Written by: 0xYYcn Yiran, Bitfox Research
The stablecoin market size and importance continue to surge, driven by the cryptocurrency market's heat and the expansion of mainstream application scenarios. By mid-2025, its total market value has exceeded $250 billion, growing over 22% from the beginning of the year. A Morgan Stanley report shows that these USD-pegged tokens currently have a daily trading volume of over $100 billion and will drive on-chain transaction volume to $27.6 trillion in 2024. According to Nasdaq data, this transaction scale has surpassed the combined total of Visa and Mastercard. However, behind this prosperous landscape, a series of hidden dangers lurk, with the most critical being that the issuers' business models and their tokens' stability are closely tied to US interest rate changes. As the next Federal Open Market Committee (FOMC) decision approaches, this research focuses on fiat-collateralized USD stablecoins (such as USDT, USDC), adopting a global perspective to deeply explore how the Federal Reserve's interest rate cycle and other potential risks will reshape the industry landscape.
Stablecoins 101: Growing Amidst Boom and Regulation
Stablecoin Definition:
Stablecoins are crypto assets designed to maintain a constant value, with each token typically pegged to the US dollar at a 1:1 ratio. Their value stabilization mechanism is primarily achieved through two methods: supporting with full reserve assets (such as cash and short-term securities) or relying on specific algorithms to regulate token supply. Fiat-collateralized stablecoins represented by Tether (USDT) and Circle (USDC) provide full collateral for each issued token unit by holding cash and short-term securities. This guarantee mechanism is the core of their price stability. According to Atlantic Council data, approximately 99% of stablecoin circulation is currently dominated by USD-denominated types.
Industry Significance and Current Status:
In 2025, stablecoins are leaping beyond the crypto realm, accelerating integration into mainstream financial and commercial scenarios. Visa launched a platform supporting bank-issued stablecoins, Stripe integrated stablecoin payment functions, and Amazon and Walmart are brewing plans to issue their own stablecoins. Simultaneously, the global regulatory framework is taking shape. In June 2025, the US Senate passed the milestone Stablecoin Payment Clarity Act (GENIUS Act), becoming the first federal-level stablecoin regulatory law. Its core requirements include: issuers must maintain a stable 1:1 support rate with high-quality liquid assets (cash or short-term government bonds maturing within three months) and clearly define token holders' rights protection obligations. In the trans-Atlantic European market, the Crypto Assets Market Regulation Act (MiCA) implements even stricter provisions, empowering authorities to restrict non-euro stablecoin circulation when threatening the eurozone's monetary stability. In the market dimension, stablecoins demonstrate strong growth momentum: as of June 2025, their total circulation value has exceeded $255 billion. Citi predicts that the market size could surge to $1.6 trillion by 2030, achieving approximately sevenfold growth. This clearly indicates that stablecoins are moving towards mainstream adoption, but their rapid growth is also accompanied by new risks and friction.
Figure 1: Ethereum Stablecoin Adoption Comparison and Market Activity Analysis (Past 30 Days)
Fiat-Backed Stablecoins and Interest Rate Sensitive Model
Unlike traditional bank deposits that provide interest to customers, stablecoin holders typically do not enjoy any returns. According to the Stablecoin Payment Clarity Act (GENIUS Act), fiat-collateralized USD stablecoin user account balances are explicitly set at zero interest (0%). This regulatory arrangement allows issuers to retain all returns from reserve fund investments. In the current high-interest-rate environment, this mechanism has transformed companies like Tether and Circle (USD Coin issuer) into high-profit entities. However, this model also makes them extremely vulnerable during interest rate downturn cycles.
[The translation continues in the same manner for the rest of the text, maintaining the specified translations for specific terms and preserving the original formatting.]Core Risks Beyond Interest Rates: Multiple Challenges in the Stablecoin System
Although interest rate dynamics occupy a central position in the stablecoin industry, multiple key risks and challenges still exist within this system. Against a backdrop of industry optimism, there is an urgent need for a systematic summary of these risk factors to provide a calm and comprehensive analysis:
Regulatory and Legal Uncertainty
Stablecoin operations are currently subject to fragmented regulatory frameworks such as the US GENIUS Act and the EU's Markets in Crypto-Assets Regulation (MiCA). While these frameworks grant some issuers legitimacy, they simultaneously bring high compliance costs and sudden market access restrictions. Regulatory measures targeting insufficient reserve transparency, sanction evasion (such as Tether's billions of dollars in transactions in sanctioned regions), or consumer rights violations can quickly suspend a specific stablecoin's redemption function or expel it from core markets.
Banking Cooperation and Liquidity Concentration Risks
Fiat-collateralized stablecoins heavily depend on limited partner banks for reserve custody and fiat channels (deposits/withdrawals). Sudden banking crises (like Silicon Valley Bank's collapse freezing $3.3 billion in USDC reserves) or massive redemption waves can rapidly deplete bank deposit reserves, trigger token de-pegging, and threaten broader banking system liquidity stability when wholesale redemption pressure breaks through bank cash buffers.
Anchoring Stability and De-pegging Risks
Even when claiming full collateralization, stablecoins can experience anchoring mechanism collapse during market confidence erosion (such as USDC price dropping to $0.88 in March 2023 due to reserve asset accessibility concerns). Algorithmic Stablecoins have an even steeper resilience curve, with TerraUSD's (UST) collapse in 2022 providing a significant illustration.
Transparency and Counterparty Risks
Users rely on quarterly reserve proof reports (Attestations) from issuers to assess asset authenticity and liquidity. However, lack of comprehensive public audits raises credibility doubts. Whether cash in banks, money market fund shares, or repurchase agreement assets, reserve assets inherently contain counterparty and credit risks that can substantially damage redemption guarantee capabilities under stress scenarios.
Operational and Technical Security Concerns
Centralized stablecoins can freeze or confiscate tokens to address attacks, but this also introduces single-point governance risks; DeFi versions are vulnerable to smart contract vulnerabilities, cross-chain bridge attacks, and custodian hacking. Simultaneously, user operational errors, phishing, and blockchain transaction irreversibility pose daily security challenges for token holders.
Macroeconomic Financial Stability Concerns
Stablecoin reserve funds totaling hundreds of billions of dollars are concentrated in the short-term US Treasury market, and large-scale redemptions will directly impact Treasury demand structure and yield volatility. Extreme outflow scenarios might trigger panic selling in the bond market; moreover, widespread stablecoin US dollar application could weaken the Federal Reserve's monetary policy transmission effectiveness, potentially accelerating CBDC research or establishing stricter regulatory barriers.
Conclusion
As the next Federal Open Market Committee (FOMC) meeting approaches, while the market generally anticipates maintaining unchanged interest rates, the subsequent meeting minutes and forward guidance will become the focus. The significant growth of fiat-collateralized stablecoins like USDT and USDC masks the essential commercial model deeply tied to US interest rate changes. Looking ahead, even moderate rate cuts (such as 25-50 basis points) could erode hundreds of millions of dollars in interest income, forcing issuers to reassess growth paths or transfer partial returns to token holders to maintain market adoption.
Beyond interest rate sensitivity, stablecoins must address continuously evolving regulatory environments, banking and liquidity concentration risks, anchoring integrity challenges, and operational vulnerabilities ranging from smart contract vulnerabilities to insufficient reserve transparency. Critically, when such tokens become systemically important Treasury bond holders, their redemption behaviors might impact global bond market pricing mechanisms and disrupt monetary policy transmission pathways.
