What is stablecoin? Understanding this evolving cryptocurrency

In the rapidly evolving world of digital finance, stablecoins have emerged as a pivotal innovation, offering a bridge between the often volatile realm of cryptocurrencies and the perceived stability of traditional fiat currencies.

As stablecoins gain traction, investors may want to learn more about how they work, their costs, uses and broader potential impacts on the economy and financial markets.

Here’s what to know about this evolving asset class.

A stablecoin is a form of cryptocurrency whose value is pegged to a reference asset, such as the U.S. dollar (USD), to reduce its volatility. They are simple to use and have less perceived risk than other cryptocurrencies.

Morgan Stanley Research estimated the 2025 total assets for stablecoin at more than $300 billion, up 75%¹ from a year earlier, and that growth is attracting investors’ interest.

“Most USD-backed stablecoins are similar to deposit accounts, but without FDIC insurance,” says James Faucette, who leads Morgan Stanley’s U.S. Fintech and Payments Research Team. “That said, stablecoin issuers are generally barred by regulation from paying interest,” although other entities may offer some form of yield to users².

Another key difference to checking accounts, he notes, is that any transaction into or out of the stablecoin account can be fully cleared almost immediately.

Stablecoin usage costs usually involve transaction fees and charges to convert them into other assets. In general, there’s no cost to open a stablecoin account and their direct transaction fees are lower than in the traditional payments and remittance system. As the GENIUS Act will prohibit interest payments by stablecoin issuers in the U.S., the cost to the U.S. consumer of holding stablecoins—unless a legal loophole applies—is effectively the potential interest income the consumer might have otherwise received on traditional deposits. As such, effective stablecoin usage costs would likely increase during periods of rising interest rates, when depositors tend to expect higher yields on traditional bank deposits, and fall in periods of declining rates. The lack of FDIC insurance for stablecoins could also be seen as a tradeoff in comparison to traditional bank deposits.

Stablecoins may offer a simplified and efficient alternative for transactions in situations where traditional financial tools are excessively cumbersome or unavailable, such as when:

• Exact timing can’t be predicted
• Exact value isn’t known ahead of time
• Inter-organization transactions are involved
• Immediate clearing is required
• Immediate fund availability is required

These situations could include brokerage trading, especially for crypto trading activities, settlement of online gaming transactions, and some cases of international commerce.

The increasing volume of transactions with stablecoins could be seen as a threat to traditional payment networks, such as credit card companies. However, the impact should be limited, as those companies have been preparing for years to enable stablecoin usage, Faucette notes.

There have been some reports about large retailers introducing their own stablecoins for consumers. Those offerings are essentially the equivalent of digital prepaid gift cards: The consumer will give funds to the merchant, which the merchant will hold, and the consumer can, at some future date, use the deposited funds for purchases of goods and services.

The GENIUS Act determines that stablecoin issuers must maintain reserves backing the stablecoin on a one-to-one basis using U.S. currency or other high-quality liquid assets. (This is actually more restrictive than the rule for U.S. money market funds, for example, which can buy Treasury securities with a remaining maturity of 397 days or less.)  The requirement winds up encouraging Treasury bills as a preferred collateral choice. Note, the CLARITY Act, a legislative proposal aimed at providing a clear regulatory framework for stablecoins and other digital assets, may adjust current GENIUS Act rules for Stablecoins if passed.

“We think growth in stablecoins will be incrementally supportive for demand for short-end U.S. treasuries, especially bills,” says Marty Tobias, a member of Morgan Stanley’s U.S. Interest Rate Strategy team. “Any sort of incremental growth in the stablecoin industry will lead to additional demand for short-dated Treasuries, and it will provide the U.S. Treasury much needed flexibility in its issuance strategy and funding future increases in the deficit.”

However, the potential increased exposure to U.S. Treasuries is not without risk, according to some rating agencies. S&P Global Ratings, for instance, has raised concerns that even highly-rated reserve assets are subject to credit, market, and interest-rate risks. 

The daily volume of transactions with stablecoins is around $100 billion.¹

Although the volume has been growing steadily, those amounts are tiny compared with the global currency market, where net daily transactions surpass $7.5 trillion.

“Given such a market capitalization and average daily turnover, stablecoins are currently not large enough to drive movements in liquid currencies,” says Morgan Stanley Strategist Zoe Strauss. “Our scenario analysis suggests that a significant future FX impact would only occur under very high growth rate assumptions."

Article Footnotes

¹ Stablecoins – Modernizing financial infrastructure, Amy Oldenburg, Frederick McMullen, September 2025

² The ability for third-party entities to offer yield on stablecoins varies by jurisdiction and is currently possible in the U.S. due to a lack of explicit regulation. New legislation or U.S. Department of the Treasury rules could potentially close this loophole or make other changes to US stablecoin rules.

CRC# 5103809 01/2026