U.S. Treasury Secretary Scott Bessent (L) and Howard Lutnick, U.S....

Many readers might be familiar with Bitcoin. Yet a new entrant in the monetary order is stablecoins. They're the talk of the town in DC - and stablecoin players are making major geopolitical and economic moves.

Many readers might be familiar with Bitcoin. Yet a new entrant in the monetary order is stablecoins. They're the talk of the town in DC - and stablecoin players are making major geopolitical and economic moves.

What a stablecoin is

A stablecoin is a cryptocurrency token issued by a company that pledges to exchange or redeem some asset in return for each token issued. The US dollar often backs stablecoins; for example, USDC (USD Coin issued by Circle) and USDT (Tether) are the largest stablecoins and they are backed by the US dollar.

In the example of a US-backed stablecoin, an issuer will pledge to give you one US dollar for each token redeemed with them. This pledge means that you have to have faith in the underlying company to hold enough reserves to make you whole - and that they don’t engage in fractional reserve, meaning that they issue more tokens than they hold in terms of dollars, with the hope that people will not come and make a "run on their reserve" - similar to a bank run.

Some stablecoins are Euro-denominated and denominated in other currencies, such as the EURC. When Meta proposed the Libra Project (which became Diem) - the original idea was to create a stablecoin backed by a basket of currencies. There are also different stablecoins - from reserve-backed like the ones described to algorithmic stablecoins to even commodity-backed stablecoins that offer redemptions in gold for a token.

Stablecoins offer a token that can be used to settle payments in the underlying currency - a very popular solution for those without access to banking in the currency (ex, US dollar banking) or for those looking to avoid banking costs and the cost of transactions and wire transfers for cross-border remittances, micropayments and to a certain degree, merchant payments.

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What is the difference between stablecoins and Bitcoin?

Stablecoins and Bitcoin differ in several ways. One is that a stablecoin doesn’t need a native network -the most popular one, Tether, can be sent on whatever blockchain has the lowest fees. There are Tether integrations with Tron, Ethereum, and now, with the Lightning Network on Bitcoin. USDC follows the same principle - it can be transmitted across multiple chains, most notably its integration with the Coinbase-backed BASE layer. Stablecoins don't need a "blockchain" - they can work by using other chains to be transmitted.

Stablecoins rely on an issuing company that can back every token with real-world assets unlike Bitcoin. This dependency on a company also means that the company can be leveraged to freeze funds held in that stablecoin. A human CEO is responsive to political pressure in a way a neutral protocol would not be.

Unlike Bitcoin, the backing function is not peer-to-peer computers and large-scale markets but a single company acting as a banker of sorts. As a result, there isn’t a global network of peers, miners, or other stakeholders to hold stablecoins accountable beyond their internal practices.

Stablecoins have to hold reserves as part of their business model, and they make a profit on those reserves. For example, Tether holds many US Treasuries. This holding of reserves also means that stablecoins stay stable to the underlying asset's price. Bitcoin has volatility compared to fiat currencies like the US dollar because it has its own network and supply dynamics.

Stablecoins are meant to be pegged 1:1 with an asset like the US dollar - and if it gets de-pegged, this might spell the end of that stablecoin. When it was found that Circle held reserves in Silicon Valley Bank, for example, that were threatened, USDC traded below the US dollar in Asia. This threat might have caused significant damage to USDC if their funds were not then guaranteed in the bailout of Silicon Valley Bank. And this is what caused the algorithmic stablecoin Terra to flame out.

How are stablecoins playing out in global geopolitics?

Stablecoins are making an incredible amount of money with small teams, allowing them to exert much influence. They are the crux behind the Trump Administration’s argument that "crypto" strengthens the US dollar rather than vice versa. For example, Tether made about $13 billion in profits for 2024 while holding about $113 billion in direct or indirect holdings of US treasuries. For reference, that’s more than the $97 billion that Germany has in US treasuries, meaning Tether holds more US Treasury debt than a major G7 ally. Stablecoins now outrank countries in terms of buying and holding US debt.

Stablecoins are also a new way to access the US dollar without US banking - that seems hands-off,