Article – Stablecoin vs Fiat – Are stablecoins the new fiat?

Ana Luísa Baudel

Financial Markets

Francisco Liberal

Financial Markets

What are stablecoins?

Stablecoins are a type of cryptocurrency that seeks to maintain a stable value by being pegged to a reference asset. This reference could be a fiat currency, such as the US dollar, a commodity, such as gold, or other financial asset, such as cryptocurrencies. In this article, we’ll focus on fiat-backed stablecoins, as they have the biggest volume and market cap (CoinMarketCap, 2024). What distinguishes this from other digital assets is that, in theory, it isn’t subject to changes in value, as its value is 1:1 backed by another asset. In practice, however, it can deviate slightly because the stablecoin issuer needs sufficient reserves to support a stablecoin and doubts about the liquidity or composition of these funds may cause price fluctuations. Why are there doubts? Because most issuers use not only fiat currency as a guarantee but also short-term US Treasury bonds and similar cash equivalents. Moreover, we’ve already seen some cases where issuers have been fined for deceiving customers about their reserves, such as Tether, the most popular stablecoin. They claimed to be fully backed by fiat currency but were proven to only have fiat reserves to guarantee 27.6% of their stablecoin supply in the past (Wikipedia, 2024).

Top 10 Stablecoin Tokens by Market Capitalization – 9/05


Market Cap

Volume (24h) 


Tether USDt (USDT)








Dai (DAI)




First Digital USD (FDUSD)








This table contains data collected on March 6th, 2024. (CoinMarketCap, 2024)

At the time of writing, the total market capitalization of all stablecoins is $160B and the total trading volume (24h) is $58B. Although there are approximately 200 stablecoins (BitPay, 2024), the stablecoin market is extremely concentrated. Tether, the largest stablecoin, represents 68% of the stablecoins’ total market capitalization and 81% of the total market volume (24h). The top five stablecoins represent 96.7% of the stablecoins’ total market capitalization and 99.5% of the total market’s volume (CoinMarketcap, 2024). Although Tether is the third biggest cryptocurrency, the stablecoin market represents only 5.67% of the total crypto market, which is worth $2.52T (CoinMarketCap, 2024). 


In the current financial landscape, stablecoins emerge as a promising alternative to traditional fiat currencies and other cryptocurrencies. Their unique characteristics offer a host of significant advantages for users and the financial system as a whole.

“Fiat” refers to government-issued currency, such as the US dollar, lacking intrinsic value and accepted as a medium of exchange by governmental decree. While fiat is controlled by the government, its issuance is not restricted, whereas stablecoins are decentralized and offer a more predictable and less volatile alternative for financial transactions.

Stablecoins provide global accessibility, empowering individuals worldwide to access financial services without traditional banking systems (Tether, 2024). They facilitate borderless transactions, enabling seamless transfers across countries and time zones, free from banking hours or intermediaries.

Moreover, stablecoins offer lower transaction costs compared to traditional banking systems, particularly for cross-border payments, with settlement times significantly faster, often taking only minutes compared to the days typical of international bank transfers.

In regions plagued by high inflation or monetary instability, stablecoins serve as a reliable store of value, safeguarding users against the devaluation of local currency.

Stablecoins play a pivotal role in the emerging decentralized finance (DeFi) ecosystem by providing a stable form of value and by facilitating transactions within these platforms without traditional intermediaries (Compound, 2024). Users can access various financial services, such as loans, borrowing, and digital asset trading efficiently and in a decentralized manner. Additionally, they promote interoperability among different DeFi platforms, allowing funds to move easily and effectively.

Compared to other cryptocurrencies, stablecoins generally enjoy more political support due to their ability to maintain stable value. Consequently, many governments and regulators view stablecoins as a means of integrating blockchain technology into the traditional financial system. By offering a bridge between cryptocurrencies and conventional financial institutions, stablecoins are perceived as less disruptive and more compatible with existing regulatory frameworks. This fosters greater receptivity and political support compared to other cryptocurrencies, often seen as more challenging for regulators (Coinposters, 2024).


Although stablecoins are seen as more stable than most other cryptocurrencies, they are still riskier than fiat. Fiat is backed by the government and provides much more confidence than stablecoins, which are backed by a company and are subject to less regulation, making them more vulnerable to fraud or hacking.

Stablecoins also have a counterparty, risk as stated earlier. The issuer needs to maintain the peg to the underlying asset by having enough reserves to provide stability and trust to investors. Tether, for example, has been accused in the past of failing to report its reserves. If the issuer goes bankrupt and doesn’t have enough funds to back the stablecoin, investors may lose their funds. De-pegging has happened several times in the past, with TerraUSD, USDD, and DEI having crashed to zero. (Wikipedia, 2024).

Another disadvantage is the limited adoption, which may not be an issue in the future. Nonetheless, at the moment, not many people use stablecoins compared to fiat. This limits the liquidity of stablecoins, making them less useful for daily transactions (LinkedIn, 2024).

Future Expectations

The stablecoin market cap is expected to reach $2.8T in the next five years, up from today’s $125B, says wealth management company Bernstein. That’s a 2140% increase (CoinMarketCap, 2024). From 2017 to 2022, the total market cap of the 10 largest companies grew from $200M to $152B, a 75900% increase (Statista, 2024).

As we can see in the chart below, stablecoin adoption has increased exponentially in just six years and is catching up to other established networks such as Visa, even though it’s still growing at a steady pace. Given this, global transaction volume growth shows that there’s space for both traditional payment networks and stablecoins, proving that they are different and have different uses. The first is more suited for transfers of money, while the second is better for trading with other currencies. 

This graph contains data collected on March 6th, 2024. (Portal HQ, 2024)


Finally, it’s fair to assume that stablecoin adoption will continue to grow in the future, given its speed and efficiency. However, although stablecoin adoption is growing more rapidly than that of fiat, it won’t replace it, as they’re fundamentally different. There are advantages and disadvantages to using stablecoins, and it’s up to investors to understand if it aligns with their needs. 

1 thought on “Article – Stablecoin vs Fiat – Are stablecoins the new fiat?”

  1. While developed countries may not get the most benefits and impact from stable coins, i believe that stablecoins and TRULY decentralized money can be crucial in third world countries providing a way for financial liberation from authoritarian regimes, inflationary native currency and restrictive monetariy policies promoting FREEDOM, PRIVACY and OWNERSHIP

    Great article! Congratulations to the authors and to Fep Finance Club. I’ve been loving following the posts, great insights.

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