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Here are some of the latest developments and trends in the stablecoin space for 2025:
Market size and dominance
• Market size growth: By December 2024, the circulation of stablecoins reached a historical high of over $200 billion. By 2025, the total market value of stablecoins is expected to rise to $300 billion, with some analysts even predicting it could grow to a $3 trillion market within the next five years.
• Maintaining dominance: USDT and USDC, currently the two largest stablecoins by market cap, are expected to maintain their dominance in 2025. USDT will continue to be the largest stablecoin next year due to its existing moat.
Development in technology and applications
• Application of Layer 2 (L2) technology: By 2025, stablecoins will adopt L2 technology on networks such as Arbitrum, Optimism, and Base, which will become one of the largest areas of development for tokens. The adoption of L2 technology will enable more efficient transactions and lower fees for stablecoins in the cryptocurrency space.
• Yield and interoperability: With the growing adoption of L2 and interoperability, the stablecoin industry may see more yield-generating stablecoin solutions by 2025. For example, stablecoins like PayPal USD offer yield rewards just for holding the stablecoin. Additionally, interoperability between blockchains will facilitate seamless transfers of stablecoins across different cryptocurrency platforms, unlocking more use cases.
• Expansion in payment sectors: Visa expects a surge in demand for stablecoin-linked cards by 2025. Stablecoins will enter the mainstream as international payment tools, with new stablecoins like Ripple USD (RLUSD) focusing on cross-border settlements. BitPay data shows that although stablecoins only accounted for 5% of all transactions, by 2024, they will represent at least a quarter of the transaction volume on crypto payment platforms.
Regulation and compliance
• Clarification of regulatory policies: By 2025, the regulation of stablecoins will be clearer. For example, the MiCA regulations in Europe will regulate cryptocurrencies such as stablecoins. Clearer regulations will help stablecoins transition from niche financial instruments to mainstream asset classes.
• Development of compliant stablecoins: Compliant stablecoins such as Pax Dollar (USDP) issued by Paxos will enhance transparency and trust by adhering to portfolio management guidelines and publishing monthly attestation reports.
Emerging trends and innovations
• Stablecoins pegged to local currencies: By 2025, stablecoins pegged to local currencies will grow. For example, the Central Bank of the United Arab Emirates has approved the launch of the Dirham-backed stablecoin AE Coin. Local stablecoins will be integrated into local banking systems, potentially challenging the dominance of the dollar and diversifying the market.
• Rise of decentralized stablecoins: Decentralized stablecoins like Usual gained significant attention and funding in the second half of 2024. Usual issues decentralized stablecoin USD0 backed by U.S. short-term treasury bonds, and its TVL grew rapidly in a short period. Decentralized stablecoins, with their transparency and decentralized advantages, are expected to capture a larger share of the stablecoin market.
Market competition and challenges
• Intensified market competition: The stablecoin space is highly competitive, with new entrants continually emerging. In addition to established stablecoins like USDT and USDC, emerging decentralized stablecoins and local currency-pegged stablecoins are also vying for market share. Stablecoin issuers need to continuously innovate and enhance their competitiveness to stand out in the market.
• Coexistence of risks and challenges: The stablecoin market also faces certain risks and challenges. For example, the collateral assets of some decentralized stablecoins may carry risks, such as price volatility in crypto assets. Additionally, with the rapid development of the stablecoin market, changes in regulatory policies may also impact the market.
