Stablecoins are blockchain-based digital assets designed to maintain a stable value relative to a specified asset or basket of assets such as fiat currencies or commodities. They aim to combine the efficiency of cryptocurrencies with the stability of traditional money, making them increasingly relevant to the global financial system.
Key Facts for Prelims
| Aspect | Details |
|---|---|
| Definition | Stablecoins are a class of Virtual Digital Assets (VDAs) backed by fiat currencies, commodities, or other crypto assets to maintain price stability. |
| Purpose | To overcome crypto market volatility and enable stable, efficient digital transactions. |
| Backing Mechanism | Maintained through reserves (fiat, commodities, crypto) or algorithmic supply–demand adjustments. |
| Major Types | 1. Fiat-backed – pegged to a currency like USD; e.g., USDT (Tether), USDC (USD Coin). 2. Crypto-backed – collateralised by crypto assets; e.g., DAI (backed by Ethereum). 3. Algorithmic – use automated algorithms to control supply and demand; e.g., TerraUSD. |
| Global Circulation | Over $220 billion worth of stablecoins in circulation (as of 2025). |
| Use Case | Enables fast, low-cost cross-border payments and digital settlements. Average remittance cost via stablecoins: about $0.01, compared to $44 through traditional banking routes. |
| Institutional Adoption | BlackRock, Fidelity, Bank of America, and Societe Generale have launched or adopted stablecoins. Visa and Mastercard support stablecoin settlements on Ethereum and Solana. |
| Regulatory Frameworks | EU – MiCA (Markets in Crypto-Assets) Regulation; US – GENIUS Act; India – evolving stance with Finance Minister stating India must prepare to engage with crypto assets. |
| Emerging Financial Layers | 1. Blockchain base layer – decentralised and transparent. 2. Reserve layer – regulated institutions hold fiat/treasury reserves. 3. Interface layer – payment cards, wallets, and APIs enabling real-world use. |
Ethical and Regulatory Dimensions
Key concerns include financial stability, money laundering risks, and potential loss of monetary sovereignty. Transparency of reserves and international coordination are crucial. Stablecoins represent not a replacement of fiat money but its digital modernisation, enabling programmable and interoperable financial systems.
India’s Perspective
India’s strong digital infrastructure through UPI, Aadhaar, and the Account Aggregator framework positions it well for the next stage of financial interoperability. Stablecoins could serve as a bridge between banks, blockchains, and currencies if backed by clear regulation and institutional oversight. The key challenge lies in balancing innovation with financial safety and consumer protection.
Reference: The Hindu
