Stablecoins: The “Trojan Horse” of Digital Finance

The “Trojan Horse” may appear to be just an ordinary wooden horse, but it hides a secret weapon capable of changing the course of a battle. Stablecoins possess a similar power: on the surface, they are tools for payments and storing value, yet they are quietly reshaping the global financial ecosystem. From convenient payments to global transactions and ultra-efficient decentralized finance, every step of stablecoins feels like a precursor to a financial revolution.

However, if it’s just the above aspects, it might not be that valuable to you, and I wouldn’t write such a basic guide. What I want to tell you is that behind stablecoins lies a massive profit pie, and now you have the opportunity to participate and share this piece of profit. Don’t worry if you’re a beginner — there will be zero-basics tutorials to guide you in. But before we dive into that, it’s necessary to understand some basic knowledge first.

As the name suggests, stablecoins are a type of cryptocurrency designed to maintain a stable value. They are typically pegged to fiat currencies (such as the US dollar or euro) or other assets (like gold) to ensure price stability.

Compared to the volatile swings of Bitcoin or Ethereum, stablecoins are more like the “good kids” in the blockchain world, focused on providing a simple, secure, and stable medium for transactions. Examples of stablecoins you may be familiar with include USDC, USDT, and DAI, all pegged to the US dollar.

Stablecoins are not often hailed as the heroes of the blockchain space. Instead, they act more like quiet “laborers,” carrying out tasks such as asset transfer and payment settlement. But don’t be fooled by their low profile — through their ease of use and strong network effects, stablecoins are gradually infiltrating the core of the traditional financial system, making global payments, lending, and asset trading more efficient and decentralized.

The traditional banking system is like an outdated train station — busy, crowded, and slow. Stablecoins, on the other hand, are like “high-speed trains”: fast, secure, and without the need for intermediaries. Here are some key factors that have allowed stablecoins to break through:

• Convenient Global Payments: Stablecoins significantly simplify cross-border payment processes, making them as quick as sending a text. Sending money from the US to Africa using a US dollar-pegged stablecoin takes just seconds and costs less than a cent in fees. This efficiency is a “dimensional strike” compared to traditional international remittance systems.
• 24/7 Operation: Traditional banks have business hours, but stablecoins don’t. Whether it’s a holiday, weekend, or even 3 AM, you can use stablecoins to make payments and transactions, as conveniently as online shopping.
• Hedging Tool: For people in high-inflation countries, stablecoins are a lifeline. Imagine that the money you earned today can buy 10 loaves of bread, but tomorrow, it can only buy 3. By locking your assets in stablecoins, you can avoid this inflation risk.

Before stablecoins, the blockchain world operated like a fishing boat drifting on a turbulent sea, without power, at the mercy of the waves, and fraught with danger. Although cryptocurrencies like Bitcoin and Ethereum enabled free trade for global users, their extreme price volatility made them difficult for ordinary users to adopt.

Imagine you used one Bitcoin to buy a cup of coffee today, only to find that tomorrow, that same Bitcoin could buy an entire coffee machine. Such price uncertainty made cryptocurrencies unsuitable for everyday payments and storing value, and they instead resembled speculative market assets.

Moreover, although decentralized infrastructure existed for cross-border transfers and transactions before the emergence of stablecoins, these transactions were priced in Bitcoin or Ethereum. This not only forced both parties to bear the risk of price fluctuations but also risked the depreciation or appreciation of assets during the transfer process, possibly leading to disputes.

For users looking to cash out or preserve profits, traditional methods often require converting cryptocurrency into fiat currency and making a bank transfer, a process that’s time-consuming, expensive, and often subject to regulatory constraints. During this process, users might lose control of their assets, violating the “self-sovereignty” principle of blockchain.

The arrival of stablecoins brought a stable “value anchor” to blockchain, making digital currencies truly practical.

Stablecoins can be divided into three main categories based on the mechanism used to achieve price stability and the assets backing them: fiat-backed, crypto-asset-backed, and algorithmic (unbacked). Each type has its own characteristics and use cases. Below, I’ll introduce each and provide examples.

This is the most common type of stablecoin and the one most users are familiar with. Fiat-backed stablecoins maintain their value by holding an equivalent amount of fiat currency (such as USD) in traditional bank accounts to back each unit of stablecoin issued. For example, 1 USDT is equivalent to 1 US dollar.

• Example: USDT is a stablecoin issued by Tether and one of the most widely circulated and traded stablecoins on the market. Each USDT is supposedly backed by real USD reserves, and Tether also invests a portion of its reserves in low-risk assets like short-term government bonds to earn interest. Although USDT has faced ongoing transparency controversies regarding its reserves, its widespread acceptance makes it the “digital dollar” of the crypto market.
• Pros: Stable value, ideal for payments, trading, and storing value.
• Cons: Relies on a centralized issuer, requiring user trust in reserve management transparency.

Crypto-asset-backed stablecoins use cryptocurrencies (such as Ethereum, Bitcoin, etc.) as collateral to maintain the value of the stablecoin. These stablecoins operate through smart contracts and use an over-collateralization mechanism (where the value of the collateral exceeds the value of the stablecoin issued) to counteract the volatility of crypto assets.

• Example: LUSD is a decentralized stablecoin in the Ethereum ecosystem. Users can deposit crypto assets like Ethereum into a smart contract as collateral, and in return, they can mint LUSD stablecoins worth a smaller amount. The whole process is decentralized, with no centralized institution involved, and the smart contract ensures security even during market volatility.
• Pros: Decentralized, transparent, no need to trust a centralized institution.
• Cons: Susceptible to crypto asset price fluctuations, requires over-collateralization, lower capital efficiency.

Unbacked algorithmic stablecoins do not have any asset collateral; instead, they rely on algorithms to adjust the supply of the stablecoin to maintain price stability. Similar to how central banks manage fiat currency value by adjusting money supply, these stablecoins use smart contracts and algorithmic protocols to increase or decrease the token supply in order to maintain the peg.

• Example: AMPL (Ampleforth) is an algorithmic stablecoin with a target price of around 1 USD. If demand for AMPL rises, causing the price to exceed the target value, the system increases the supply of tokens. Conversely, if the price falls below the target, it reduces the supply to maintain the price. This dynamic adjustment mechanism is designed to maintain long-term stability, but AMPL’s price volatility remains high, and it is primarily used for experimental financial applications.
• Pros: No collateral required, fully automated operation.
• Cons: Complex algorithm design, low market confidence in its stability, and difficult to control price volatility.

Different types of stablecoins play important roles in the market, each with its unique mechanisms: fiat-backed stablecoins bridge the traditional financial world and blockchain, crypto-asset-backed stablecoins bring decentralized innovation, and algorithmic stablecoins offer experimental technical and economic models.

The chart above shows the top 7 stablecoins by market share on CoinGecko. As you can see, Tether’s USDT dominates the market, with a market value of 139 billion USD, accounting for more than 50% of the total stablecoin market share. There are currently 231 stablecoins listed on CoinGecko, which may lead you to wonder, do we need this many stablecoins?

Whether we need them or not is up to the market, but at least for now, stablecoins are undoubtedly a value-rich sector, or else so many companies wouldn’t be flocking to them. Let’s take USDT as an example to understand just how large the profit pie behind stablecoins is.

Over 10 billion USD! Surprised?

You might think that USDT is just the “digital dollar” on the blockchain, and that Tether, the stablecoin issuer, is just helping with easy transfers. But in reality, USDT hides an incredible money-making machine — huge profits from reserve assets.

For every USDT issued, Tether receives 1 USD in reserves. These reserves are not just sitting idly in an account — they are invested in low-risk assets like short-term government bonds to earn substantial interest.

For example:

Suppose Tether issues 80 billion USDT, then it holds 80 billion USD in reserves.

If we assume an annual interest rate of 5%, Tether would earn 4 billion USD per year in interest.

In fact, the profits are even more staggering. According to Tether’s Q3 2024 report, its net profit reached 2.5 billion USD, bringing its total profit for the first three quarters of the year to 7.7 billion USD, a record high. If we annualize this, Tether’s total profits for the year would be 10.27 billion USD.

These profits have nothing to do with ordinary users and are all funneled into Tether’s pockets. This model, which relies on reserves to earn interest, is like an ever-flowing “money printing machine.”

So, when you easily transfer USDT, don’t forget that Tether is quietly getting rich from the reserves behind every transaction you make. Stablecoins may appear calm on the surface, but behind the scenes, they represent one of the largest profit pools in the blockchain world. Therefore, it’s understandable why USDT is being delisted in more regions; that’s another topic we’ll discuss another day.

However, the USDX stablecoin, which I’ll introduce next, is a revenue-sharing stablecoin that is also user-friendly. It can be used on Ethereum’s layer 2, with very low transaction fees.

The profit-generating model of USDT is being disrupted. Emerging projects like USDX.money are redefining the future of stablecoins by offering an innovative revenue-sharing mechanism that allows ordinary users to directly benefit from stablecoin profits. Below are the key innovations of USDX:

USDX.money also uses the “Delta-Neutral Portfolio” strategy. By establishing hedged positions between the spot market and derivative market, it achieves neutral control over price fluctuations while generating stable returns.

Multiple Asset Choices: Unlike other projects that focus only on BTC and ETH, USDX.money covers a wider range of cryptocurrencies, offering higher returns. For example:

• The annualized return for strategies based on BTC can reach 76.2%.
• The annualized return for strategies based on XRP can be as high as 146.8%.

These returns are no longer kept by the platform but are distributed to users through the revenue-sharing mechanism.

USDX has established a simple yet effective three-tiered revenue system:

Basic Returns: Users simply convert stablecoins like USDT into USDX to receive 1.5x in reward points.

Staking Returns: Users who stake USDX to obtain sUSDX can earn an annual percentage yield (APY) of 13.7%, plus 1x in airdrop points.

Airdrop Rewards: Every user accumulates points by participating in protocol operations. These points can later be exchanged for potential airdrop rewards. Similar projects in the past (like Ethena) have offered users up to 400%+ in annualized returns, and USDX’s point system is expected to bring even higher rewards.

Additionally, users can continue to use USDX or sUSDX for liquidity provision, earning liquidity mining rewards.

It only takes two steps to participate. Click the link to enter the following page.

You can choose between the Arbitrum or BSC chain, first completing the conversion from USDT to USDX, then clicking the “Stake” menu as shown below.

In the image above, you can convert USDX into sUSDX by staking it. This will allow you to enjoy 1x airdrop points and 13.7% APY. However, note the reminder in the circle in the image: if you need to withdraw funds, you must unstake at least 1 day in advance.

Click the “Rewards” menu, where there are more liquidity mining opportunities under the Liquidity Pool — be sure to check it out.

Traditional stablecoins like USDT concentrate profits in the hands of the issuer, with users only being passive participants. If stablecoins infiltrated traditional finance like a “Trojan horse,” then revenue-sharing stablecoins are like light cavalry in that Trojan horse. They break the centralized monopoly with decentralized mechanisms and quietly deliver enormous profits to users.

Taking USDX.money as an example, users convert USDT into USDX and stake it as sUSDX, not only earning reserve profits but also receiving multi-layered returns through points, rewards, and airdrops. This model reallocates profits that would normally go to the platform to participants, making ordinary users the beneficiaries of the ecosystem. There are many more ways to increase stablecoin yields, and we will introduce more strategies in the future.

In conclusion, stablecoins are infiltrating traditional finance with decentralized methods, bringing unprecedented innovation and benefits to everyone while reconstructing the financial ecosystem.