Stablecoins

I. Understanding Stablecoins in the Modern Credit Landscape

What Is a Stablecoin

A stablecoin is a digital asset designed to maintain a stable value by pegging itself to a reserve asset like the U.S. dollar.

Unlike Bitcoin and Ethereum, which are notorious for wild price swings, stablecoins aim for predictable valuations while keeping blockchain's speed and transparency intact. That makes them a practical bridge between traditional finance and digital assets.

The numbers tell the story. As of early 2025, more than $260 billion worth of stablecoins were in circulation, with transaction volumes hitting $27.6 trillion in 2024. The two biggest players, Tether (USDT) and Circle (USDC), account for nearly 99% of fiat-backed stablecoins.

Core purpose and use cases

Stablecoins serve multiple roles across financial services, and they're showing up in some unexpected places.

For one, they're the backbone of crypto trading. More than 80% of trade volume on major exchanges involves stablecoins. But they're also gaining serious traction in cross-border payments, where transaction volumes reached $6.3 trillion in the 12 months ending February 2025. That's equivalent to 15% of global retail cross-border payments.

And it's not just crypto-native companies paying attention. Financial institutions are integrating stablecoins into treasury operations and settlement infrastructure. Visa, Mastercard, and JPMorgan have all launched pilots or expanded platforms to handle stablecoin-based settlements.

II. The mechanisms of Stablecoin pegging and collateralization

What types of stablecoins exist?

Different stablecoins use different mechanisms to maintain their value peg. The three main approaches each come with distinct trade-offs:

• Fiat-collateralized stablecoins. These maintain their peg by holding reserves of traditional currencies or cash-equivalent assets in regulated financial institutions. The goal is a 1:1 ratio: one digital token backed by one dollar in reserve. Each USDC token is designed to be redeemable for exactly one U.S. dollar. Reserve composition typically includes physical cash, Treasury bills, and repurchase agreements. This centralized model offers advantages in stability and regulatory compliance, but requires trust in the issuing institution.
• Crypto-collateralized stablecoins. These use other cryptocurrencies as collateral and typically require overcollateralization to account for volatility. To mint $100 worth of stablecoins, you might need to deposit $150-200 worth of crypto. Smart contracts automatically manage collateral ratios, liquidating positions when values drop below set thresholds. This approach is more decentralized than fiat-backed models but introduces complexity and capital inefficiency.
• Algorithmic stablecoins. These tried using programmatic supply adjustments instead of collateral backing. The systems expand or contract token supply based on market demand to maintain price stability. The problem? They've proven vulnerable to market failures. TerraUSD collapsed in May 2022, erasing billions in value. Since then, algorithmic models have fallen out of favor with institutional players.

III. Operational impact and strategic value for lenders

How do financial institutions use stablecoins for cross-border payments?

Traditional cross-border transactions are expensive and slow. Fees range from 1.5% to 6%, and settlement often takes days.

Stablecoins can cut these costs by 40% or more while enabling near-instantaneous settlement. The potential savings? Estimates suggest between $23 billion and $116 billion annually as adoption scales globally.

Financial institutions aren't waiting around. They're integrating stablecoin rails into existing infrastructure in several ways:

• Real-time settlement networks. Circle's Circle Payments Network enables instant stablecoin-to-fiat transfers through Brazil's PIX system and Mexico's SPEI system.
• Merchant payout systems. Payment processors like BVNK partnered with Worldpay to facilitate payouts across travel, gaming, and marketplace verticals.
• Card network pilots. Visa and Mastercard have launched programs for stablecoin prefunding to reduce float times from days to minutes.
• Bank-issued stablecoins. JPMorgan expanded its blockchain payment platform to handle euro-denominated settlements for corporate clients.

For loan servicing operations, the practical advantages include faster fund disbursements, easier collection of international repayments, and simpler multicurrency portfolio management with reduced foreign exchange risk.

Stablecoins and asset tokenization

Stablecoins are opening doors to new approaches in asset tokenization. Traditionally illiquid assets like real estate, equipment financing, or invoice receivables can now be represented as digital tokens with stablecoin-denominated values. This creates interesting opportunities for merchant cash advance providers and business lenders looking to offer more transparent, programmable loan products.

The real advantage? Smart contract functionality lets lenders embed automated compliance checks, conditional disbursements, and programmable repayment waterfalls directly into loan structures.

Consider a line of credit backed by tokenized collateral. It could automatically adjust credit limits based on real-time asset valuations. Stablecoin-based payments provide immediate visibility into borrower cash flows without waiting for batch processing.

These capabilities extend automated loan workflows by embedding business logic at the infrastructure layer.

IV. Regulatory and compliance imperatives for stablecoin adoption

Reserve requirements and transparency

In July 2025, President Trump signed the GENIUS Act into law, creating the first comprehensive federal regulatory framework for payment stablecoins.

The requirements are strict. Issuers must maintain 100% reserve backing with liquid assets and publish monthly disclosures. Only certain entities can issue stablecoins: insured depository institutions, credit unions, bank subsidiaries, or approved nonbank financial institutions.

The Act also prohibits paying interest to stablecoin holders, keeping these instruments distinct from bank deposits.

The U.S. isn't alone in establishing frameworks. The EU's MiCA regulation took full effect in December 2024. Hong Kong passed its Stablecoin Ordinance in May 2025.

Mitigating illicit finance and AML/KYC risks

The GENIUS Act subjects stablecoin issuers to Bank Secrecy Act obligations, requiring effective anti-money laundering programs, Know Your Customer verification, and the technical capability to seize, freeze, or burn tokens when legally required.

The regulatory focus addresses real concerns. Stablecoins' borderless nature creates enforcement challenges. According to Chainalysis, stablecoins are involved in 63% of illicit crypto transactions, having displaced Bitcoin for certain criminal activities.

For lenders adopting stablecoin payments, robust compliance programs aren't optional. Modern loan management platforms need to integrate transaction monitoring and compliance requirements directly into payment workflows.

V. Bottom line

While stablecoins are yet to find their place in everyday American transactions, they are increasingly becoming a part of standard infrastructure, particularly for credit providers operating across borders or looking to cut transaction costs and settlement times.

The regulatory clarity through frameworks like the GENIUS Act, combined with growing institutional adoption, signals where this is headed. The strategic question for credit providers isn't whether stablecoins will reshape payments. It's how to position your organization to use them effectively while staying compliant.

LoanPro's modern credit platform provides the API-first infrastructure to integrate stablecoin payment rails alongside traditional methods. That flexibility matters as the landscape continues evolving.

If you're evaluating how stablecoins might fit into your lending or credit operations, reach out to us. We've helped hundreds of lenders modernize their payment infrastructure while maintaining compliance.