Stablecoins at the crossroads: Entering the financial mainstream

Stablecoins, once confined to the fringes of the crypto universe, are moving into the financial mainstream.

These digital tokens, typically pegged one-for-one to a fiat currency such as the US dollar, are rapidly gaining traction across global commerce, finance, and regulatory spheres.

Their ascent is stirring debate about their utility, systemic risks, and the adequacy of current frameworks to oversee them.

The Case for Stablecoins

For some fintech pioneers, the case for stablecoins is already clear-cut.

Nkiru Uwaje, COO and co-founder of Mansa – a trade payments platform operating across Africa, South-East Asia, and South America – relies on them for virtually all of the company’s financial activity.

With 90% of Mansa’s payments conducted in tether, the world’s most widely used stablecoin, Uwaje views this new medium of exchange as a pragmatic solution in regions grappling with volatile currencies, fragile banking systems, and restrictive capital controls.

“You’re just trying not to go down with the economy,” she explains, underscoring how stablecoins offer consistent access to dollar-based liquidity outside the constraints of the traditional financial system.

Inefficiencies in Cross-Border Payments

But what began as a workaround for inefficiencies in cross-border payments has begun to mutate into something far larger.

Politicians in Washington, including US Vice-President JD Vance, have publicly embraced digital dollars as a tool for extending America’s economic influence.

With bipartisan support coalescing around draft legislation, the sector’s previously ambiguous regulatory status is beginning to crystallise.

Major payments players such as Visa and Stripe are integrating stablecoin functionality into their offerings, while corporates like Uber are reportedly evaluating their use to cut foreign exchange costs.

The implications are far-reaching.

Investment bank Standard Chartered forecasts stablecoins could balloon to a market capitalisation of $2 trillion by the end of 2028, up from around $250 billion today.

Meanwhile, the number of wallets used regularly for stablecoin transactions surged to a record 46 million in May 2025, up from 27 million a year earlier, according to Visa.

A Paradox…

Yet stablecoins remain a paradox: digitally native and borderless, yet pegged to fiat currencies and managed by centralised issuers with opaque practices.

Unlike commercial banks, stablecoin issuers such as Tether and Circle do not extend loans.

Instead, they back each token with liquid assets – predominantly US Treasury bills and money market instruments – and generate profits from the yield on these holdings.

Tether, for instance, posted a staggering $13 billion in profits last year with just 100 staff.

But critics argue this financial model remains precarious. Most issuers provide only limited attestations, not full audits, of their reserves.

Past scandals – such as Tether’s $41 million penalty in 2021 for misrepresenting its backing – have fuelled ongoing concerns about solvency and transparency.

These concerns are not merely academic.

The Bank for International Settlements recently warned that large-scale redemptions – akin to a digital bank run – could have real consequences for the US Treasury market.

A BIS simulation found that $3.5 billion in stablecoin outflows over five days could nudge short-term Treasury yields upward by 0.08 percentage points, an effect similar to a modest central bank policy adjustment.

Regulatory Catch Up

Despite these systemic risks, regulation is only now catching up.

Proposed US legislation would require stablecoin issuers with over $50 billion in outstanding tokens to provide independently verified reserve disclosures and prohibit interest payments to token holders, in an effort to limit competition with bank deposits.

Foreign issuers would be held to similar standards, and tech firms hoping to launch their own stablecoins would face higher regulatory hurdles.

Not everyone is convinced the draft rules go far enough.

Critics such as Amanda Fisher from Better Markets warn that the current approach is too permissive, lacking robust consumer protections and deposit insurance mechanisms.

“We’re sleepwalking into disaster with the integration of crypto and traditional finance,” adds Hilary Allen, professor at American University.

Illicit activity remains another pressing concern.

A 2024 UN report identified tether as the digital asset of choice for Asian organised crime syndicates, while blockchain analytics firm Chainalysis estimates that 63% of all crypto-related criminal activity now involves stablecoins.

Although issuers often freeze suspect wallets and tout their compliance with anti-money laundering rules, enforcement gaps remain – especially in decentralised finance, where trades can occur anonymously and without oversight.

Promise of Efficiency

Yet the promise of efficiency cannot be dismissed.

Michael Shaulov of Fireblocks believes stablecoins could radically improve the speed and cost of cross-border settlement. “You’re shortening settlement from three days to 10 seconds,” he says.

That kind of capability is hard for legacy systems to ignore.

The next phase of growth will depend on reconciling this technological promise with regulatory imperatives.

If done carefully, stablecoins could offer a viable form of digital cash, combining the efficiency of internet-native payments with the reliability of traditional money.

But if oversight remains patchy or insufficient, the sector risks replicating the failures of 19th-century “wildcat” banks, whose paper promises often proved worthless.

As governments, regulators and businesses wrestle with these issues, one thing is clear: stablecoins are no longer a sideshow. They are becoming an integral – if still contested – part of the global financial system.