ARK Invest: Will Stablecoins Become the Cornerstone of the Next-Generation Monetary System?
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ARK Invest: Will Stablecoins Become the Cornerstone of the Next-Generation Monetary System?
This article will address three core questions: How did stablecoins emerge? What is the underlying technology behind stablecoins? And where is the future trajectory of stablecoins headed?
Navigating Web3 tides with focused insightsBy Lorenzo Valente, Head of Digital Assets Research at ARK Invest
Translated by Chopper, Foresight News
In 2025, stablecoin supply, transaction volume, and active user counts all reached record highs—driven by the enactment of the GENIUS Act, which legalized stablecoins as privately issued digital currencies.
This article draws from an episode of ARK Invest’s Bitcoin Brainstorm podcast, featuring Paolo Ardoino, CEO of Tether; Dr. Arthur Laffer, renowned economist; and Cathie Wood, CEO and CIO of ARK Invest. In that discussion, we explored parallels between stablecoins and the era of privately issued currency in the United States prior to 1913—the year the U.S. government designated the Federal Reserve as the sole issuer of the U.S. dollar. Dr. Laffer compared today’s explosive growth of blockchain-based, privately issued dollars to the pre-Federal Reserve monetary system, when “free banking” was still in effect.
While the underlying technological infrastructure of stablecoins is entirely new, privately issued money is not. In fact, private currency formed a foundational pillar of the early U.S. economy.
Against this historical backdrop, this article addresses three core questions: How did stablecoins emerge? What is their underlying technology? And where are they headed next?
How Did Stablecoins Emerge?
In 2014, Giancarlo Devasini launched USDT and the Tether platform, at a time when the digital asset industry was still in its infancy. The crypto ecosystem then resembled a “wild west”: regulatory oversight was virtually nonexistent, security vulnerabilities were rampant, infrastructure was fragile, and global trading was dominated by just a handful of exchanges—including Kraken, Bitfinex, Coinbase, Poloniex, and Bitstamp. The February 2014 collapse of Mt. Gox—the world’s largest Bitcoin exchange at the time—further exposed the sector’s fragility.
At that time, other exchanges operated across disparate jurisdictions and traded only one mainstream token: Bitcoin. Although Bitcoin trading had already gone global, arbitrageurs attempting to exploit price differences across exchanges faced a critical bottleneck: they could not move U.S. dollars quickly or cheaply between banks, brokers, or countries—making it difficult to capitalize on arbitrage opportunities. For example, if Bitcoin traded at $115 on Kraken and $112 on Bitfinex, an arbitrageur would ideally sell Bitcoin on Kraken, wire the proceeds to Bitfinex, and repurchase Bitcoin at $112—but such wire transfers typically took one to two days.
It was precisely this challenge that Giancarlo and Paolo tackled head-on—and USDT emerged as the solution, enabling internet-speed transfers of a dollar-equivalent instrument. Initially launched in July 2014 under the name “Realcoin,” USDT was built on the Omni Layer protocol atop the Bitcoin network, long before Ethereum or other smart-contract blockchains existed. In November 2014, the project officially rebranded as Tether and introduced three fiat-pegged tokens: USDT (pegged to the U.S. dollar), EURT (pegged to the euro), and JPYT (pegged to the Japanese yen).
In 2015, Bitfinex—one of the world’s leading exchanges—began supporting USDT and established the first deep liquidity pool for the token. Between 2017 and 2019, Tether expanded USDT’s issuance infrastructure beyond Omni to Ethereum, and later to Tron, Solana, Avalanche, and other public blockchains—continuously improving transaction speed, lowering fees, and enhancing cross-chain interoperability. By 2019, USDT had become the most actively traded crypto asset globally, even surpassing Bitcoin in daily trading volume. At year-end 2019, when competitors claimed their stablecoins were fully backed by cash or cash equivalents, Tether disclosed—for the first time—that its reserves included commercial paper rated A1 and A2, and announced plans to gradually shift toward U.S. Treasury bills and cash.
The outbreak of the COVID-19 pandemic propelled USDT into a phase of rapid growth. Over the two-year period from 2020 to March 2022, the global financial system came under immense strain—yet USDT’s supply surged 25-fold, from $3.3 billion to $80 billion. This surge was primarily driven by emerging markets. USDT’s primary use case evolved—from a speculative and arbitrage tool within crypto markets—to a lifeline against local currency depreciation.
Between 2020 and 2023, local currencies in emerging-market countries including Venezuela, Lebanon, and Argentina depreciated sharply against the U.S. dollar. Local populations increasingly turned to USDT to preserve wealth. For many, USDT functions simultaneously as a savings account, a payment instrument, and a store of value. As governments imposed restrictions on over-the-counter transactions—limiting access to black-market dollars—younger generations began teaching their parents and grandparents how to use this “digital dollar.” People could now hold dollar-denominated assets faster, more securely, and at greater scale—without relying on fragile banking systems or volatile local currencies.
Depreciation of selected national currencies against the U.S. dollar. Data source: rwa.xyz, as of December 31, 2025
Where Do Stablecoins Stand Today?
Today, Tether’s USDT has a circulating supply of $187 billion—commanding 60% market share—and stands as the largest stablecoin in the digital asset industry. Its sole major competitor is Circle’s USDC, with a supply of $75 billion. USDT boasts over 450 million global users, adding approximately 30 million new users each quarter. Tether is headquartered in El Salvador and regulated there; its reserves are custodied by Cantor Fitzgerald.
The U.S. government has taken strategic notice of Tether. The vast majority of Tether’s balance sheet consists of U.S. Treasury bills—holding a volume comparable to some developed nations—and making Tether one of the largest and fastest-growing sources of demand for U.S. Treasuries.
Tether’s reserve composition. Data source: Tether, as of December 31, 2025
As of January 2026, Tether’s reserves include corporate bonds, gold, Bitcoin, and secured loans—and exceed $5 billion in over-collateralized assets—far surpassing the total outstanding USDT liabilities. With stablecoin supply continuing to expand, Tether’s dominance in emerging markets solidifying, and the GENIUS Act newly enacted, observers have drawn comparisons between today’s banking landscape and the late 19th-century free-banking era—while critics often cite that same era when warning about risks associated with private money issuance.
In the podcast interview, Dr. Arthur Laffer argued that stablecoins will usher in a new, more efficient version of free banking for the United States—and that prevailing negative perceptions lack foundation. Critics contend that private issuers like Tether and Circle risk reviving the chaotic “wildcat banking” of the 19th century. Dr. Laffer explained that 19th-century private banknotes frequently traded at a discount because users had to independently assess each issuing bank’s creditworthiness—and because the U.S. government provided no guarantee for those notes. Banknotes were, fundamentally, liabilities of individual banks—redeemable only in gold or silver if the issuing bank remained solvent. Brian Domitrovic, historian at the Laffer Center, and Dr. Laffer both note that prior to the Federal Reserve’s founding in 1913, various forms of currency competed freely across the United States.
Dr. Laffer further elaborated that in 1834, the U.S. government set the official gold price at $20.67 per ounce—establishing the gold standard—but offered no guarantee for redemption of every banknote in circulation. Redemption depended entirely on each issuing bank’s balance sheet strength and market reputation—a mechanism that violated the principle of “unconditional convertibility.” Yet, prices remained remarkably stable over the long term: from 1776 through the Fed’s founding in 1913—a span of 137 years—the cumulative U.S. inflation rate was zero, with prices fluctuating modestly around fixed face values and exhibiting no sustained upward or downward trend.
Free-banking systems outside the U.S. performed even better—particularly Scotland (1716–1845) and Canada (1817–1914). These systems achieved low inflation and extremely low bank failure rates, and their banknotes circulated largely at par. A key reason for this success lay in competitive redemption mechanisms and clearinghouse institutions—both enforced by market forces rather than regulation. In contrast, U.S. state-level restrictive regulations hindered development during its own free-banking era (1837–1861), including bans on branch banking and requirements that banks hold risky state government bonds as collateral. After a turbulent period in the early 1840s, the average discount rate on “bankrupt banknotes”—i.e., notes issued by insolvent banks—fell below 2%. Intriguingly, that figure matches the Federal Reserve’s current inflation target. During this same period, the U.S. economy grew robustly—laying the financial groundwork for the full-scale Industrial Revolution following the Civil War in 1865.
Stablecoins share numerous similarities with that era’s currencies: both are privately issued liabilities backed by reserves. But modern technology and regulatory oversight have addressed many of the flaws endemic to the “wildcat banking” era. Stablecoins operate beyond the constraints of branch-banking rules, as they are inherently global, digital instruments. Today, functions analogous to historical clearinghouses exist in the form of highly liquid secondary markets, exchanges, and arbitrage mechanisms—all ensuring stablecoins maintain tight pegs to their reference prices. Compared to the illiquid U.S. Treasury securities held by free banks in the late 19th century, the collateral quality of regulated issuers (e.g., cash and short-term Treasuries under the GENIUS framework) and even non-regulated ones (like Tether) is significantly higher. Regular audits, on-chain transparency, and federal oversight have also substantially reduced fraud risk among major issuers.
Just as free banking arose in response to weak or absent central banking systems, stablecoins emerged to fill a market gap left by inefficient, heavily regulated, and costly banking and payment infrastructures. In the 18th and 19th centuries, railroads, telegraphs, and advanced printing technologies fueled free banking’s expansion; today, blockchain and global internet infrastructure serve as the primary engines driving stablecoin adoption.
The U.S. free-banking era ended after the Civil War and the passage of the National Banking Act, which centralized currency issuance under federal authority. Early in the Civil War, the U.S. suspended the gold standard; between 1861 and 1865, states required banks to hold state government bonds as reserves—creating artificial demand for those bonds. Simultaneously, the federal government taxed all banknotes not backed by high-quality federal government bonds—effectively forcing privately issued notes out of circulation. The U.S. restored the gold standard in 1879, and the 1870s and 1880s became the fastest-growing decades in U.S. economic history.
When economic growth far outpaces government capacity—as occurred in the U.S.—mandating that currency issuers hold large quantities of federal bonds as reserves becomes impractical. Since the supply of federal bonds cannot meet reserve requirements, banks are forced to repeatedly contract their money supply—triggering deflation and banking panics. Ultimately, Congress passed the Federal Reserve Act in 1913, nationalizing the reserve system and establishing the Federal Reserve.
Before 1913, private clearinghouse systems and interbank temporary promissory agreements supplied substantial liquidity during banking panics—but federal regulation tied currency issuance directly to federal bond holdings, constraining money supply. After the Fed’s creation in 1913, persistent inflation emerged: the Consumer Price Index rose more than 30-fold. In stark contrast, during the century preceding the Fed—under the gold standard, bimetallism, and competitive currency issuance—even amid the full-scale Industrial Revolution, the U.S. cumulative inflation rate remained zero.
Where Are Stablecoins Headed Next?
Stablecoin issuers like Tether and Circle cannot actively mint or redeem tokens to maintain their pegs. Only whitelisted institutions meeting anti-money laundering (AML) and know-your-customer (KYC) requirements may issue new USDT by depositing cash—or redeem tokens and return them to Tether. Instead, the peg is maintained passively via arbitrage mechanisms, while Tether and Circle commit that each USDT and USDC in circulation is redeemable for $1.00.
Dr. Laffer believes this model holds significant value in emerging markets and high-inflation economies—but broader adoption in advanced economies will require a more sophisticated stablecoin design: one that maintains its dollar peg *and* appreciates in line with inflation, thereby preserving purchasing power over goods and services.
Under the newly enacted GENIUS Act, Paolo Ardoino, co-founder of Tether, contends that any stablecoin distributing yield directly to users should be classified as a security and subject to regulation by the U.S. Securities and Exchange Commission (SEC). Currently, interest-bearing “tokenized money market funds” remain accessible only to qualified investors. Dr. Laffer envisions future stablecoins pegged to baskets of goods-and-services indices—and backed by long-duration assets such as Bitcoin and gold.
Indeed, Tether has already launched AUSDT—a gold-backed stablecoin—and XAUT, a tokenized gold product. As Ardoino notes, this structure enables users to hold long positions in Bitcoin and gold while transacting using a stable-value instrument—and as collateral appreciates, users’ borrowing capacity increases accordingly.
Notably, this model is not unprecedented in crypto. Sky Protocol (formerly MakerDAO)—one of DeFi’s earliest and most enduring experiments—pioneered the concept of crypto-collateralized stablecoins. As a decentralized bank, Sky issues the USD-pegged stablecoin USDS. Users deposit assets such as Ethereum into smart contracts to borrow USDS. To ensure solvency, all loans are over-collateralized; if collateral value falls below a safety threshold, automatic liquidation is triggered. Today, USDS is expanding its collateral portfolio to include diversified assets—maximizing efficiency and yield while minimizing risk.
Collateral composition backing USDS
To further reinforce its peg, Sky introduced the Peg Stability Module (PSM), enabling direct USDC-to-USDS swaps. Arbitrageurs use the PSM to keep USDS trading near $1.00—providing liquidity and redemption capacity to offset volatility in crypto-collateral prices. Beyond payments, Sky offers a savings mechanism via interest-bearing sUSDS tokens, whose yield derives from borrower interest, tokenized money market funds, U.S. Treasury investments, and DeFi strategies. In essence, USDS functions both as a medium of exchange and as a global savings instrument.
Following the GENIUS Act’s passage, many observers have focused on how Tether plans to enter the U.S. market. According to Ardoino, one of the fastest-growing use cases for stablecoins is commodity settlement—increasingly recognized by commodity traders as the most efficient settlement tool. In 2025, Tether began providing settlement services for oil trades—sparking a sharp global surge in demand for USDT.
Ardoino notes that unless stablecoins integrate deeply into local economies, they tend to serve only as temporary settlement layers—eventually converted back into local currency. In contrast, in emerging markets with unstable local currencies, USDT functions not only as a payment tool but also as a savings vehicle and store of value—enabling sustained local circulation and widespread adoption.
Tether understands that the U.S., Latin America, and Africa represent fundamentally distinct markets. In developed economies, consumers already use electronic-dollar platforms like Venmo, Cash App, and Zelle. Over the coming months, Tether plans to launch USAT—a new stablecoin tailored specifically for developed markets. As the world’s largest stablecoin issuer moves into the world’s largest financial market, its progress warrants close attention.
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