2025 Stablecoin Ecosystem Overview: Which of the Four Major Types to Choose?

Want to invest in stablecoins but feel confused by the various types? This article will clarify your thoughts.

How popular are stablecoins right now?

As of December, the total market value of stablecoins has exceeded 212 billion USD. There are nearly 200 types listed on the Coinmarketcap platform, which is just the tip of the iceberg. From on-chain data, the trading activity of stablecoins is only second to BTC and ETH, and they have already become infrastructure-level tools in the crypto market.

What exactly is a stablecoin?

In simple terms: it's a coin whose price doesn't fluctuate. By pegging it to the US dollar, gold, or other assets, it provides you with a “safe haven” in the crypto market. You don't have to worry about the awkward situation of making 10% today and losing 50% tomorrow.

The core logic is a 1:1 redemption - for every stablecoin issued, there must be 1 real asset as a reserve. This way, users can exchange it for cash at any time.

How to use stablecoins?

Hedging: Quickly switch positions on cryptocurrency exchanges without going through fiat settlement, saving time and transaction fees.

International Transfer: Cross-border remittances, arriving in minutes, with fees possibly less than 1% of traditional banks. Especially friendly for workers abroad sending money home.

DeFi ecosystem: Acts as collateral, liquidity funds, lending counterparties. DAI and sUSD are used most frequently in this area.

No Bank Finance: You can manage assets with just the internet and a mobile phone, without the need for a bank account. This is significant for areas with poor financial infrastructure.

Hedging Tool: When the market crashes, converting to stablecoins can protect the principal, and you can re-enter when the opportunity arises.

Four Types of Stablecoins, Each with Its Own Strategy

1️⃣ Fiat-collateralized (the safest and most centralized)

Mechanism: 1 dollar cash = 1 stablecoin, funds are held in a regulated bank.

Typical representative:

• USDT: The oldest and most liquid. Tether claims to have $14 billion in reserves, with over 100 million user wallets. Earned $7.7 billion in the first three quarters of 2024.
• USDC: Launched jointly by Circle and Coinbase, emphasizing regulatory compliance. Market capitalization of 42 billion, widely accepted by institutional investors.
• RLUSD: Ripple's new launch in December 2024. It claims to be completely transparent, with monthly third-party audits. Although it surged to a market value of 53 million just over a week after its launch, whether it can maintain this position depends on future developments.

Risk: There is a need to trust that the issuer really has that much money. Once it is exposed that the reserves are insufficient, the entire coin may collapse. Regulation is also a variable, with significant differences in policies across different countries.

2️⃣ Commodity-backed (with physical asset endorsement)

Mechanism: Backed by physical assets such as gold and oil. Each coin represents a certain gram of gold or barrel of oil.

Typical representative:

• PAX Gold: 1 PAXG = 1 troy ounce of pure gold, stored in a vault.
• Tether Gold: A gold stablecoin of the same concept.

Risk: Liquidity may be insufficient. Cashing out to real money may involve complex fees and procedures. Price fluctuations of products may also indirectly affect coin prices.

3️⃣ Crypto-collateralized (highly decentralized but requires over-collateralization)

Mechanism: Use other crypto assets as collateral. For example, if you want to issue 100 dollars worth of stablecoin, you may need to lock up 150 dollars worth of ETH or other coins as collateral.

Typical Representative:

• DAI: The star product of MakerDAO. Market cap of 5.3 billion. A must-use for DeFi natives.
• sUSD: A product of the Synthetix ecosystem.

Risk: Over-collateralization wastes capital efficiency. Bugs in smart contracts can lead to failures. A sharp drop in the collateral's price may trigger forced liquidation, potentially causing stablecoins to decouple. The collapse of UST (algorithmic stablecoin) in 2022 is a cautionary tale.

4️⃣ Algorithmic (the most innovative and also the most fragile)

Mechanism: Does not rely on real assets, completely relies on algorithms to automatically adjust the supply to stabilize the price. If the price is too high, more coins are issued; if it is too low, coins are retrieved.

Typical representative:

• Ampleforth: Automatically adjusts supply daily.
• Frax: Hybrid model, transitioning to full collateralization.

Risk: This thing is the most fragile. UST collapsed overnight in 2022, causing huge losses for investors. Without real asset backing, once market confidence collapses, algorithms won't help. Strongly advise beginners not to touch it.

Overview of the Most Popular Stablecoins on the Market

The Three Major Risks of Stablecoins You Should Know

Regulatory Minefield: The global attitude towards stablecoins is changing. The United States, European Union, and Singapore are all drafting regulations, and if policies shift suddenly, certain coins may be directly delisted.

Technical vulnerabilities: bugs in smart contract code, network attacks, flash loan arbitrage - these can all lead to stablecoin decoupling.

Market Black Swans: Insufficient reserves, manipulation, liquidity exhaustion… This has happened multiple times in history. The UST incident directly ruined an entire ecosystem.

Final Advice

The safest choice for beginners is USDT or USDC — good liquidity and widely accepted. For a DeFi experience, use DAI. If you have a demand for yield, you can try USDe or USD0, but make sure to do your homework.

Never touch algorithmic stablecoins unless you truly understand the risks and are prepared to lose money. The original intention of stablecoins is to protect the principal; do not treat them as speculative tools.