The Development History and Future Outlook of Stablecoins: Drawing Lessons from the History of the American Banking Industry

Stablecoins, as an innovative payment method, have simplified the way value is transferred. Although the number of users has reached millions and transaction volumes have reached trillions of dollars, the definition and understanding of stablecoins remain unclear.

Stablecoins are a medium of value storage and exchange, typically pegged to the US dollar. In just five years of development, stablecoins have evolved from under-collateralized to over-collateralized, from centralized to decentralized. This development process helps us understand the technical structure of stablecoins and dispels market misconceptions.

Stablecoins have created a market parallel to traditional financial infrastructure, with annual trading volumes even exceeding those of major payment networks. To understand the limitations and scalability of stablecoins, the historical development of the banking industry in the United States provides valuable insights.

In recent years, stablecoins have shown the following development trends:

1. Fiat-backed stablecoins like USDT and USDC are widely adopted due to their simplicity and security.

2. The adoption of asset-backed stablecoins has been relatively lagging, but they occupy an important position in the traditional banking system.

3. Decentralized, low-staking rate stablecoins like Luna-Terra have failed.

4. The emerging strategy to support synthetic dollars is still in the exploratory phase.

A Review of the Development History of the American Banking Industry

Before the Federal Reserve Act was enacted in 1913, there were significant differences in the risks and value of different forms of currency. The actual value of bank notes, deposits, and checks depended on the issuer, the ease of redemption, and the credibility.

After 1913, the value of the US dollar tended to unify. Modern banks balance profit and risk through deposit investments, and credit has become an important means to increase the money supply and capital efficiency.

Stablecoins provide users with an experience similar to bank deposits and notes, but in a decentralized form. The development path of stablecoins may start from simple deposits and notes, gradually evolving towards asset-backed solutions as decentralized lending protocols mature.

Three Main Types of Stablecoins

fiat-backed stablecoin

Similar to 19th century American banknotes, backed by fiat currency and redeemable. Currently accounts for over 94% of the total supply of stablecoins, primarily issued by Circle and Tether. To enhance trust, issuing institutions accept audits and obtain relevant licenses.

asset-backed stablecoin

Issued by on-chain lending protocols, mimicking the way banks create money through credit. Currently has a small share, but is expected to expand with the increase in on-chain economic activities. Users can evaluate based on standards such as governance transparency, asset quality, and smart contract security.

strategy-supported synthetic US dollar

The combination of collateral and investment strategies essentially represents the dollar share in an open-ended hedge fund. It carries higher risks and is not suitable as a reliable store of value or medium of exchange. Currently, it is mainly favored by users with a higher risk appetite.

Future Outlook

Stablecoins have become an important payment tool, with a global circulation exceeding $160 billion. In the future, fiat-backed stablecoins may continue to dominate the market, while the proportion of asset-backed stablecoins is expected to increase as decentralized lending protocols mature.

The DeFi space may continue to innovate, introducing more strategy-supported synthetic dollar products. At the same time, the quality and quantity of asset-backed stablecoins are also expected to improve. Overall, stablecoins are likely to reshape the payment industry, creating new opportunities for existing businesses and startups.