How to explain what a "stablecoin" is to your friend?
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How to explain what a "stablecoin" is to your friend?
The world is irreversibly and steadfastly moving toward digitization.
Navigating Web3 tides with focused insightsBy: Wei Sir
Recently, stablecoins seem to have become a hot topic. Several friends have asked me what exactly stablecoins are.
I think it's actually quite simple—experts have just made it sound overly complicated. So I'm writing this article to explain it clearly and concisely.
Note: This article only discusses U.S. dollar-pegged stablecoins.
1. What Does the U.S. "GENIUS Act" Say?
On July 18, 2025, Trump signed the GENIUS Act (full name: "Guiding and Establishing National Innovation for U.S. Stablecoins Act"), officially recognizing stablecoins as legal digital assets for payment, with dedicated regulation (to prevent loss of control and money laundering).
Key rules: Stablecoins must be backed 1:1 by U.S. dollars or U.S. Treasury securities (to prevent price instability), issuers must disclose reserves monthly, and only qualified entities meeting regulatory standards can issue them; in case of issuer bankruptcy, stablecoin holders' claims take priority.
In short, U.S. dollar stablecoins like USDT and USDC are equivalent to the U.S. dollar.
USDT was launched in 2014 by Tether, maintaining a 1:1 exchange rate with the U.S. dollar. USDC, issued by Circle in 2018, is also pegged 1:1 to the U.S. dollar—meaning 1 USDC equals 1 physical U.S. dollar.
What's the deeper meaning behind this act?
It signifies the U.S. government formally recognizing and embracing the modernization of the U.S. dollar.
The U.S. isn't alone—other regions have similar legislation. For example, the EU’s Markets in Crypto-Assets Regulation (MiCA) took effect in December 2024; Hong Kong’s Stablecoin Ordinance will take effect in August 2025.
2. What Are the Benefits of Stablecoins?
For the public, the biggest advantage of stablecoins is convenience and security.
Americans already use electronic dollar payments, but the process involves many intermediaries—banks and third-party payment providers—and any single link could fail or be compromised, making it less secure (U.S. bank information systems may have bugs, vulnerabilities, or be hacked).
Domestic payments might work fine, but cross-border transfers are problematic—they often go through multiple banks and clearing institutions, taking 1–3 days, with high fees. Sending $1,000 could cost $20–50 in fees.
In short, traditional dollar payments are inconvenient, insecure, expensive, and slow.
But using stablecoins like USDT or USDC, transfers happen directly on blockchains (e.g., Tron or Ethereum networks), bypassing banks entirely. Whether sending to Europe or Asia, funds arrive in seconds or minutes. Transferring $1,000 typically costs only $2–3, sometimes even less.
Anyone familiar with blockchain knows it's extremely secure—the system itself doesn’t make transfer errors (unless you mistype an address). Its security is hundreds of times better than traditional systems (a loose analogy), otherwise blockchain wouldn’t have become so widely known.
Americans naturally think: if there’s a better way to transfer money, why not use it?
As long as USDT can reliably be exchanged 1:1 for USD, that’s all that matters.
This is the fundamental reason for USDT’s popularity.
The U.S. government’s new legislation ensures this 1:1 convertibility, protecting citizens’ interests.
In 2025, stablecoins averaged over $100 billion in daily transaction volume—surpassing the combined daily totals of Visa and Mastercard (approximately $67.1 billion). Growth is rapid: transaction volume increased 32.8% compared to 2024. Just in Southeast Asia and Africa, USDT transfers on the TRON blockchain averaged $13.1 billion per day.
3. Why Is the U.S. Government Embracing Stablecoins?
The direction of human society is continuous digitization.
Stablecoins represent the digital transformation of money.
The U.S. dollar has evolved from paper currency to electronic bookkeeping over recent decades, and now to more advanced blockchain-based accounting.
The U.S. government realizes that digital transformation of the dollar is an unstoppable trend—why not acknowledge and embrace it?
Why not legalize it and regulate it strictly to protect national and public interests?
China’s digital yuan follows a similar philosophy, adopting blockchain technology—but along a different path.
Some ask: what’s the difference? Here’s a brief comparison.
The U.S. favors market-driven models. Stablecoins (like USDT and USDC) are primarily issued by private companies, with the government acting mainly as regulator—a model aligned with America’s long-standing liberal ideology. Technically, U.S. stablecoins rely on public blockchain infrastructure, featuring decentralized design, consistent with American cultural values (decentralized power and individual freedom), although they still include capabilities for anti-money laundering, freezing, seizing, and burning tokens.
China prioritizes stability and security. The digital yuan is issued directly by the central bank, enabling precise control over monetary circulation and safeguarding national financial security. It uses a two-tier operational system (PBOC → banks and authorized institutions → public), centered on centralized oversight by the central bank. Operationally, it incorporates elements of consortium blockchain technology (still centrally led by the PBOC rather than equal node governance), preventing erosion of monetary sovereignty by private or external forces.
4. Summary
The world is moving irreversibly and firmly toward digitization.
Stablecoins are the digital transformation of money.
Because dollar stablecoins are more convenient, efficient, and secure than traditional dollars,
their use is inevitably growing.
The U.S. government will continue to catch up and strengthen regulation accordingly.
If you’ve read this far, you can stop here.
5. Why Do Other Experts Make It Sound So Complicated?
Most experts discussing stablecoins view them through a traditional lens, making the topic unnecessarily complex and hard for the public to understand.
Really, their arguments boil down to a few points (none are core issues)—here’s my take on each.
1. Some experts say, “Dollar stablecoins strengthen the status of the U.S. dollar and U.S. Treasuries.”
This is because the GENIUS Act requires stablecoins to be backed 1:1 by reserves such as dollars or short-term Treasuries, increasing demand for U.S. debt. Additionally, dollar stablecoins can leverage blockchain to penetrate “unbanked” regions, expanding dollar circulation and demand.
Clearly, issuers of USDT and USDC will soon need to buy large amounts of U.S. Treasuries—otherwise they won’t meet GENIUS Act requirements.
Specifically, the legally permitted liquid reserve assets for dollar stablecoins include: U.S. dollar cash, demand deposits at the Federal Reserve, U.S. Treasury securities with remaining maturities under 93 days, repurchase agreements of no more than 7 days collateralized by government bonds, reserve deposits held at other central banks meeting “substantially equivalent” criteria, and money market funds investing solely in these asset classes.
USDT has already issued 167 billion tokens (across Ethereum, TRON, Solana, and other chains). Its reserves currently include $127 billion in U.S. Treasuries, about $12 billion worth of 100,000 bitcoins, roughly $8.7 billion in 80 tons of gold, and $7.7 billion in secured loans. The latter three categories don’t meet GENIUS Act requirements and must be converted into dollars or Treasuries. Failure to comply by May 2027 could result in delisting from U.S. exchanges.
So Tether, the company behind USDT, needs to urgently sell gold and buy U.S. Treasuries!
A quick explanation for beginners on why 1:1 backing matters: suppose someone tries to “crash the price”—deliberately dumping large amounts of stablecoins to push the price below $1 (e.g., down to $0.95). In response, the stablecoin issuer uses its reserves to buy back the dumped coins at nearly $1, neutralizing the attack and forcing the seller to retreat.
2. Some experts say, “Dollar stablecoins pose various risks.”
They argue anonymity in stablecoin transactions could lead to money laundering and transparency issues.
But these are problems traditional dollars also face—not unique to stablecoins. The solution is straightforward: the U.S. government sets regulatory requirements, and stablecoin issuers implement them via management and technology. These aren’t unsolvable challenges.
The GENIUS Act mandates that stablecoin issuers implement anti-money laundering (AML) and know-your-customer (KYC) measures, including risk assessments, sanctions list checks, customer identification, suspicious transaction reporting mechanisms with timely submissions, retention of transaction records for regulatory audits, and technical capabilities to respond to administrative orders—such as seizing, freezing, destroying, or restricting transfers of stablecoins. As you can see, this mirrors existing U.S. banking regulations (The Bank Secrecy Act).
Hong Kong’s Stablecoin Ordinance requires stablecoin transfers to follow travel rule requirements similar to traditional wire transfers. When transactions exceed certain thresholds (e.g., $1,000 USD/EUR), both parties’ identity information must be transmitted with the transaction and shared and stored at every step of the payment chain, enabling regulators to trace and prevent illicit activities.
The EU’s MiCA includes similar provisions.
3. Some experts say, “Dollar stablecoins aren’t legal tender, but shouldn’t be seen merely as payment tools either.”
It’s a new phenomenon—understanding will grow over time. The world keeps changing, and concepts keep evolving.
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