDC emerging as the preferred choice for institutions prioritising regulatory compliance.

Corporate adoption accelerates

Stablecoins are no longer just a speculative asset class; they are becoming an integral part of corporate financial infrastructure. Major companies are embedding them into their payment and treasury workflows:

• Visa has partnered with Solana and Circle to accelerate international stablecoin-based payments.
• Standard Chartered’s Zodia Markets uses stablecoins to streamline institutional cross-border transactions.
• PayPal has rapidly scaled its stablecoin, PYUSD, across nine blockchains using LayerZero, enabling access to digital payments for its 400 million global users without requiring technical expertise.

Platforms like Bitpace are facilitating this adoption by offering businesses a fully integrated crypto payment infrastructure. Its whitelabel solutions allow companies to launch their own branded stablecoin payment systems while benefiting from instant, low-cost global settlements.

Regulatory framework shapes the future

The GENIUS Act transforms American markets

The Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act, passed in July 2025, is reshaping the US stablecoin ecosystem. It introduces clear federal standards that require:

• 1:1 backing with safe assets (such as government bonds or insured bank deposits)
• Monthly public audits confirming reserves
• Licences for Permitted Payment Stablecoin Issuers (PPSIs), covering bank subsidiaries and approved fintechs

This regulatory clarity empowers fully compliant issuers like USDC and PYUSD, while excluding algorithmic or undercollateralised models from legal operation.

Global regulatory alignment

The United States is not alone. The European Union implemented stablecoin provisions via MiCA in mid-2024, followed by similar regulatory frameworks in Hong Kong (Stablecoin Ordinance, May 2025), Singapore, the UAE, and Japan. Together, these initiatives are creating a more globally harmonised regulatory environment.

Most frameworks share core principles:

• Licensing and supervision of stablecoin issuers
• Transparent, fully-backed reserves
• Regular third-party audits
• AML/KYC compliance
• Clear consumer protection standards

Bitpace ensures its infrastructure meets these regulatory expectations across all supported jurisdictions. With EU financial licences and strong Know Your Business (KYB) protocols in place, your company can accept stablecoin payments confidently, knowing the gateway is secure, legal, and scalable.

Real-world applications transform commerce

Revolutionising cross-border payments

Stablecoins are revolutionising global transactions by removing the friction traditionally associated with cross-border payments. Instead of enduring 3–5 day delays via SWIFT or incurring fees of 2–5%, you can now transfer funds instantly with costs dropping below 1%. With blockchain’s 24/7 operation, payments can be made any time, including weekends and public holidays.

Enabling financial inclusion

Stablecoins are opening doors for financially underserved populations. In countries facing economic instability or hyperinflation, citizens use dollar-pegged stablecoins to preserve their savings. Migrant workers send money home without high remittance fees, and small businesses engage in international trade previously restricted by traditional banking limitations.

Bitpace’s crypto payment gateway plays a key role in promoting this inclusion. Supporting over 20 languages and operating globally, the platform makes it easy for users anywhere in the world to send or accept stablecoin payments.

Powering decentralised finance

In the world of decentralised finance, stablecoins are indispensable. They provide a reliable unit of account for lending, borrowing, and earning interest. With DeFi protocols, users can earn yield on idle capital, all managed by smart contracts without relying on intermediaries.

Streamlining merchant payments

E-commerce and digital businesses are increasingly adopting stablecoins for day-to-day operations. This allows them to avoid chargeback fraud, receive guaranteed subscription payments, and operate in industries considered “high-risk” by conventional payment processors.

Bitpace’s API integrations with platforms like WooCommerce and OpenCart allow merchants to start accepting stablecoin payments within hours. Its flexible architecture ensures quick onboarding without complicated development cycles.

Risks and mitigation strategies

Understanding depegging risks

Despite their goal of price stability, stablecoins can occasionally lose their peg during high-stress market events. A lack of sufficient reserves, custodial risks, or technical exploits can all cause a token to fall below its target value.

To manage this, businesses should diversify across multiple stablecoins and use solutions like Bitpace’s auto-conversion feature, which instantly converts received tokens into fiat or a preferred settlement currency, reducing exposure to price fluctuation.

Evaluating counterparty risks

For fiat-backed stablecoins, the main risk lies in the issuer. Your confidence depends on their transparency, reserve management, and regulatory standing. If an issuer faces insolvency or operational failure, token value may be jeopardised, even under regulatory oversight.

It’s crucial to select stablecoins issued by well-regulated, transparent entities. For example, USDC offers monthly attestation reports, reinforcing trust in its reserve status.

Managing smart contract risks

Stablecoins backed by cryptocurrencies or managed through algorithms are more susceptible to technical failures, including bugs in smart contracts or data feed (oracle) errors. These risks could lead to unintended liquidations or even systemic failure.

Businesses should limit reliance on experimental or untested protocols. Focus instead on well-audited, widely adopted systems, and stay informed about any security incidents affecting these ecosystems.

Navigating regulatory changes

With global regulations evolving, businesses must remain flexible. Some jurisdictions already ban algorithmic stablecoins, and more changes could affect hybrid or crypto-backed models in the future.

By working with regulated platforms like Bitpace, you reduce exposure to shifting compliance risks. Bitpace conducts regular audits and holds relevant financial licences, helping your business maintain uninterrupted operations even in changing legal environments.

Future outlook and strategic recommendations

Technology drives innovation

Emerging technologies continue to drive stablecoin adoption forward. Layer 2 networks significantly reduce transaction fees while increasing speed, making stablecoin usage more practical for businesses of all sizes. Meanwhile, cross-chain bridges enable the smooth transfer of assets between different blockchains, allowing users to move value where it’s needed most.

As blockchain networks become more fragmented, interoperability becomes a key differentiator. Stablecoins that function across multiple chains, like PYUSD, which expanded to nine networks via LayerZero, are gaining ground due to their flexibility and broader reach.

Institutional adoption accelerates

Stablecoins are no longer just tools for crypto-native users. Banks are incorporating them into their settlement systems, enabling real-time clearing and enhanced liquidity management. Corporations rely on stablecoins to pay suppliers and manage international cash flow. Even governments are exploring use cases, including social benefit distribution and tax collection.

This mainstream adoption confirms stablecoins’ transformation into core financial infrastructure. By adopting early, your business can get ahead of traditional players who are only now starting to explore digital currency integration.

Selecting the right stablecoins

Your stablecoin strategy should align with your business needs:

• For liquidity: Choose USDT, the most widely used stablecoin with extensive exchange support
• For compliance: USDC provides institutional-grade transparency and is fully regulated
• For decentralisation: DAI offers resilience and censorship resistance, although it’s partially reliant on USDC
• For global scale: PYUSD connects you to PayPal’s 100 million users with easy, trusted access

Bitpace supports all these major stablecoins, providing the flexibility to accept what your customers prefer. The platform’s intuitive dashboard also helps manage and convert between different stablecoin types effortlessly.

Conclusion

Stablecoins have become essential tools for modern businesses. In 2025, they’re no longer a curiosity; they’re the foundation for instant, low-cost, global digital transactions. With increasing regulatory clarity and technical reliability, adopting stablecoins has shifted from a speculative experiment to a strategic business necessity.

Bitpace’s payment infrastructure removes the barriers to stablecoin adoption. Whether you’re receiving customer payments, handling cross-border settlements, or launching your own branded payment solution, Bitpace delivers the tools and compliance structure you need.

The only question now is how soon your business can start. Accept stablecoin payments today with Bitpace’s crypto payment gateway, and step confidently into the future of digital commerce.

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