Crypto Assets ultimately outputted an unimaginable product: stablecoin

Last year, three major events brought stablecoins into the mainstream:

1. Tether, as the issuer of the world's largest stablecoin USDT, has created nearly $13 billion in profit with fewer than 200 employees.

2. President Trump's inauguration and the shift in the United States' attitude towards the regulation of digital assets.

3. Stripe acquired the stablecoin infrastructure company Bridge for $1.1 billion to facilitate cross-border transactions.

As people make a fortune in a thriving ecosystem, regulations become increasingly clear.

If you are issuing or using stablecoins to develop your business, I hope this guide helps you understand how experienced practitioners view this field.

In order to provide multi-faceted perspectives, we leverage an extensive network of contacts to gain unique insights from leading contributors at the forefront of stablecoin transformation.

Let's start learning!

Definition of Stablecoin

Stablecoins are typically liabilities denominated in US dollars, supported by reserves of assets equal to or greater than their market value.

There are mainly two types:

• Fiat support: Fully backed by bank deposits, cash or low-risk cash equivalents ( such as government bonds ) as collateral.

• Collateralized debt position ( CDP ): Primarily over-collateralized by crypto native assets ( such as ETH or BTC ).

The fundamental determining factor of stablecoin utility is its "peg" to the underlying reference asset ( US dollars ). This peg is maintained through two mechanisms: primary redemption and secondary market. First, can I immediately redeem my stablecoin liabilities for an equivalent amount of reserve backing? If not, is there a deep and lasting secondary market that allows market participants to buy and sell my stablecoin liabilities at the pegged exchange rate?

Due to the unpredictability of the secondary market, we believe that primary redemptions are a more durable pegging mechanism. Furthermore, it is worth noting that there are many low-collateral or algorithmic stablecoins attempting these, which lack support, and we will not elaborate on them in this guide.

It is important to note that stablecoins do not come out of thin air. When you hold a dollar deposit at JPMorgan Chase, JPMorgan Chase is responsible for safeguarding your dollars, ensuring you can use them, and allowing you to transact with others using dollars.

Stablecoins rely on blockchain to provide the same core functionality.

Definition of Blockchain

Blockchain is a global "accounting system" that includes personal assets, transaction records, as well as transaction rules and terms.

For example, Circle's stablecoin USDC is issued based on the ERC-20 token standard, which stipulates the rules for a successful transfer of tokens: deducting a certain amount from the sender's account and adding the same amount to the receiver's account. These rules, combined with the consensus mechanism of the blockchain, ensure that no user can transfer more USDC than they hold (, commonly referred to as the double spending problem ). In short, the blockchain is like an append-only database or a double-entry ledger, with an initial state that records every transaction occurring within its closed network.

All assets on the blockchain, including USDC, are held by the Ethereum account (EOA, wallet ), or smart contracts. When specific conditions are met, the smart contracts can receive and transfer assets. The ownership of EOA, that is, the ability to trade assets from a public address, is enforced through the public-private key encryption scheme of the underlying blockchain, which binds each public address to a private key on a one-to-one basis. If you own the private key, you effectively own the assets in the public address. "Not your keys, not your coins" (. Smart contracts hold and trade stablecoins based on pre-programmed transparent logic, allowing on-chain organizations ) such as DAOs or AI agents ( to trade stablecoins programmatically without human intervention.

The "trust" in the system's accuracy comes from the execution and consensus mechanisms of the underlying blockchain ), such as the Ethereum Virtual Machine ( EVM ( and Proof of Stake ). Accuracy can be proven through the initial state of the blockchain and the publicly auditable history of each subsequent transaction. Transaction settlements are managed 24/7 by a globally distributed network of node operators, allowing the settlement of stablecoins to be unaffected by traditional bank operating hours. To compensate for the service provided by node operators, transaction fees are charged during transaction processing ) Gas (, usually priced in the native currency ) of the underlying blockchain (, such as ETH ).

These definitions may be a bit dry, and even somewhat rebellious for some, but this concise and practical overview provides our readers with a suitable common ground. So, let's start with the more interesting part: how did we get to this point?

History of Stablecoins

Twelve years ago, stablecoins were just a fantasy. Today, Circle, the issuer of the world's second-largest stablecoin USDC, is preparing for a sale or IPO. Circle's S-1 document provides firsthand information from USDC founder Jeremy Allaire, detailing the founding journey of USDC. ( Note: Circle has completed the IPO ).

We invited our friends Phil Potter and Rune Christensen, who are the founders of the world's largest stablecoin ( USDT ) and the third largest stablecoin ( DAI ), to share their entrepreneurial stories.

Tether: The Birth of a King

Back in 2013, the Crypto Assets market was in a Wild West era, and the main places to access and trade Crypto Assets were exchanges like Mt.Gox and BitFinex. Given that Crypto Assets were in their early stages, the regulatory environment at that time was more ambiguous than it is now: exchanges were advised to follow "best practices," which meant only accepting deposits and withdrawals of Crypto Assets like BTC deposits and BTC withdrawals (. This meant traders were forced to exchange dollars for Crypto Assets on their own, a mandatory regulation that hindered the widespread adoption of Crypto Assets. Furthermore, traders needed a place to hide from the extreme price volatility of Crypto Assets without leaving the "casino."

Phil Potter entered the Crypto Assets field with a Wall Street background and a pragmatic perspective, keenly aware of market bottlenecks. His solution was simple: a "stablecoin"—a dollar-denominated Crypto Assets liability backed by a dollar reserve—allows traders to cope with exchange and market fluctuations through dollar-valued liabilities. In 2014, he brought this idea to BitFinex, then one of the largest exchanges. Ultimately, he partnered with BitFinex to create Tether, an independent entity with the necessary currency transmission licenses to integrate into a broader financial network of banks, auditors, and regulators. These providers are crucial for Tether to manage reserve assets and handle complex fiat transactions in the background, while enabling BitFinex to maintain its "pure Crypto Assets" positioning.

This product is simple, but its structure is very aggressive: Tether issues dollar-denominated liabilities )USDT(, and only certain trusted entities that have undergone KYC certification can directly mint or redeem USDT for its underlying reserve assets.

However, USDT operates on a permissionless blockchain, which means that any holder can freely transfer USDT and exchange it for other assets on the open secondary market.

For a full two years, this concept seemed to have died before it was born.

Until 2017, Phil noticed that the adoption rate of USDT was increasing in regions such as Southeast Asia. Upon investigation, he found that export companies began to view USDT as a faster and cheaper alternative to the regional dollar payment network. Eventually, these companies started using USDT as collateral for imports and exports. Around the same time, cryptocurrency natives began to notice the increasing liquidity of USDT and started using it as margin for arbitrage across exchanges. At this point, Phil realized that Tether had built a faster, simpler, and always-open parallel dollar network.

Once the flywheel starts spinning, it will never slow down. Since issuance and redemption always occur within a regulated framework, while the tokens circulate freely on blockchains like TRON and Ethereum, USDT has achieved escape velocity. Every new user, merchant, or exchange that accepts USDT will only enhance its network effect, increasing the utility of USDT as a store of value and a means of payment.

Currently, the circulating value of USDT is nearly $150 billion, far exceeding the $61 billion circulation of USDC, and many refer to Tether as the company with the highest per capita profit in the world.

Phil Potter is an outstanding figure in the Crypto Assets field, and his philosophy is quite unique.

However, we cannot call him an "outsider" in the traditional financial world; he is the kind of person you would expect to create the world's largest stablecoin. Rune Christensen, on the other hand, is not.

![Understanding the Past and Present, A Guide for Stablecoin Practitioners])https://img-cdn.gateio.im/webp-social/moments-e69a61900367e41b0f019858b180110a.webp(

) DAI: The first decentralized stablecoin

Rune discovered it when the Crypto Assets were still in their infancy and quickly dubbed himself the "Bitcoin Big Shot." He is a typical Crypto Assets adopter, viewing BTC and blockchain as a ticket to escape an unfair and exclusive financial order. In 2013, BTC opened at around $13 and broke through $700 by the end of the year, giving early adopters ample reason to believe that Crypto Assets could truly replace our financial system.

However, the subsequent economic downturn forced Rune to accept a fact: the ultimate utility of Crypto Assets depends on the management of this volatility. "Stability is beneficial for business," Rune concluded, and a new idea was born.

In 2015, after witnessing the failure of BitShares' "first" stablecoin, Rune collaborated with Nikolai Mushegian to design and build a dollar-denominated stablecoin. However, unlike Phil, he lacked the connections to execute a strategy similar to Tether and had no intention of creating a solution dependent on the traditional financial system. The emergence of Ethereum, as a programmable alternative to Bitcoin, allowed anyone to encode logic into the network through smart contracts, providing Rune with a creative platform. Could he utilize the native asset ETH to issue a stablecoin based on it? If the volatility of the underlying reserve asset ETH is as great as that of BTC, how does the system maintain solvency?

The solution by Rune and Nikolai is the MakerDAO protocol, which is based on Ethereum and was launched in December 2017. MakerDAO allows any user to deposit $100 worth of ETH and receive a fixed amount of DAI###, such as $50(, thus creating a debt in the form of an over-collateralized stablecoin backed by ETH reserves. To ensure the system's solvency, the smart contract sets a liquidation threshold), such as when the price of ETH is $70(; once breached, third-party liquidators can sell the underlying ETH assets, thereby relieving the debt of DAI. Over time, new modules have emerged, aimed at simplifying the auction process, setting interest rates to adjust the issuance of DAI, and further incentivizing those third-party liquidators with profit motives.

This ingenious solution is now known in the Crypto Assets field as "Collateralized Debt Position ) CDP (" stablecoin, and this original concept has sparked a rush of dozens of imitators. The key to the system's ability to operate without centralized gatekeepers lies in the programmability of Ethereum and the transparency provided by public chains: all reserve assets, liabilities, liquidation parameters, and logic are known to every participant in the market. In Rune's words, this achieves "decentralized dispute resolution," ensuring that every participant understands the rules for maintaining the system's solvency.

With the circulation of DAI) and its sister project USDS( exceeding $7 billion, Rune's creation has developed into a systemically important pillar in decentralized finance) DeFi(. However, in the rapidly changing competitive landscape, managing the ideological appeal to break away from a collapsing system has become increasingly difficult; the capital inefficiency of CDPs and the lack of efficient direct redemption mechanisms stifle its scalability. Recognizing this reality, MakerDAO began a significant transformation towards traditional reserve assets) such as USDC( in 2021, and in 2025 shifted towards BlackRock's tokenized money market fund) BUIDL(. During this transformation period, MakerDAO) is now establishing its position as the most critical liquidity provider for tokenized assets through Sky( via the tokenized Grand Prix), a $1bn tokenized money market fund( MMF) RFP managed by Steakhouse Financial, and a $220 million private credit fund issuing blockchain-native securities in collaboration with BlockTower Credit and Centrifuge.

![Explaining the past and present, stablecoin