Stablecoins: The Bridge Between TradFi and Crypto

Welcome back to Old Man New Money, I'm Douglas Borthwick and today we're talking about the most important innovation in crypto that no one in traditional finance fully appreciates yet. Stablecoins. Not Bitcoin, not Ethereum, not any of the speculative tokens that get all the attention. Stablecoins. Digital dollars that move at the speed of the internet with transaction costs measured in pennies. And as of October 2025, there are over $284 billion in stablecoins in circulation. That's more than the entire venture capital industry deploys annually, and traditional finance is still trying to figure out what they are.

Well, here's your 30-second version. Stablecoins are cryptocurrencies pegged to stable assets like the US dollar. USDC and USDT, that's Tether, are backed one-to-one by dollars and short-term treasuries. They enable instant, low-cost dollar transfers, 24/7 globally, without banking infrastructure. For digital securities, stablecoins provide the payment rails. Instead of waiting two days for bank wires to clear, settlements happen instantly using stablecoins. They are the missing piece that makes tokenized securities actually work in practice.

We're at this inflection point where stablecoins are transitioning from crypto-native tool to mainstream financial infrastructure. At INEX, when we were raising our $85 million offering, we accepted both traditional wire transfers and cryptocurrency payments, including stablecoins. The stablecoin payments settled instantly, the wire transfers sometimes took three to five business days to clear, especially the international wires. Investors using stablecoins had their tokens immediately. Investors using bank wires waited days. Same investment, radically different experience. And now major institutions are waking up to this.

PayPal launched PY dollar, Visa is experimenting with stablecoin settlements. Workers are exploring stablecoin treasury products. This isn't coming, it's here. And if you're involved in digital securities, you need to understand how stablecoins work. And let me explain what a stablecoin actually is because the name is confusing. A stablecoin is a cryptocurrency that maintains a stable value relative to some reference asset, usually the US dollar, although Euro and other currency stablecoins exist too. Think of it like this, normal cryptocurrencies like Bitcoin or Ethereum fluctuate while Bitcoin can move 10% in a day.

That makes them terrible for everyday transactions. Imagine getting paid in Bitcoin and by the time you go to spend it, it's worth 15% less. Or more. Stablecoins solve this by maintaining a steady value. One USDC always equals one US dollar. One USDT always equals one dollar. This stability makes them useful as a medium of exchange and unit of account, not just speculation. So you get the benefits of cryptocurrency, instant settlement, global reach, low costs, 24/7 availability without the volatility problem. Now let me break down the main players because they work differently. USDT or Tether is the largest stablecoin.

And that is of October 2025, there are about $120 billion in USDT in circulation. It's been around since 2014. Tether claims it's backed one-to-one by dollars and short-term treasuries, though they've historically been less transparent about reserves than other issuers. USDT dominates in Asia and is a primary stablecoin for crypto trading globally, but it's controversial. Military uncertainty, questions about reserves, many institutional investors won't touch it. USDC, our dollar coin, is issued by Circle. There's about $40 billion in circulation. This is the institutional favorite in the United States.

Fully backed by cash and short-term US treasuries, monthly attestations from auditors, regulatory compliance, transparent reserves. At INX, when we accepted stablecoin payments initially, USDC was our preferred option because of the regulatory clarity and reserve transparency. Now, PY dollar or PayPal dollar was launched in 2023. It's still relatively small, maybe $800 million in circulation, but it's significant because it's backed by PayPal. Four hundred and thirty million users suddenly have access to a stablecoin through a familiar interface. DAI, a decentralized stablecoin, about $5 billion in circulation.

Instead of being backed by dollars in a bank account, it's backed by crypto collateral locked in smart contracts. More complex, more experimental, but truly decentralized. B dollar or the Binance dollar and T dollar or the True dollar are rather significant players, each with their own use cases and backing mechanisms. The key points? These aren't all the same. The backing mechanism, the regulatory status, the transparency, these all matter. Now, you might be asking, how do they keep the value stable? Why is USDC always worth a dollar? For fiat backed stablecoins like USDC and USDT, it's straightforward.

The issuer holds one dollar in reserves for every stablecoin in circulation. Want to redeem your USDC? Send it back to Circle. They destroy the token and send you a dollar. Want new USDC? Send Circle a dollar. They mint you a new token. This creates arbitrage opportunities that keep the price stable. If USDC trades at one dollar and two cents, arbitrageurs can buy dollars, mint USDC at one to one, sell it for one dollar and two cents, profit two cents, repeat. This arbitrage activity pushes the price back to one dollar. If USDC trades at 98 cents, arbitrageurs can buy USDC at 98 cents, redeem it for one dollar, profit two cents, repeat again.

Arbitrageurs pushes the price back to PEG. So the PEG is maintained through economic incentives, not trust. As long as reserves are real and redemptions work, the market keeps the price at one dollar. For algorithmic stablecoins like DAI, it's much more complex. They use over collateralization and smart contracts to maintain stability. If you want to create DAI, you have to lock up more value and other crypto than the DAI are creating. This ensures that there's always enough backing even if crypto prices fall. Now let me explain why stablecoins are critical for digital securities.

Traditional security settlement involves moving money between bank accounts. This takes time. Wire transfers can take hours or days, international wires are even slower. During settlement, there's counterparty risk. What if the bank fails? What if the wire doesn't clear? With stablecoins, settlement is instant. The moment you transfer a USDC to purchase a security token, that USDC arrives in the issuer's wallet. Final. Irreversible. No waiting for bank confirmation. At INX, we integrated USDC payments into our platform. Investors could connect their wallet, transfer a USDC and receive their security tokens in the same transaction.

The entire process took minutes instead of days. And this isn't just about speed, it's about access. Traditional banking is closed on weekends and holidays. Stablecoins work 24/7. Want to invest in a security token offering at 2am on a Sunday with stablecoins? You can. International investors face even bigger friction with traditional banking. Cross-border wires are slow, expensive and often rejected due to anti-money laundering concerns. Stablecoins work the same whether you're in New York or New Delhi. At INX, we'd investors from 74 countries, stablecoins made that global participation possible.

Now, let's talk about regulation because this is where it gets interesting. Stablecoins exist in this gray area. They're not securities. They're not traditional currency. They're not bank deposits. So, who regulates them? In the US, the answer is evolving. The SEC has said that some stablecoins might be securities depending on how they're structured. The CFTC might have jurisdiction over some as commodities. The OCC and Fed oversee banks that might issue stablecoins. And Treasury and FinCEN worry about anti-money laundering. As of late 2025, comprehensive stablecoin legislation is being debated in Congress. The industry wants clear rules.

Regulators want to ensure consumer protection and prevent money laundering. Circle, the issuer of USDC has been proactive. They hold reserves at regulated financial institutions. They provide monthly attestations. They work with regulators. This is why USDC is the preferred stablecoin for US institutions. Tether, on the other hand, has been less transparent historically. And this has created somewhat of an uncertainty. Some exchanges don't list USDT. Some institutions won't touch it. For digital securities platforms like INX, regulatory-compliant stablecoins are essential. And we integrated USDC specifically because of the regulatory clarity.

Let me explain why stablecoins are the foundation of decentralized finance. DeFi is about building financial applications on blockchains. Lending, borrowing, trading derivatives. But you can't build these applications on volatile assets. And if the value of your collateral drops 30% overnight, the whole system breaks. Stablecoins provide the stable unit of account that makes DeFi work. You can lend USDC and know your lending dollars. Not something that might lose half its value tomorrow. You can price derivatives in USDC and have consistent valuations. Over $100 billion is locked in DeFi protocols. And most of it involves stablecoins.

They are the rails that make everything else possible. For digital securities this matters because DeFi is building the infrastructure we'll eventually use. Imagine tokenized bonds trading on decentralized exchanges. Imagine using security tokens as collateral for loans. Imagine dividend payments and stablecoins distributed automatically via smart contracts. All of this requires stablecoins as the stable denominator. Let me give you numbers that show why stablecoins are winning. Each stablecoin dollar in Solana drives 8 times more DeFi volume than on Ethereum. Why? Transaction costs. On Ethereum moving stablecoins costs $5 to $20.

On Solana it costs a fraction of a cent. When transactions are cheap people actually use them. In the third quarter of 2025 stablecoin transfer volume hit record highs. We're talking trillions of dollars in quarterly volume. This is real economic activity not speculation. 4.4 million people use Solana for stablecoin transactions daily. These aren't crypto natives. These are people using stablecoins for remittances, for payments, for savings. In countries with currency instability stablecoins provide access to dollar stability without needing a US bank account. This is financial inclusion at scale.

Here's a comparison that should make traditional finance pay attention. Visa processed 265 billion transactions in 2024. About $728 million per day. Stablecoins processed about 100 billion transactions in 2024. About $274 million per day. Stablecoins are now handling transaction volumes approaching 40% of Visa's volume and they're growing faster. The difference? Visa charges merchants 2 to 3% plus fixed fees. Stablecoin transfers cost fractions of a cent. Visa requires banking infrastructure, credit checks, merchant accounts. Stablecoins require an internet connection and a wallet. For cross border payments the gap is even wider.

Visa charges 4 to 5% on currency conversion. Stablecoins charge the same fraction of a cent whether you're sending to the next street or across the globe. You know what drives me crazy? The number of traditional finance executives who dismiss stablecoins as crypto nonsense while simultaneously losing market share to them. PayPal launched PY dollar because they see the writing on the wall. Visa's experience, but many are still in denial. They think stablecoins are a fad. They think regulation will kill them. They think traditional banking rails will always dominate. They're wrong. Stablecoins are better technology for moving dollars digitally.

Lower cost, faster settlement, global reach, programmable, open architecture. The only question is whether traditional finance adapts or gets disrupted. Now, let's talk about what could go wrong because stablecoins aren't perfect. Deep pegging risk is real. If a stablecoin issuer doesn't have full reserves or can't handle redemptions, the peg breaks. This happened with USDT Tether briefly in the past. It happened catastrophically with algorithmic stablecoins like Terra Luna. Regulatory crackdown could happen.

If regulators decide stablecoins are too risky or compete too directly with central bank currency, they could heavily restrict or ban them. So with $284 billion in circulation, that seems increasingly unlikely. Banking access is fragile. Stablecoin issuers need banking relationships to hold reserves. If banks exit the space due to regulatory pressure, it creates problems. This happened to smaller stablecoin issuers in the past. Smart contract risks exist for DeFi applications using stablecoins. Bugs in code can lock funds or enable theft. Banking concerns are valid. USDC and USDT are centralized. Circle and Tether can freeze accounts.

They can refuse redemptions. For some use cases, this defeats the purpose of cryptocurrency. These are real risks, but for digital security specifically, the benefits outweigh the risk when you use regulated, transparent stablecoins like USDC. I should mention central bank digital currencies because they're often positioned as competing with stablecoins. CBDCs are digital versions of national currencies issued directly by central banks. The digital dollar, digital euro, digital yuan. Many countries are exploring or piloting these.

The promise is all the benefits of digital currency with the backing of a central bank, no de-pagging risk, full government support. But the concern is surveillance and control. CBDCs could enable governments to monitor every single transaction. They could program restrictions on how money is spent. They could implement negative interest rates by forcing digital currency to lose value over time. For digital securities, CBDCs might eventually become the payment rails instead of private stablecoins. If the US Federal Reserve launches a digital dollar that works on public blockchains, that could replace USDC and USDT.

But we're years away from that. For now, stablecoins are filling the gap. What should you do right now? Get a wallet and acquire a small amount of USDC. Use Coinbase, which makes it easy. Experience how stablecoins work. Send $10 to another wallet, feel the speed. Use a stablecoin for a real transaction. Some merchants accept USDC. Some DeFi protocols let you earn yield on stablecoins. Experience the utility. Compare traditional wire transfer costs and speed to stablecoin transfers. Next time you need to send money internationally, compare the cost and time of a wire versus a stablecoin transfer. Understand the reserves.

Read Circle's attestation reports. Understand how USDC maintains its peg. This builds confidence and stability. Consider stablecoin integration for your business. If you're building digital securities infrastructure, stablecoin payment rails should be part of your stack. The user experience improvement is massive. Stablecoins are the most important innovation in crypto for real world adoption. Not because they're exciting. Because they're boring. They work. They give you dollars that move at the speed of the internet. That's it. That's the killer app. For digital securities, they're essentially infrastructure.

Instant settlement, global reach, low cost 24/7 availability. At INX, stablecoins enable us to serve investors from 74 countries with instant settlement. Digital banking could never have supported that model. $284 billion in circulation. Approaching 40% of Visa's transaction volumes. Mainstream adoption by PayPal, Visa and traditional institutions. This is happening. The bridge between traditional finance and crypto is being built and stablecoins are the foundation. Next episode we're diving into wallets and private keys. How digital custody actually works.

Why traditional investors struggle with this and how security tokens solve some of these problems. I'm Douglas Borthwick. This is Old Man New Money. If this was helpful, share it with someone who still thinks stablecoins are just another crypto gimmick.