Anna's Deep Dives

_{Just facts, you think for yourself}

You’ve heard the word “stablecoin.”

It probably brings to mind crypto day-traders, slick phone apps, and headlines you scroll past. But this quiet corner of finance has exploded into a $200 billion market, and here’s what’s really happening when a digital dollar moves at light speed.

Last year, these tokens settled $27.6 trillion—more than Visa and Mastercard combined.

But this power comes with huge risks. The collapse of just one "algorithmic" stablecoin vaporized $40 billion in a matter of days, forcing a global showdown. The EU is now banning certain types, while the U.S. rushes to write its own rules.

And underneath it all? A single stablecoin issuer now holds more U.S. Treasuries than many countries, giving one offshore company quiet sway over America’s money-market rates. Meanwhile, a shopkeeper in Lagos can get paid in dollars—instantly—for less than a penny.

Good for her balance sheet. Terrifying for Nigeria’s central bank.

We pulled the thread. What we found is eye-opening.

Here’s the breakdown:

• The Foundations – What Is This Thing, Really? Forget the jargon. We explain why this market exploded from a small experiment into a global force. It’s not just about trading crypto; it’s being used for high-speed remittances that cut costs by 60% and for a new kind of "dollarization" in emerging economies. But with over 30 million active users, is the foundation solid? [Click here to read Section 1 and get the basics right (Premium)]

• Anatomy of the Peg – How It's Supposed to Stay "Stable" Not all stablecoins are built the same. Some are backed 1-to-1 by cash and T-bills held at firms like BlackRock. Others are propped up by risky algorithms. We break down the models, including a post-mortem on the Terra/UST collapse that vaporized $40 billion and showed how fragile "code is law" can be when panic sets in. [See Section 2 on how the different models work (and fail) (Premium)]

• The Market – Who's Winning and Why? This is a market of giants. Two players, Tether (USDT) and Circle (USDC), control nearly 90% of the landscape. But they have completely different strategies—one courts regulators, the other avoids them. And now, TradFi players like PayPal are jumping in. We look at the data, including why the average stablecoin payment on some networks is just $20, while in Africa, the average B2B transaction is over $219,000. [Explore Section 3 for the competitive landscape (Premium)]

• The Global Regulatory Gauntlet Regulators are no longer just "monitoring the situation." The EU's new MiCA framework has already led to the delisting of Tether on some exchanges. In the U.S., bipartisan bills are on the table to bring stablecoins under banking laws. This is a global race to write the rulebook, and the outcome will determine the future of digital money. [Understand Section 4 for the new rules of the game (Premium)]

• Financial Stability – The Real Shockwaves What happens when this digital market can shake the traditional one? With issuers holding over $200 billion in U.S. Treasuries, a "digital bank run" on a major stablecoin could force a fire sale of T-bills, impacting yields. We explore the systemic risks, and why over 130 countries are now exploring their own Central Bank Digital Currencies (CBDCs) as a defensive measure. [Analyze Section 5 for the contagion risks (Premium)]

• The New Playbook – What's Next? This is about more than just payments. The next generation of stable value includes yield-bearing tokens (one regulated version offers a 3.85% return) and assets backed by tokenized real-world assets. And institutions are already using this tech to build a new financial plumbing for 24/7 settlement, with giants like the DTCC (which settled $3 quadrillion in 2023) running their own pilots. [Discover Section 6 for the strategic outlook (Premium)]

This isn't about speculating. It's about understanding a fundamental shift in how money works.

Get the full picture.

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Table of Contents

^{(Click on any section to start reading it)}

Section 1: Foundations – Defining the New Bedrock of Digital Finance

• 1.1 Setting the Stage: Why the $200B+ Stablecoin Market Demands Scrutiny

  • The core value proposition: Solving crypto's volatility problem to unlock financial applications.

  • Examining core use cases: On-chain liquidity, high-speed/low-cost remittances, trade settlement, and the "dollarization" of emerging market digital economies (EMDEs).

• 1.2 A Taxonomy of Stability: Decoding the Digital Dollar

  • The Four Pillars: A detailed breakdown of Fiat-Backed, Commodity-Backed, Crypto-Collateralized, and Algorithmic models.

  • Regulatory Terminology: Defining key legal classifications such as "Asset-Referenced Token" (ART) and "E-Money Token" (EMT) under frameworks like MiCA.

• 1.3 The Evolution of Digital Money: From BitUSD to Global Juggernaut

  • Tracing the historical timeline from the conceptual launch of BitUSD (2014) to today's market dynamics.

  • Analyzing current market structure: Dominance of key players (e.g., USDT's ~62% share), total market float, and key growth inflection points.

Section 2: Anatomy of the Peg – Mechanics, Technology, and Risk Management

• 2.1 The Custodial Model: Fiat-Collateralized Reserves

  • Deep Dive: The custody chain, the composition of reserve portfolios (cash, T-bills, commercial paper), and the role of third-party custodians.

  • The Gold Standard of Transparency: The shift from periodic attestations to real-time, on-chain "Proof-of-Reserves."

  • Case Studies: Contrasting Tether's (USDT) historical opacity with Circle's (USDC) regulatory-forward approach.

• 2.2 On-Chain Models: Algorithmic & Crypto-Collateralized Designs

  • Deconstructing the mechanics: Mint-and-burn incentives, over-collateralization ratios, and the role of governance tokens.

  • Post-Mortem of a Collapse: The Terra/UST death spiral as a case study in "reflexive failure" and flawed algorithmic design.

  • Hybrid Models: Examining the structure of projects like FRAX that blend collateralized and algorithmic components.

• 2.3 The Technology Stack & Interoperability Challenge

  • Comparing Layer-1 implementations: Technical and economic trade-offs of issuing on Ethereum (ERC-20), TRON, Solana, and other base layers.

  • The Rise of Layer-2s: How rollups are reducing transaction costs and increasing throughput for stablecoin payments.

  • The Risks of a Multi-Chain World: Analyzing the security vulnerabilities of cross-chain bridges and messaging protocols.

• 2.4 The Institutional Risk Management Toolkit

  • Identifying and mitigating key risks: Collateral risk, liquidity shortfalls, oracle manipulation, and smart-contract vulnerabilities.

  • The Regulatory Expectation: The growing demand for robust stress-test frameworks to model and prepare for de-pegging scenarios.

Section 3: Market Structure, Adoption, and Competitive Landscape

• 3.1 Global Footprint & On-Chain Analytics

  • Data Deep Dive (citing Q1 2025 trends): Analyzing issuance, velocity, redemption patterns, and average transaction sizes across key stablecoins.

  • Geographic & Sectoral Penetration: Mapping adoption hotspots in remittance corridors (e.g., Latin America, Southeast Asia) and use in corporate treasuries as a tool for capital-controls arbitrage.

• 3.2 The Indispensable Core of DeFi

  • Mapping the ecosystem: Stablecoins as the primary unit of account in liquidity pools, lending markets, and derivatives protocols.

  • Collateral Quality Tiers: Contrasting the market perception of USDC/USDT as "pristine" collateral versus the risk profile of decentralized alternatives like DAI.

• 3.3 The Competitive Gauntlet: Incumbents, Challengers, and the State

  • Centralized Issuers: The market power of Tether (USDT), Circle (USDC), and new entrants from TradFi like PayPal (PYUSD).

  • Decentralized Challengers: The resilience and growth of MakerDAO (DAI) and Frax Finance (FRAX).

  • The Horizon: The emerging interplay with tokenized bank deposits and the looming presence of Central Bank Digital Currencies (CBDCs).

Section 4: The Global Regulatory Gauntlet

• 4.1 United States: A Fractured but Converging Approach

  • Legislative Efforts: Analyzing the Clarity for Payment Stablecoins Act (formerly the GENIUS Act).

  • Executive and Agency Scrutiny: FSOC recommendations on systemic risk and enforcement actions against illicit flows (e.g., the Evita case).

• 4.2 European Union: The MiCA Framework Goes Live

  • A Detailed Analysis: The specific requirements under Titles III (ARTs) & IV (EMTs) of the Markets in Crypto-Assets regulation.

  • Examining the impact of the 30 June 2024 implementation date on capital requirements, reserve rules, and disclosure standards for issuers.

• 4.3 The Global Standard-Setters: Crafting International Norms

  • Summarizing key guidance from the Bank for International Settlements (BIS), Financial Stability Board (FSB), and IOSCO.

  • Focusing on international consensus regarding redemption rights, reserve asset quality, and run-risk mitigation.

• 4.4 The Compliance Frontline: From Theory to Practice

  • Architectures of Control: Implementing robust KYC/AML frameworks on-chain.

  • The Future of Supervision: Exploring the potential for "embedded supervision" where regulators can monitor compliance in real-time via nodes.

Section 5: Financial Stability & Macroeconomic Shockwaves

• 5.1 Contagion Risk 1: Linkages to Core Money Markets

  • Presenting BIS research findings: How multi-billion-dollar stablecoin reserve adjustments can impact yields on short-term government debt (e.g., 3-month T-bills).

• 5.2 Contagion Risk 2: Bank Funding & Deposit Migration

  • Assessing the "digital bank run" scenario: How interest-bearing stablecoins could siphon transactional deposits from the traditional banking system.

  • Citing analysis from bodies like the Treasury Borrowing Advisory Committee (TBAC) on potential impacts to bank funding costs.

• 5.3 The Challenge to Monetary Sovereignty: The Rise of "Cryptoization"

  • Analyzing the BIS warnings on dollar-backed stablecoins eroding the monetary policy control of emerging market central banks.

  • Examining the primary policy response: The acceleration of domestic CBDC projects as a defensive measure.

Section 6: Strategic Outlook – Innovation, Integration, and the New Playbook

• 6.1 The Next Generation of Stable Value

  • Exploring innovations on the horizon: Fully collateralized yield-bearing stablecoins, tokens backed by a diverse basket of Real-World Assets (RWAs), and built-in programmable policy hooks.

• 6.2 The Quest for Interoperable & Atomic Payment Rails

  • Evaluating the integration of stablecoins with next-generation financial messaging standards like ISO 20022.

  • The potential for tokenized clearinghouses and true atomic settlement (DvP) to revolutionize institutional finance.

• 6.3 The Institutional Strategic Playbook

  • Mapping concrete opportunities for financial institutions: Enhanced custody services, 24/7 FX and cross-border settlement, on-chain repo markets, and liquidity management.

• 6.4 Charting the Path Forward: A Policy & Research Agenda

  • Proposing concrete next steps for fostering safe innovation.

  • Key Recommendations: Establishing global data-sharing agreements, designing effective on-chain circuit breakers, mandating uniform disclosure templates, and expanding regulatory sandboxes.

Baked with love,

Anna Eisenberg ❤️