Technologies tend to have a natural ceiling built into their utility and popularity. Once they’ve solved all the problems they can solve, their growth is effectively capped. As soon as all potato fans own a potato peeler, the peeler market’s growth potential is largely tapped out. Indeed, the big question around AI at the moment is how many problems it will be able to solve. The market could already be overblown, or it could be practically limitless.
What about stablecoins? They’ve grown from practically nothing at the turn of the decade to a market cap in the mid-12 digits and monthly transaction volumes in excess of $1 trillion. Citigroup expects the aggregate stablecoin market cap to hit around $2 trillion by the end of the decade.
If we’re talking trillions, it sounds much more like AI than potato peelers.
But do stablecoins have a natural limit? Is their utility restricted to a certain range of problems? If so, where is it? How far can stablecoins grow, and what might stop them?
In order to find answers to these questions, let’s recall why stablecoins have come so far already, what will limit their future growth, and what that means for their overall utility, i.e. the range of problems they can solve.
Three reasons for stablecoins’ current popularity stand out.
Stable Prices, Low Volatility
The first reason is price stability. Many cryptocurrencies are volatile, which makes them valuable for speculation but awkward to use as everyday currencies. The value of stablecoins is, well, stable. By definition. Price stability is their fundamental value proposition.
Price stability is also arguably an advantage relative to other cryptocurrencies whose value is perpetually expected to rise. If your coins’ value will double in five years, you might be reluctant to spend them now. But if your coins will be worth the same or even a little less in five years, you better spend them before they burn a hole in your pocket.
Greater Portability
The second is portability. Exchanging fiat for crypto can be arduous, but exchanging one crypto for another is usually much easier. So many users find it more efficient to convert fiat into stablecoins in bulk, then easily shift value between various cryptocurrencies as needed. USDT is the most traded coin overall because it works so well on the other side of any crypto trade.
In many markets, these first two factors reinforce each other. Many countries’ national currencies depreciate more rapidly than stablecoins’ pegged currencies, so stablecoins give people in those countries a way to protect their wealth from depreciation. And those same countries often use currency controls to prevent capital flight, but their citizens can often access stablecoins to circumvent those artificial barriers.
Tax Optimization
The third reason is simply taxes. Many jurisdictions — including the United States, Canada, the United Kingdom, Japan, and Australia — classify cryptocurrencies as commodities rather than currencies. As a result, capital gains taxes apply to cryptocurrency price appreciation, so each transaction can be a taxable event. But many users and businesses might want to use crypto for its portability, like payment rails, so stablecoins’ price stability helps them avoid taxable events during routine payments.
Fiat currency is the modern state’s crown jewel. Beyond a national currency’s symbolic value, controlling the source of everyone’s money is a very advantageous position. For an impression of what a big deal this can be, rewatch Ridley Scott’s Black Rain (it’s a great rewatch for any reason, not least of which is Michael Douglas rockin’ a killer mullet).
If stablecoins are minting hundreds of billions of fiat equivalents and moving trillions in value each month, the state is going to take a very close interest in what they’re doing and how. You can’t open your own private mint moving that kind of liquidity and hope to stay under the regulatory radar.
Besides, history shows that states will regulate whatever they can. They have to. Any activity they cannot regulate implicitly threatens their claim to authority, and they don’t actually produce anything (besides perhaps regulation), so they need to acquire resources. In order to take their cut from an activity, states have to first quantify and control (i.e. regulate) that activity. This is the kind of argument that led Charles Tilly, one of the last century’s most respected historical sociologists, to call states “protection rackets” and “organized crime.”
Centralized activity is also why states preferred tariffs over taxes until pretty recently. Back when bureaucracies were small and populations were spread out, states found it very hard to tax income. They didn’t have the data to quantify it nor the technology to control it. So they preferred tariffs because there are far fewer ports and bridges than there are households and shops.
In other words, the more centralized an activity is, the easier it is to quantify and control (and skim of course). More concisely: centralization attracts regulation. And the more central an activity is to state power, the more incentive the state has to regulate it, and printing money is about as central as it gets.
Stablecoins are no exception. They are centralized both in terms of the source of their value and in their actual operations, which is why regulators have been busy churning out rules lately. While that regulation might even be necessary and wise, it does and will limit stablecoins’ utility.
Rules, Their Effects, and Extrapolating the Future
The supply of regulation has increased a lot recently, but maybe it’s just meeting demand. In fact, Tether and Circle, the two biggest stablecoin issuers, are getting involved in the regulatory process with different strategies. They’re aware of their position as private USD mints and companies that take large amounts of private deposits and reinvest them (i.e. banks). Mature stablecoin issuers seem to want regulation.
The regulators themselves argue that stablecoin regulation is a good thing because it protects users and gives issuers “more predictable regulatory environments.” Not surprisingly, this is the view of the SEC.
And this reasoning is not without merit. Companies managing hundreds of billions in liabilities should be able to meet those liabilities, and maybe someone should check. But the existing regulations have added some massive obstacles to where and how people can use stablecoins.
Let’s start with Europe, because regulatory legalese is the EU’s official language. The Markets in Crypto-Assets Regulation (MiCA) is the key stablecoin regulatory measure in Europe. It became law in 2023, but the consequences only really struck in Q1 2025. Since MiCA requires stablecoin issuers to obtain an e-money license in at least one European state, major exchanges like Binance and Coinbase delisted nine leading stablecoins, including USDT, the biggest stablecoin of all. (Of course, a consortium of nine too-big-to-fail European banks is trying to launch their own euro-pegged stablecoin.)
MiCA was a regulatory nuke, practically banning leading stablecoins and seeking to replace them with astroturfed European alternatives.
Somewhat more friendly to experimentation and innovation, the USA has implemented the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act. GENIUS is a little more permissive in that the Treasury Department can determine that foreign stablecoin issuers are subject to sufficient regulation at home, sparing them the need for a local US presence. It also prescribes a few particulars like reserve requirements and public disclosure.
While the GENIUS Act formally restricts issuers and protects users, it also makes issuers subject to the Bank Secrecy Act to prevent money laundering. As anyone knows who’s ever bought crypto on an exchange, AML and KYC are significant friction, and they effectively restrict how holders can use stablecoins. Eliminating exactly that friction was one of the features that made stablecoins attractive in the first place. Greater consumer protection might increase stablecoins’ utility in the long-term aggregate, but a user who wants to buy and trade USDT right now might disagree.
And while the EU and the USA are arguably the most important markets for stablecoins, many other markets either have regulations in place (e.g. Japan, Canada, Chile) or in the pipeline (e.g. the UK, China, Australia, Brazil, Turkey).
Imagine a giant Venn diagram of all these regulatory regimes, and stablecoins’ utility is in the space where they all overlap and the activity remains economical. How big is that space? And given that stablecoins are pegged to national currencies, which national administrations guard jealously, are these already diverse regulatory regimes likely to converge or diverge in the future?
The denser the jungle of regulations, the smaller and more isolated the clearings where stablecoins can flourish. They will still have a niche, but some niches are more niche than others. It’s unlikely that any stablecoin, based on a national or even regional fiat currency, will satisfy all the regulators in all the markets necessary to become a global currency. That’s probably why real-world stablecoin usage ends up being far more geographically constrained than the “global digital dollars” many hoped for. Even USDT, the most widely used stablecoin, operates at scale in only a few permissive jurisdictions. With roughly 40% of USDT’s market cap and an effectively identical product, USDC faces the same structural limits.
So stablecoins are centralized fiat tokens. Being centralized and tethered to state fiat means that regulators are grasping them tightly, resulting in cost and friction for everyone involved. This process is already well underway and will continue. Does this mean that stablecoins are doomed?
Probably not. As tokenized fiat, stablecoins are likely to thrive wherever fiat is good enough. In practice, that means conventional payments. I recently defined payments as instructions to clear a debt. Wherever an intermediated quid pro quo describes the interaction, stablecoins will probably work as the quid. Indeed, the potential to capture some of the payment business from other fintech solutions (or to defend their own) is probably why established fintech players like Klarna, PayPal, and Stripe have launched their own stablecoins or stablecoin accounts. Stablecoins are turning into normal payment fintech, but maybe just normal payment fintech.
Normal means subject to state regulations and the functional and geographic limits they impose. It means juicy fees going to intermediaries. It means friction for users.
But there is a whole universe of value that eludes the payment model either because it requires direct, disintermediated transfers, it disregards political geography, there is no debt involved, or all of the above. The potential for value transfer is sometimes hard to see because the balkanized, intermediated payment paradigm is so dominant. We’ve simply lacked the technology to do much else until recently.
Still, whenever you toss some coins to a busker or tip a content creator, you’re pushing value, not clearing debt. Whenever cash moves from hand to hand, the transfer is disintermediated. Now imagine the busker is on the other side of the globe, and you discovered them through an app. The key to perceiving the rest of that value-transfer universe is to bring that directness and borderlessness into our digital world.
Value transfer needs less friction than fiat in both a technical and regulatory sense. But to achieve that, you’d need a currency that is detached from national currencies and decentralized. That’s where bitcoin comes in. Bitcoin is an open, decentralized, neutral monetary network that works for anyone, anywhere, anytime. If stablecoins have to get by in the clearings of the regulatory jungle, bitcoin floats breezily and limitlessly in the sky above.
Bitcoin was built on and for the internet, so it is natively programmable in ways that stablecoins can only vaguely approximate. And far from needing third-party custodians, bitcoin transfers are direct and disintermediated between the millions of users everywhere. The future stablecoins promise without much credibility is already the present for bitcoin.
Utility is one of the central concepts in economics because it’s the mystic substance of decision making. People choose what they find most useful, and you know what’s most useful because it’s what people have chosen.
People are using stablecoins, which proves their utility. That usefulness isn’t going to go away, but regulation limits it. Stablecoins’ growth will stop where their utility is roughly matched by the friction that regulation induces. And the current state and probable future of regulation suggest that we’re getting pretty close to this equilibrium.
But since Bitcoin is not centralized and does not feed off state-based fiat currency, it is inherently harder to regulate and consequently attracts much less regulation. It’s also digitally native, which makes it a natural fit for a world of global commerce and value that flows frictionlessly across borders from one app anywhere to another. If regulation is what limits stablecoins’ utility and bitcoin is subject to much less regulation, it’s pretty clear who’s going to win the utility race.
This is a guest post by Roy Sheinfeld from Breez. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.