After nearly a decade in the sector, it is assumed that certain concepts are widely understood. Stablecoins are one of them. They are foundational to how digital markets function, used by more than 200mn active addresses globally. Yet a recent question from a colleague forced a reset of that assumption, not about what stablecoins are, but why they exist, how they maintain their peg, and how the issuers actually make money. These questions are worth revisiting because stablecoins are no longer a niche tool; they have become the primary settlement layer for the global economy, processing a record $33tn in transaction volume in 2025.
The Mechanics Of Stablecoins: Why The "Digital Dollar" Now Anchors Global Debt
16 January 2026 - 18:00 CET
Solving for volatility at scale
Stablecoins exist to solve a practical problem: volatility. By maintaining a value close to one US dollar, they allow users to transact on blockchains without exposing themselves to constant price swings. That simple feature has unlocked a massive throughput that now rivals traditional card networks. As we noted in our coverage of the ECB’s warning on Treasury market "capture," stablecoins are now operating as a parallel settlement layer that runs 24/7, independently of banking hours.
In trading, stablecoins function as the "base currency" for pricing risk. Most pairs are quoted against USDT, making it the unit of account for the entire ecosystem. While USDC has become the high-velocity collateral of choice for DeFi and institutional settlement, USDT remains the dominant "store of value" in high-inflation economies. A useful way to think about this is the casino analogy: stablecoins are like casino chips. They represent a dollar, but they let you move freely inside the digital "casino" to interact with smart contracts, lending pools, and prediction markets like those currently being eyed by Goldman Sachs.
The redeemability anchor
The reason stablecoins can maintain this peg comes down to redeemability. At its core, a fiat-backed stablecoin is a promise: one token equals one dollar. This isn't based on hope; it’s based on a contractual obligation to exchange the token at par. This redeemability creates an arbitrage floor. If a token trades below $1.00, market participants buy it and redeem it with the issuer for a full dollar, shrinking supply and pushing the price back up.
Since the passage of the GENIUS Act in July 2025, this "promise" is now a federal mandate for US-regulated issuers. The law requires 1:1 backing in high-quality liquid assets, primarily US Treasury bills. This has effectively turned stablecoin issuers into some of the largest holders of US sovereign debt, a shift that Washington is currently trying to tax and regulate as these entities begin to behave like "shadow" central banks.
Tether: The $181bn powerhouse
Tether (USDT) remains the apex predator of this model. It creates tokens when large participants deposit dollars, which Tether then invests in interest-bearing instruments. According to its Q4 2025 disclosures, Tether now oversees $181.2bn in total assets against liabilities of $174.4bn.
Crucially, Tether does not pay interest to USDT holders. Instead, the yield generated by its $135bn Treasury portfolio accrues directly to the company. In a high-rate environment, this has made Tether one of the most profitable businesses per employee in financial history. The company has used these profits to overcollateralize its reserves, holding 96,000 BTC and 116 tons of gold. This "yield-on-reserve" model is increasingly being emulated by other listed entities, such as Riot Platforms' shift into data centre leasing, as the industry moves from pure "mining" toward asset-backed infrastructure.
The intermediary era
Tether and its peers now function as financial intermediaries between the legacy banking system and the blockchain. They convert fiat into a programmable, high-velocity instrument that can interact with exchanges and smart contracts without re-entering the banking system.
As the SEC begins to grant utility status to tokens like MegPrime, we are seeing the emergence of a clear regulatory path for these digital dollars. Stablecoins may look simple on the surface, but they sit at the intersection of payments, markets, and monetary mechanics, quietly doing the heavy lifting that makes the $33tn digital economy function.
