Key Takeaways
- The stablecoin industry continues to expand, with a significant increase in market capitalization and the addition of new coins.
- Expected pick-up in the tokenization of real-world assets (RWA) and efforts to capture yield increase the utility of stablecoins. The implementation of regulatory frameworks will be key to spur adoption.
- In December of 2023, S&P Global Ratings launched Stablecoin Stability Assessments (SSAs) with eight assessments. We have since added four more.
- Our SSAs include dollar and euro-pegged, interest-earning, decentralized, and crypto-backed stablecoins that reflect the broader stablecoin market. Cumulatively, the 12 stablecoins we have assessed so far represent more than 95% of the total outstanding stablecoin volume.
Market Dominance Remains Relatively Consistent
Fiat-backed USDT and USDC remained the two largest stablecoins in 2024, with a combined market share of 92% out of the 11 largest (see charts 1 and 2). They were followed by USDS/DAI, a long-standing decentralized stablecoin launched in December 2017, and USDe, which was launched in 2024 and expanded rapidly. USDS/DAI's and USDe's combined market share amounted to 6%, compared with 1% for the fifth-largest stablecoin, FDUSD.
Chart 1
Chart 2
Top Trends For 2025
RWA tokenization and yield-bearing coins are coming to the fore
RWA tokenization is the representation of a physical asset, such as a traditional financial asset, as a digital token on the blockchain. RWA-tokenized treasuries, which represent U.S. treasuries on the blockchain, enable on-chain users to access off-chain asset yields within decentralised finance protocols. The integration of tokenized treasuries provides stablecoin issuers with a low-risk, transparent, and yield generating collateral. Bridging blockchain technology with traditional investment products, such as U.S. treasuries, can also strengthen the use case of stablecoin issuers.
BlackRock's tokenized USD Institutional Digital Liquidity Fund (BUIDL)--a money market fund that operates on the public blockchain Ethereum--has been among the larger entrants in the RWA tokenization space. BUIDL serves as collateral or reserve asset for several stablecoins and invests in cash, short-term debt securities, and U.S. Treasuries.
As part of this trend, yield-bearing stablecoins are gaining popularity among stablecoin users. They can combine the price stability component inherent to stablecoins with the opportunity to earn yield, and can remain on-chain, benefiting from continuous liquidity, even on weekends. Several stablecoins that we assess have adopted this feature and transitioned or are transitioning to a yield-bearing mechanism.
Examples Of The RWA Tokenization Trend
- Frax Finance plans to move its current stablecoin FRAX to frxUSD, which will be backed by BUIDL. The stablecoin is currently mostly backed by fiat-backed stablecoins and more volatile crypto currencies.
- Ethena, the issuer of USDe, reported that its new stablecoin, USDtb, is backed primarily by BUIDL. This stablecoin will be used both as reserves and collateral to support USDe.
- USDM is using collateral in short-term U.S. treasuries or repurchase agreements, or indirectly through tokenized funds, such as BUIDL and USTB, to gain interest earnings, which are then distributed to USDM holders.
- USDC very recently acquired Hashnote, the issuer of a $1.3 billion tokenized money market fund (USYC). USYC is a yield-bearing token. The current stated goal is to integrate USYC with USDC, enabling convertibility between cash and yield-bearing collateral on blockchains.
- To support the innovation of RWA tokenization, decentralized finance platform Sky, formerly Maker, launched the Spark Tokenization Grand Prix in August 2024. The initiative aims to reward projects that propel RWA tokenization, thus ultimately improving the transparency and liquidity of RWA.
Regulatory pressure and regional divergence are increasing
2025 is set to become another pivotal year for stablecoin regulation as regions adopt different approaches to regulatory oversight. The EU's Markets in Crypto-Assets Regulation (MiCA) has established a comprehensive rulebook for stablecoin issuers, focusing on reserve transparency and operational accountability. This has led to notable market shifts, such as Coinbase's decision to delist certain non-compliant stablecoins in the European Economic Area (EEA) by the end of 2024. Conversely, stablecoins such as Circle's USDC and EURC have achieved MiCA compliance, ensuring their continued availability in the EEA.
Meanwhile, Singapore and Hong Kong are developing regulatory frameworks for their respective regions. This global regulatory patchwork presents challenges for issuers operating across multiple jurisdictions but also offers a competitive advantage for those agile enough to adapt to diverse regional requirements. The increasing emphasis on compliance underscores the importance of robust governance, transparent reserve disclosures and solid audit practices, all of which are becoming critical factors in building user trust and attracting the institutional adoption of stablecoins.
We expect the regulatory atmosphere in the U.S. will change with the new administration. On Jan. 21, 2025, the Securities and Exchange Commission announced a new crypto task force (see "Digital Assets Brief: Crypto's Trump Card," published Nov. 20, 2024). On Jan. 23, 2025, the president signed an executive order titled "Strengthening American Leadership in Digital Financial Technology." Related to stablecoin, the executive order supports the advance of legitimate, dollar-backed stablecoins globally. Specifically, it sets the direction in the U.S. toward privately issued stablecoins instead of Central Bank Digital Currency (CBDC). We anticipate additional developments relating to stablecoin will be addressed this year. The current lack of a regulatory framework for stablecoins in the U.S. has constrained the uptake of financial market use cases, such as tokenization. Although the tokenization of money market funds accelerated in 2024, regulatory clarity could spur investor confidence and help scale up these applications.
Assets, Transparency, And Market Capitalization Remain Key Differentiators
We have published 12 SSAs since their launch in December 2023 (see chart 3), with asset assessments ranging from 2 (strong) to 5 (weak).
Chart 3
Our analytical approach begins with the assessment of asset quality risks--including credit, market value, and custody risks--and potential mitigants, such as overcollateralization, reserve funds, and liquidation mechanisms (see chart 4). We then adjusts for governance, legal and regulatory frameworks, redemption and liquidity, technology, and the stablecoin's track record of maintaining its intended peg.
Chart 4
Asset Differentiators
Off-chain assets: USDT, USDC, FDUSD, TUSD, USDP, GUDS, EURC, and EURCV. Many stablecoins we assessed have assets backed partly or mostly by cash and short-term treasuries that are held at various banks or institutions. When comparing the strength of the assets, we consider the creditworthiness of the custodian, bank account provider, and counterparties holding these assets. Distinctions within our assessments resulted from weaker counterparties or lack of transparency on these institutions.
On-chain assets: USDM, FRAX, DAI/USDS, and USDe. For stablecoins backed by assets on-chain, differentiating factors included the asset type and the level of available overcollateralization.
- USDM is backed by a mix of cash, investments held at various banks and institutions, and on-chain collateral held by tokenized funds, such as BUIDL and USTB. We consider that BUIDL's and USTB's reliability is stronger than that of most other on-chain collateral.
- FRAX and USDe are currently backed mostly or partially by direct cryptocurrency holdings, where values can fluctuate. In our view, excess reserves for both coins do not provide a sufficient cushion for potential volatility.
- DAI/USDS also uses more volatile crypto currencies as part of its collateral. The coin has supporting collateral vaults to maintain a liquidation threshold and mechanism that prevent under-collateralization when values fluctuate. This differentiates it from other crypto-backed stablecoins and improves our view of the underlying asset strength.
Regulation And Market Capitalization
Regardless of the collateral, the lack of regulatory clarity continues to impair our view of stablecoins with the largest market capitalization and strongest secondary market liquidity, albeit in different ways. Specifically, USDT is issued outside of any regulatory framework; USDC's issuer Circle is regulated as a money transmitter at state level but lacks a dedicated Federal stablecoin framework; DAI/USDS is a decentralized stablecoin not currently covered by regulatory frameworks; and USDe has a pending application for a MiCA license. For stablecoins with clearer regulations--such as USDP (regulated by the New York State Department of Financial Services; NYDFS), GUSD (NYDFS), EURC (MiCA), EURCV (MiCA), and USDM (Bermudan regulation)--their relatively small market capitalization and limited secondary market activity remain constraining factors.
Table 1
| Stablecoin Stability Assessments at a glance | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Stablecoin | Stablecoin Stability Assessment | Assets | Regulation | Market capitalization as of Dec. 31, 2024 | Track record | Notable recent news | What could support potential improvements | |||||||||
| USDT | 4 | Both low-risk assets (cash/short-term investments) and significant exposure to higher-risk assets; lack of disclosure on reserve custodians, counterparties, or bank accounts | No regulatory framework | $137.5 billion | Strong track record and secondary market liquidity | -- | Improved asset transparency, shift to lower-risk assets and clarity on regulation | |||||||||
| USDC | 2 | Assets are cash/short-term investments; regular montly audits; daily reports on roughly 90% of assets through the BlackRock Circle Reserve Fund | MiCAR-compliant; lack of clarity on regulation in the U.S. | $43.9 billion | Strong track record and secondary market liquidity | Became MiCAR-compliant in July 2024; acquired Hashnote to create access to yield-bearing assets | Clarity on regulation and maintained asset strength | |||||||||
| USDS/DAI | 4 | Assets backed by collateral deposited in vaults by borrowers (vault owners) in the SKY protocol. Weak link approach across vaults, which includes crypto assets (such as ether and staked ether), real-world assets, and other stablecoins. | No regulatory framework | $5.4 billion | Strong track record and secondary market liquidity | Along with DAI, new stablecoin USDS was launched under the Sky protocol. The conversion from existing DAI into USDS is optional. USDS and DAI are considered equivalent, with both tokens backed by same collateral. | Shift toward less risky assets or consisent effective hedging of risky assets | |||||||||
| USDe | 5 | Delta-neutral strategy; crypto assets (bitcoin, ethereum, staked ethereum, and stablecoins) and short futures; monthly self-reporting | Applied for MiCAR compliance; some regulatory ambiguity | $5.9 billion | Short track record but strong secondary market liquidity | New entrant in 2024 | Increased cushion for potential market disrutpions and a longer track record | |||||||||
| FDUSD | 4 | Assets are cash/short-term investments but lack of transparency on financial institutions that hold reserves introduce counterparty risk | No regulatory framework; Hong Kong stablecoin regulation currently being proposed | $2.2 billion | Growth but no long-term track record. | -- | Improved transparency on financial institutions that hold reserves | |||||||||
| TUSD | 4 | Mostly higher-risk assets; lack of disclosure on the nature of assets in the reserves | No regulatory framework | $494.8 million | Some price volatility and good, but declining, secondary market liquidity | -- | Improved transparency on assets and bankruptcy remoteness | |||||||||
| USDP | 2 | Assets are cash/short-term investments but can be held in rated and unrated institutions. Oversight and restrictions by the NYDFS provide comfort on assets. | Follows NYDFS guidelines | $93 million | Strong track record; direct redemption within one business day with the sponsor, but scarce secondary market liquidity | -- | Stronger secondary market liquidity and market growth | |||||||||
| GUSD | 2 | Assets are cash/short-term investments; held at highly rated banking institutions | Follows NYDFS guidelines | $58.8 million | Strong track record; direct redemption within one business day with the sponsor, but scarce secondary market liquidity | -- | Stronger secondary market liquidity and market growth | |||||||||
| EURC | 2 | Assets are cash/short-term investments; held at highly rated banking institutions | MiCAR-compliant | $83.4million | Limited track record | -- | Longer track record and market growth | |||||||||
| EURCV | 3 | Assets are cash/short-term investments); held at Société Générale (A/A-1) (2) | MiCAR-compliant | $41.3 million | Limited track record | -- | Longer track record and market growth | |||||||||
| USDM | 3 | Assets are short-term U.S. treasuries or repurchase agreements, indirectly through tokenized funds such as BUIDL and USTB, or direct holdings of cash/short-term investments; lack of transparency on direct holdings financial institutions; tokenized funds have good transparency | Fully licensed under the Bermudan regulation but unavailable in several countries, including the U.S. | $47.9 million | Limited track record | -- | Stronger secondary market liquidity, longer track record, and reliance on more established third parties for direct holdings | |||||||||
| FRAX | 5 | Crypto-backed (stablecoins, liquidity pools with more volatile crypto currencies, and direct holdings of volatile crypto currencies) | No regulatory framework | $646.1 million | Limited growth in 2024 but sufficient liquidity | Transitioning to frxUSD, which is anticipated to be backed by BUIDL. We will monitor the tansition and its effect on FRAX. | Improved excess reserves | |||||||||
| BUIDL--BlackRock USD Institutional Digital Liquidity Fund. MiCAR--Markets in Crypto-Assets Regulation. NYDFS--New York State Department of Financial Services. SSA--Stablecoin stability assessment. Source: S&P Global Ratings. | ||||||||||||||||
Can Stablecoins Increase Digital Bond Adoption?
Most digital bonds that we have rated so far have used traditional off-chain payments. Difficulties in enabling on-chain payments and the lack of a functioning on-chain secondary market have limited issuers' and investors' interest in digital bonds. Stablecoins offer one solution to enable on-chain payments. An example where stablecoins are emerging as a tool to bridge this gap is the recent announcement of USDC's integration with the Canton network (a permissioned blockchain controlled by partnering financial institutions, on which several digital bonds have been issued). If progress on stablecoin legislation accompanies such developments, the adoption of stablecoins by traditional issuers and investors should accelerate.
Related Research
- Stablecoin Stability Assessment: FRAX, Jan. 28, 2025
- Stablecoin Stability Assessment: EURC, Jan. 17, 2025
- Stablecoin Stability Assessment: USDe, Jan. 16, 2025
- Stablecoin Stability Assessment: EUR Coinvertible (EURCV), Jan. 6, 2025
- Stablecoin Stability Assessment: USDC, Dec. 19, 2024
- Stablecoin Stability Assessment: USDS/DAI, Dec. 17, 2024
- Stablecoin Stability Assessment: Mountain Protocol USD (USDM), Dec. 6, 2024
- Stablecoin Stability Assessment: Gemini USD, Dec. 4, 2024
- Stablecoin Stability Assessment: Tether (USDT), Dec. 3, 2024
- Stablecoin Stability Assessment: First Digital USD (FDUSD), Dec. 3, 2024
- Stablecoin Stability Assessment: Paxos USD (USDP), Nov. 26, 2024
- Stablecoin Stability Assessment: TrueUSD (TUSD), Nov. 22, 2024
- Digital Assets Brief: Crypto's Trump Card, Nov. 20, 2024
- TUSD Stablecoin Price Drop Highlights Underlying Challenges To Maintain Its Peg, Jan. 16, 2024
- Stablecoin Stability Assessment: Dai, Dec. 12, 2023
- Analytical Approach: Stablecoin Stability Assessments, Nov. 28, 2023
- Stablecoins: A Deep Dive Into Valuation And Depegging, Sept. 7, 2023
- Stablecoin Depegging Highlights DeFi's Exposure To TradFi Risks, March 15, 2023
- Stablecoins: Common Promises, Diverging Outcomes, June 15, 2022
This report does not constitute a rating action.
| Primary Credit Analyst: | Lisa R Schroeer, Charlottesville + (434) 529-2862; lisa.schroeer@spglobal.com |
| Secondary Contacts: | Rebecca Mun, London + 44 20 7176 3613; rebecca.mun@spglobal.com |
| Florent Stiel, Paris + 33 14 420 6690; florent.stiel@spglobal.com | |
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| Andrew O'Neill, CFA, London + 44 20 7176 3578; andrew.oneill@spglobal.com | |
| Lapo Guadagnuolo, London + 44 20 7176 3507; lapo.guadagnuolo@spglobal.com |
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