Stablecoin Essentials 2025: Your Global Primer on Fiat‑Backed, Crypto‑Collateralised & Algorithmic Tokens

Written By Marms Hope

By Beth Haddock, Advisory Board member & Global Head of Policy and Sakota Doi Bekku, intern at Stablecoin Standard and attorney at TMI Associates.

Executive Summary

“Stablecoin Essentials 2025” distills what policymakers, investors, and innovators need to know about today’s most influential digital‑asset category. Drawing on market data and regulatory milestones, the article:

  • Defines the core model. It explains how fiat‑backed tokens maintain a 1:1 peg through fully reserved assets held under prudential oversight—linking blockchain efficiency with familiar money‑market discipline.

  • Maps an expanding toolkit. Beyond cash‑backed coins, readers get a side‑by‑side look at four alternative designs:

    • Crypto‑backed tokens that over‑collateralize ETH and other blue‑chip assets,

    • Commodity‑backed tokens anchored to gold and other tangible reserves,

    • Algorithmic tokens that auto‑adjust supply and demand on‑chain, and

    • Delta‑neutral synthetics that hedge volatility through paired futures positions.

  • Surveys the regulatory front lines. From Japan’s licensing regime and Singapore’s “stablecoin law” to the EU’s MiCA and the proposed U.S. GENIUS Act, the piece highlights how Asia, Europe, and America are converging on common goals—full reserves, fast redemption, transparent audits, and strong AML safeguards.

  • Flags emerging risks and opportunities. It candidly assesses challenges—reserve opacity, cross‑border compliance, and illicit‑finance exposure—while charting growth catalysts such as institutional adoption, DeFi integration, and new certification schemes like “StableCheck.”

The takeaway: Stablecoins are no longer a crypto niche; they’re an essential bridge between traditional finance and Web3. Understanding their design variants, risk profiles, and regulatory trajectories is now table stakes for anyone serious about digital‑asset strategy or policy. 

Please reach out to Stablecoin Standard for more information.

A. Stablecoins through the lens of the Stablecoin Standard Framework

Stablecoins, under the current Stablecoin Standard (“SCS”) framework, refers to fiat-backed tokens issued on a blockchain and prudentially regulated with a primary regulator, when available, and in any required additional jurisdictions.

1. Fiat-Backed Token Issued on a Blockchain

Fiat-backed stablecoins are digital assets that maintain their value by being backed 1:1 with fiat currencies such as the U.S. dollar or other currencies. Issuers hold reserve assets equivalent to the number of tokens issued, with a commitment to ensure price stability and user trust. These stablecoins are deployed on public blockchains such as Ethereum or Solana, using smart contracts to facilitate transparency and decentralization.

2. Prudentially Regulation by a Primary Regulator

Stablecoin issuers may be subject to supervision by a primary regulatory authority in order to ensure financial viability and stability, transparency and consumer protection, and the prevention of financial crimes such as money laundering and terrorist financing. Prudential regulation generally includes requirements such as licensing or approval, risk management standards, securing reserves and liquidity for timely redemption, and periodic disclosures.

The primary regulatory authority may vary depending on the nature and scale of the issuer. It could be a regional or country-wide regulator. For instance, in the U.S., smaller or state-chartered entities may fall under the jurisdiction of state financial regulators. In contrast, larger issuers or those with significant systemic impact may be supervised by federal authorities, such as the Office of the Comptroller of the Currency (OCC). Issuers may also be subject to multiple regulatory authorities across jurisdictions depending on the scope of the stablecoin's use. In Europe, the Markets in Crypto-Asset Regulation (MiCAR) introduces a multi-layered supervisory structure assigning regulatory responsibilities to both national competent authorities and RU-level bodies such as the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA). This framework aims to ensure consistent application across the EU while allowing local flexibility.

In Asia, Japan has implemented a licensing regime that requires stablecoin issuers to be registered financial institutions and subjects them to oversight by a single authority, the Financial Services Agency (FSA). Singapore and Hong Kong are　each similarly finalizing detailed regulatory requirements under the Monetary Authority of Singapore (MAS) and the Hong Kong Monetary Authority (“HKMA”) in preparation for full implementation.

For a global product such as stablecoins this requirement is to facilitate responsible global growth with at least one primary regulator selected.   

3. Compliance in Additional Jurisdictions

Depending on the scope of the stablecoin's use, issuers may be subject to multiple regulatory authorities across jurisdictions. Given the cross-border nature of blockchain-based assets, issuers are also expected to comply with applicable laws in other jurisdictions where their stablecoins are offered or traded. This includes adapting to local financial regulations, cybersecurity, anti-money laundering (AML) rules, and consumer protection laws as required and appropriate. 

B. Other Types of Stablecoins

Not all stablecoins adopt the fiat-backed model. The SCS framework over time intends to cover other types of stablecoins. For this paper, SCS explains the current product market fit. Several alternative models have emerged, each employing distinct mechanisms to maintain a stable value relative to a reference asset.

Risk Note: As stablecoins move beyond just payment features they will necessitate a facts and circumstances analysis to determine whether the features, such as yield-bearing and lending, require what we refer to as a stablecoin herein to be treated as a financial instrument under another or an additional regulatory regime.

1. Crypto-Backed Stablecoins - Collateralized Debt Positions (CDPs)

Collateralized Debt Positions (“CDPs”) are a category of decentralized “stablecoins” that use cryptocurrencies as collateral while aiming to maintain a stable value relative to a fiat currency. These stablecoins are issued and managed through smart contracts deployed on public blockchains. Many crypto-backed stablecoins are subject to a degree of decentralized governance through Decentralized Autonomous Organizations (DAOs), which may be responsible for decisions such as selecting eligible collateral assets, setting collateralization ratios, and determining system parameters. While crypto-backed stablecoins are designed to provide a decentralized alternative to fiat-backed models, the volatility of most crypto assets used as collateral necessitates overcollateralization.  

Early CDPs, such as Liquity and MakerDAO, overcollateralized bluechip crypto assets (mainly ETH) to create dollar-pegged tokens. Minting works similarly as borrowing–the minter would pay a fixed or variable interest on the CDP they mint, which is used to offset the cost of maintaining peg. Over time, CDPs expanded to adding real world assets and delta-neutral positions to their portfolio to generate yield for the stablecoin holders, moving away from a pure borrower model. Nowadays most crypto-backed stablecoins operate a hybrid model where they are backed by CDPs and other stablecoins.

2. Commodity-Backed Stablecoins

Commodity-backed stablecoins represent a unit of a specific commodity—such as one troy ounce of gold rather than being pegged to a fiat currency like the U.S. dollar or euro. These stablecoins are typically issued by centralized entities, and in most cases, issuers are expected to publish regular, independent audits of their physical reserves to assure holders that the tokens are fully backed and redeemable. Unlike crypto-backed stablecoins, commodity-backed stablecoins are generally not overcollateralised, as the value of the stablecoin is directly tied to the value of the underlying asset.

3.  Algorithmic Stablecoins

An algorithmic stablecoin is a type of digital asset designed to mirror the price of a fiat currency, currently the U.S. dollar is most common, without being backed by real-world assets. Instead of relying on collateral reserves, these stablecoins use pre-programmed algorithms to adjust the token's circulating supply in response to market demand in order to maintain a stable price.

The underlying mechanism typically issues new tokens when the price exceeds the target peg and buys them off the market when the price falls below the peg. The algorithm is responsible for managing both supply and demand autonomously, without the need for intermediaries or offchain oversight. 

4. Delta-Neutral Stablecoins

Delta-neutral stablecoins are a category of synthetic stablecoins that aim to maintain a 1:1 peg with the U.S. dollar by employing hedged financial positions. These stablecoins are typically backed by staked crypto assets, such as Ethereum (ETH), while simultaneously taking short positions on ETH futures to offset the price volatility of the collateral.

This design is based on delta hedging, a financial strategy that involves creating offsetting positions to neutralize the directional risk arising from changes in the price of an underlying asset, where “delta” refers to the sensitivity of a derivative’s value to such price movements. By combining staking yields from the collateralised ETH with earnings from the short futures positions, delta-neutral stablecoins aim to achieve both price stability and capital efficiency without relying on fiat or physical reserves. 

C. Overview of Major Developments in Stablecoin Regulation  

Global regulatory efforts around stablecoins have converged around several core policy objectives, including ensuring reserve adequacy, enabling redemption at par, enhancing disclosure and transparency, and addressing financial crime risks. This section provides an overview of how these objectives are being reflected in regulatory frameworks across key regions. For jurisdiction-specific legal details and implementation status, see the SCS member’s Global Regulatory and Legislative Inventory.

Asia

In Asia, jurisdictions such as Japan, Singapore, and Hong Kong have developed advanced regulatory frameworks that define fiat-backed stablecoins and impose strict requirements on reserve management, redemption, and disclosure. Issuers are generally required to maintain sufficient reserves in highly liquid, low-risk assets to ensure timely redemption of tokens at par value. To enhance transparency and protect users, disclosure standards typically include public explanations of key risk factors, redemption conditions, and the nature of the reserve assets. While the implementation status varies across jurisdictions, financial soundness and consumer protection remain central policy objectives.

Europe

Under the Markets in Crypto-Assets Regulation (MiCA)—formally adopted in June 2023 and effective for stablecoins as of June 2024—the European Union (EU) has implemented a unified and binding framework for stablecoins classified as Asset-Referenced Tokens (ARTs) and E-Money Tokens (EMTs). These tokens must be fully backed by high-quality liquid reserves, redeemable at par value upon request, and subject to robust governance and operational safeguards. Issuers are required to produce and publish detailed white papers disclosing key financial, technical, and risk-related information.

MiCA’s framework also mandates periodic reporting, reserve transparency, and the implementation of clear redemption mechanisms to protect holders and prevent financial instability. These rules reflect the EU’s commitment to consumer protection, market integrity, and systemic risk mitigation, establishing MiCA as a global benchmark for stablecoin regulation.

United States

In the United States, while the SEC has clarified that certain fiat-backed stablecoins are not securities, the GENIUS Act of 2025—currently under congressional consideration—proposes a comprehensive framework for payment stablecoins that are redeemable at a fixed value and backed by high-quality liquid reserves. The bill would require federal or state licensing, impose prudential requirements distinct from those applied to banks, and establish tiered oversight based on the issuer’s size and risk profile. It also mandates periodic disclosures and reserve reporting to enhance transparency and protect users.

D. The Future of Stablecoins

As stablecoins gain traction in both traditional and decentralized financial ecosystems, key challenges remain. Transparency is a persistent concern, particularly regarding the composition and management of reserve assets. In addition, the potential misuse of stablecoins in illicit finance, including money laundering, sanctions evasion, and fraud, continues to draw regulatory attention. Strengthening compliance frameworks and ensuring robust monitoring and disclosure practices will be essential to maintaining trust and minimizing systemic risk.

Despite these challenges, improvements in blockchain technology and increasing interest from financial institutions suggest that stablecoins will continue to grow in importance. They are well positioned to serve as a bridge between traditional financial systems and the new world of digital assets, offering a faster and more efficient way to move money. SCS has created a FAQ to further an understanding of the stablecoin industry.

 

FAQ’s (Frequently Asked Questions)

  • SCS is a newly developed framework that establishes high-level, global Standards for stablecoin issuers. These Standards outline requirements for reserve management, transparency, governance, consumer protection, and financial crime prevention. The aim is to provide a unified approach that encourages responsible innovation while protecting users.es here

  • The SCS Policy Working Group, supported by external reviewers and experts, drafted these Standards by examining existing and proposed regulations around the world. The goal is broad adoption by stablecoin issuers, regulators, and stakeholders by late 2025.

  • DescriptBecause stablecoins can serve as a critical bridge between traditional finance and blockchain-based markets, consistent guidelines help ensure:

    • Financial Stability: By requiring full and transparent reserves, stablecoins minimize systemic risk.

    • Consumer Protection: Clear disclosures and robust protections promote trust among users.

    • Regulatory Clarity: A standardized approach helps regulators and issuers work together more efficiently.ion text goes here

  • For the time being, the SCS Standards focus on fiat-backed or e-money tokens—those that hold a 1:1 reserve in high-quality liquid assets (HQLA). DeFi-oriented, algorithmic, commodity-backed, multi-currency, or more complex stablecoin models are currently out of scope.

  • Under SCS, a stablecoin is defined as:

    • A fiat-backed or e-money token (issued on a blockchain),

    • Prudentially regulated or overseen by an equivalent authority,

    • Backed by 1:1 reserves in HQLA,

    With reserve valuations updated daily to ensure they cover at least 100% of all outstanding stablecoin liabilities.

  • The Standards require:

    • Full Collateralisation: Reserves must be equal to or exceed the total value of circulating stablecoins.

    • Daily Valuation: Issuers must mark reserves to market every day to confirm full coverage.

    • Stress Tests & Overcollateralisation (when feasible): Issuers should regularly evaluate how reserves would hold up under adverse market conditions.

    Restriction of Re-hypothecation: Reserves generally cannot be reused elsewhere to prevent liquidity risks.

  • Issuers must:

    • Disclose Monthly Reserve Reports: Summaries of total stablecoins in circulation, reserve composition, and asset values.

    • Engage Independent Audits/Attestations: These confirm that reserves exist and remain sufficient.

    • Maintain a Transparent Governance Structure: With independent oversight and a code of business ethics.

  • The SCS framework emphasises:

    • Consumer Protection: Issuers must clearly disclose risks, fees, and redemption terms.

    • Business Ethics and Conduct: Issuers agree to uphold high ethical standards, which include safeguarding personal privacy and data.

    Cybersecurity and AML Measures: Rigorous programs help protect users from fraud or theft.

  • “StableCheck” is a forthcoming certification process under the SCS framework. Issuers who prove compliance with the Standards can earn a “StableCheck” seal, signifying trustworthy reserve practices, governance, and consumer protections. This helps users and regulators quickly identify stablecoins that meet SCS requirements.

  • The SCS framework is a voluntary initiative; however, an increasing number of leading stablecoin issuers are already adopting it. Over time, regulatory bodies may reference or incorporate aspects of these Standards into formal rules, which could make them functionally mandatory for stablecoin issuers seeking broad market acceptance.

  • Yes. One of the key objectives is cross-border interoperability: stablecoins adhering to these Standards should be accepted and recognised by regulators and financial institutions in different jurisdictions, reducing friction in international transactions.

  • You can typically find more information through:

    • SCS Policy Working Group Updates: Official bulletins or press releases.

    • Issuer Websites: Many stablecoin issuers publish compliance and audit reports.

    • Industry Conferences & Events: Panels, workshops, and forums where SCS updates are frequently discussed.

    Regulatory Notices: Some financial regulators may provide guidance or frameworks referencing SCS.

  • Yes. Stablecoins are generally designed for global use. However, offering or facilitating stablecoin transactions in a specific jurisdiction may be subject to local regulatory requirements, especially for issuers and intermediaries such as exchanges, custodians, and wallet providers.

    When individuals acquire stablecoins through peer-to-peer (P2P) transactions across jurisdictions, such acquisition may not necessarily violate local laws. However, the subsequent use or transfer of those tokens could still be restricted or regulated under applicable domestic laws.  Additionally, stablecoin users should recognise that participating in P2P transactions does not exempt them from broader financial regulation, including cybersecurity, anti-fraud, anti-money laundering (AML), sanctions compliance and tax reporting obligations.

  • A: Under the Stablecoin Standard (SCS) framework, reserve assets must be fully segregated, held in bankruptcy-remote structures, and accessible solely for redemption purposes. However, in practice, the treatment of reserve assets in insolvency proceedings may vary depending on the bankruptcy laws of the relevant jurisdiction. In some cases, these assets may be deemed part of the issuer’s general estate and may not be fully available for user redemption.

    Therefore, it is equally important that each jurisdiction’s legal framework clearly prioritises the redemption rights of stablecoin holders in the event of issuer insolvency to ensure that user funds are adequately protected.

  • A: Yes. While the initial focus of the SCS framework is on fiat-backed, redeemable stablecoins, it is designed to evolve. In the future, crypto-collateralized, algorithmic, or DeFi stablecoins may be incorporated, provided they uphold the core principles of financial viability and stability, transparency and consumer protection, and financial crime prevention. SCS actively monitors technological and regulatory developments to inform future updates and ensure the framework remains responsive to market needs.

Marms Hope https://www.marmshopeinc.com
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