Stablecoins are not "stable"

Author: Alex

If you stand on the streets of Buenos Aires or at the electronics market in Lagos, you’ll notice a peculiar phenomenon: Locals’ trust in their national currency has plummeted to an all-time low, and the app on their phones showing “USDT” or “USDC” balances has become their last line of asset security.

Meanwhile, financial elites around the world are staring at the heart-pounding K-line charts—not Bitcoin’s wild fluctuations, but the stablecoins allegedly “always equal to 1 USD” suddenly dropping to zero.

This is the true picture of the stablecoin market in 2025: a coexistence of extreme prosperity and extreme fragility.

Statistics show that in 2024, the on-chain settlement volume of stablecoins exceeded $27 trillion, even surpassing the combined total of Visa and Mastercard. Stablecoins are no longer just an accessory to cryptocurrency trading; they have quietly become the “shadow vessels” of global finance. However, the consecutive collapses of xUSD and deUSD, along with the strict regulation under the U.S. “GENIUS Act,” are pushing this industry into a turbulent reshuffling period.

01 When “Stability” Becomes a Lie

In the crypto world, “stability” is often the most costly illusion. The crisis of Stream Finance (xUSD) and Elixir (deUSD) in the second half of 2025 has given everyone a painful lesson in risk.

xUSD and deUSD: a $93 million black box game

If Terra’s collapse in 2022 was due to algorithmic hubris, then the destruction of xUSD in 2025 was driven by human greed.

xUSD claims to be a “yield-generating stablecoin,” with an alluring selling point: holding it not only keeps the coin’s value stable but also earns high interest. But where does this interest come from? Stream Finance claims to earn through complex arbitrage strategies. However, it wasn’t until November 2025 that the mask was torn off—the protocol entrusted large amounts of user funds to an off-chain external fund manager for trading, and this manager lost a full $93 million in off-market trades.

Investigations reveal that Stream Finance used cycle borrowing to amplify a principal of $160 million fourfold. When losses occurred, there was no buffer, and the xUSD price plummeted from $1 to $0.24 within 24 hours.

The disaster did not stop there. The deUSD issued by Elixir, which accepted xUSD as its core collateral, was dragged into the abyss instantly. It’s like a domino chain—when the first tile falls, the entire system cracks with a shattering sound. deUSD’s market cap evaporated by $100 million, and countless investors’ savings vanished into thin air.

Ethena ( USDe ): Dancing on a wire

Compared to the brutal collapse of xUSD, Ethena’s USDe showcases another kind of “delicate fragility.” USDe does not rely on bank deposits but maintains its value through “Delta-neutral strategies” (buying spot ETH and shorting equivalent futures).

This design works perfectly in a bull market as it acts like a money-printing machine, since shorting earns funding rates. But during market corrections in 2024-2025, funding rates frequently turn negative, meaning Ethena not only fails to make a profit but also has to pay out to counterparties. To maintain its attractive yields, the protocol has to draw from reserves.

Although USDe has not collapsed yet, it faces the constant threat of a “death spiral”: Once a trading platform experiences liquidity crises or rates stay negative for a long time, the mathematical balance of this synthetic dollar will be broken. It again reminds the market: There’s no free lunch; high returns come with high risks.

02 The Iron Curtain of Regulation: Bidding Farewell to the Wild West

If the pre-2024 era was the “wild west” of stablecoins, then 2025 marks the beginning of “acceptance” and “regulation.” As the stablecoin market’s size becomes impossible to ignore, governments have finally taken action.

In July 2025, U.S. President Trump signed the “GENIUS Act,” a watershed moment in the history of global stablecoins. Its core logic is very clear: Recognize the legal status of stablecoins but require them to be integrated into the dollar hegemony system.

The most damaging clause in the bill is the “Interest Ban”. Simply put, payment-type stablecoins like USDC are prohibited from paying interest directly to users.

The aim is to protect banks—if stablecoins are as convenient as cash but also offer 5% interest like government bonds, who would keep money in banks? This would trigger a huge migration of deposits.

What are the consequences? This clause directly stifles the survival space of some “native-interest-yielding” stablecoins in the U.S. Market fragmentation ensues: Regulatory-compliant stablecoins must return to their “digital cash” essence—zero interest, security, and use for payments.

03 Invisible Infrastructure

Despite tightening regulations, despite some coins going to zero, the adoption rate of stablecoins in the real world is surging. The root of this paradox lies in: for many, stablecoins are not a choice but a survival necessity.

Noah’s Ark in High-Inflation Environments

In Argentina, the annualized inflation rate once exceeded 200%. This means holding pesos causes your wealth to shrink daily. For freelancers in Buenos Aires, the first thing they do upon receiving wages is convert to USDT or USDC. This is no longer “investment,” but “hastening the stop-loss.”

In Nigeria, importers are fed up with the cumbersome and lengthy process of applying for dollars through banks (sometimes taking weeks). They find that paying for goods with stablecoins can be done in minutes, with fees 80% lower than banks. In 2024-2025, Nigeria’s stablecoin trading volume approached $22 billion, driven by countless small and medium-sized enterprises “dollarizing” themselves to survive.

Payment Giants’ Betrayal

The most ironic thing is that the traditional finance (TradFi) institutions that once resisted cryptocurrency now are its most active promoters.

• Visa: launched the new Visa Direct feature, allowing global creators to receive USDC salaries directly in their digital wallets.
• Stripe: acquired stablecoin infrastructure company Bridge for $1.1 billion and is fully resuming crypto payments.

These giants finally see the reality: Rather than oppose a more advanced technology, it’s better to turn it into their underlying infrastructure. They don’t care whether users believe in decentralization; what matters is that this system is faster and cheaper than SWIFT.

04 Summary

2025 marks the end of the “wild west” phase of stablecoins and the beginning of their “mainstream” era. The collapse of xUSD proved that financial innovation detached from transparency is ultimately just a castle in the air, while the implementation of the “GENIUS Act” signals the full arrival of the compliant era.

The market is undergoing a profound evolutionary process: high-risk algorithmic games will be marginalized, replaced by transparent, regulated “digital cash” like USDC. These will serve as the underlying infrastructure for giants like Visa and Stripe, not only facilitating crypto transactions but also becoming lifeboats for hundreds of millions of ordinary people in Argentina, Nigeria, and beyond.

This transformation demonstrates that the US dollar has not been subverted; it has simply undergone a self-updating through code. For investors, the way forward is to abandon the illusion of “risk-free high yields,” and embrace real payment utility—this is the ticket to the future.