Understanding Stablecoins: Real-World Use Cases, Benefits, and Risks

A two-part research series exploring the technology shaping digital money.

Excerpt: Stablecoins have become one of crypto's most important innovations, but why are millions of people using them? Through real-world scenarios, discover how stablecoins work, where they create value, and the challenges they must overcome to become mainstream.

Ever since stablecoins emerged, the number of users has grown steadily. By 2025, their total market value exceeded $200 billion. That same year, transactions reached trillions of dollars. Today, stablecoins account for roughly 40% of all crypto activity, reflecting their relevance in the crypto economy. Despite some drawbacks over the years, they continue to gain ground in the digital finance space.

Because of this, it is worth examining how stablecoins work, why people use them, what risks they still carry, and the leverage they need to achieve further growth in the coming years. Such an overview, however, would be superficial without considering primary users, people who directly experience both the advantages and disadvantages of these assets. 

At present, stablecoins are used globally. Yet their role varies by region. People in advanced economies use stablecoins for trading pairs, collateral, and settlement tools. In North America and Europe, they play an important role in decentralized finance and are widely adopted for trading and liquidity. Regions such as Latin America and Africa, show other financial needs, where their value lies in low-cost remittances and DeFi services such as lending and staking. In these regions, stablecoins also help protect users' savings against currency volatility.

This first article examines various aspects of stablecoins, from their origins to potential future developments. It does so through the stories of Luca, an investor who has been active in the ecosystem for more than a decade, and María, an everyday user who has discovered the practicality of using stablecoins. The second part of the series, on the other hand, focuses on characteristics that the underlying technology must support to make stablecoins scalable and available to more users. 

The Origins of Stablecoins 

As an active retail investor, Luca follows crypto markets closely. He tends to reallocate his portfolio in response to price movements. One of his early decisions was to buy Bitcoin. When he did so, luck was not on his side. Just two weeks later, the cryptocurrency prices dropped considerably. This experience prompted Luca to seek a way to maintain value, as he was confident in the ecosystem and did not want to leave it. He eventually decided to convert his funds into a stablecoin. 

In the early years of cryptocurrencies, stories like Luca's were common. The extreme volatility of Bitcoin and other cryptocurrencies created demand for a way to "pause" value. This is when the first stablecoin entered the market. In 2014, many investors saw it as a safe place in rough times. 

Stablecoins, a Definition 

María works at a casino. Ironically, she has never played or gambled. One of the things that puzzles her about working in this place is the idea that within those four walls people swap money for tokens with a fixed value. What intrigues her the most is how in this closed system, everyone accepts that those tokens represent real money.  

Stablecoins are a type of cryptocurrency that work similarly, as they were designed to maintain a stable value. To do so, they are pegged to other assets, often commodities or fiat currencies like the US dollar, or stabilised through algorithmic mechanisms that help retain the same value. The former type is the most prevalent today. In practice, they operate globally and function as digital versions of traditional money on blockchain networks. 

Two Digital Currencies 

With a background in technology, Luca is particularly interested in how digital financial systems work at a structural level. When he discovered that governments issue digital currencies, such as the digital yuan, he became intrigued by the differences between them and stablecoins. 

On a smartphone screen, central bank digital currencies (CBDCs) and stablecoins might look the same. But they are not. Although both function as digital money, they differ in aspects such as issuer, legal status, regulation, and trust. As official currencies issued by a country's central bank, CBDCs operate within its monetary system and are closely supervised by financial authorities. On the other hand, private entities issue stablecoins, backing them using reserves. As such, they rely heavily on the management and transparency of their issuers.  

For example, the Chinese government issues and controls the digital yuan as a CBDC. It can freeze funds and incorporate it into its sanctions framework. In contrast, a private entity issues a yuan-backed stablecoin, which cannot be frozen or controlled by China in the same way. Yet its value remains tied to the yuan, meaning it is still indirectly affected by Chinese monetary policy. 

Within a few years, CBDCs could capture part of the stablecoin market. Anticipating that, Luca began investing in stablecoins backed not by fiat currencies, but by assets such as gold and silver.

Real-World Use 

María works abroad and regularly sends money to her family. Like many migrant workers, she relies on these transfers to cover their expenses. After many years, she is quite tired of how slow and expensive traditional banks and remittance services are. Every time she sends money, it arrives two or three days later. In addition, if she sends $200, for instance, she ends up losing $14 in fees.

When she heard about cryptocurrencies, the first thing she wondered was whether she could use them for the same purpose. The initial excitement quickly faded as she realized how wildly prices could swing. One day, however, a friend at the casino mentioned an alternative. He told her she could use a stablecoin called USD Coin. María decided to give it a try, and since then, her parents have received funds from María within minutes. Other advantages include no longer losing money on high transaction fees or worrying about cryptocurrency volatility.

Stablecoins also offer benefits to users like Luca. For a long time, he saved to buy a house in the US using traditional methods. But after learning how much he would lose in international transaction fees, he looked for an alternative and found stablecoins to be the best option for closing the deal. As in María's case, a great advantage is that he can do this within minutes and with minimal fees. 

Remittances are not the only use case for stablecoins. The table below shows other current applications. 

With stablecoins, users can store, move, and use digital assets. Many people like María and Luca have found them extremely convenient because they can benefit from the stability of traditional money and, at the same time, the flexibility of crypto. Yet, they show some drawbacks worth noting.

A Broken Algorithm & the Frozen Wallet

When Luca heard about TerraUSD he was immediately attracted by its stability and high returns. He decided to invest and, for a while, was satisfied with the gains he obtained. But in May 2022 things changed. The stablecoin lost its dollar peg and panic spread among investors. Luca lost a considerable amount of his assets. Around the same time, he also faced another complication: his wallet was frozen during a compliance review, leaving him unable to access his funds. Difficult situations like those Luca went through illustrate some of the main risks stablecoin users may face:

• Trust: many fiat-backed stablecoins rely on issuers to hold real-world reserves. Users must therefore trust that these reserves exist and are properly managed.

• Centralization and censorship risk: since issuers have centralized control over stablecoins, they can freeze wallets or accounts. In extreme cases, they can also shut them down.

• Depegging and systemic risk: situations such as market stress, technical flaws, or design errors can cause a stablecoin to lose its peg, ultimately causing significant losses for users.

Stablecoins are far from being entirely risk-free. This is because their stability depends on specific mechanisms that maintain their peg. Even in the best-case scenario, user protection does not compare to that of traditional bank accounts. After a series of incidents, however, governments have finally taken steps to build greater trust.   

New Acts Arrive in Town

After deciding to use stablecoins to send money to her family, María is constantly worried that her funds could be frozen unexpectedly, leaving her unable to access them. 

Recently, she learned that a positive change is on its way. Under new frameworks, issuers would be required to hold verified reserves and comply with clear regulations. These new frameworks change the game. María is now convinced that such changes give more protection to her funds, making freezes far less likely.  

In the U.S., the GENIUS Act was introduced to provide clearer rules for stablecoins. This act regulates them primarily as digital payment tools rather than investment products. In Europe, a similar framework has been implemented. The Markets in Crypto-Assets (MiCA) regulation establishes strict standards for stablecoin issuers. These include licensing and reserve backing requirements. Both should increase trust and consumer protection by setting clearer boundaries for how stablecoins may operate within each financial system.

It is true that regulation is a powerful tool for safeguarding users. Still, a downside is that they can also affect the very innovation that made stablecoins popular, initially slowing it down and, in the long run, making it disappear.  

Another aspect to consider is that regulation builds on underlying technology. Blockchain technology plays a key role in this context, as stablecoins can leverage the decentralization it offers. Since stablecoins are becoming an alternative to national paper currencies, they require additional technical capabilities to operate at scale. Any blockchain project intended to support millions of users worldwide must therefore address two key challenges: interoperability and scalability. The research team explores these challenges in the second part of the series.  

Looking Ahead

Five years from now, María is not only sending money to her family, but also paying rent and buying groceries with stablecoins. Moreover, Luca's bank offers stablecoin accounts, and governments issue CBDCs with characteristics similar to those of today's stablecoins. Yet both continue to coexist within the financial system, as many stablecoins are now backed by assets such as gold and silver rather than fiat currencies. In this scenario, stablecoins have contributed to a more connected financial landscape. 

It is also likely that stablecoins will become far less experimental and more tightly regulated. With increased regulation, they could become little more than digital equivalents of bank deposits. 

The main value of stablecoins is that they reduce the volatility risk associated with cryptocurrencies. Since they are digital, they are easy to transfer and suitable for large transactions compared to physical assets like gold or real estate. They reduce certain risks while still being interoperable with the broader cryptocurrency ecosystem. Stablecoins may therefore play a key role as a core interoperability layer across digital financial infrastructure while remaining decentralized. 

Another relevant factor for the future is that governments are also exploring or developing their own digital currencies. This development could compete with or even reshape the stablecoin market. Taxation on transactions, earnings, capital gains, and related matters would likely become clearer and more transparent, similar to that for traditional financial assets. Over time, this could provide greater legal certainty and security, yet it may also affect users by reducing anonymity and removing some of the regulatory grey areas that currently exist. The evolution of stablecoins may be toward greater privacy in payments, providing users with an alternative to more transparent CBDCs. 

Stablecoins require more robust infrastructure to enable broader adoption. As it stands, scalability and interoperability for mass adoption are challenging for many existing blockchain infrastructures. For this reason, these two characteristics are the focus of the second installment of this series. With mass adoption, stablecoins could evolve from tools for managing volatility into a core component of the global financial system. Users like Luca and María may then benefit from greater accessibility and speed, along with further opportunities mass adoption may bring.