Stablecoins - The Exploding "Digital Dollar Hegemony"

Against the backdrop of widespread global de-dollarization rhetoric, stablecoins may become an unexpected savior of dollar hegemony.

Dollar-pegged stablecoins are expanding their influence in cross-border payments, international trade, and personal finance at an astonishing rate. A sign: dollar-denominated stablecoins are spreading in Europe, potentially posing a serious threat to the economic sovereignty of the Eurozone.

According to Wind Information, Deutsche Bank's latest research report shows that stablecoins are entering mainstream payment systems at an alarming rate, with transaction volumes exceeding $28 trillion, surpassing Visa and Mastercard. Traditional payment giants are also beginning to accept this trend - Visa recently announced a partnership with stablecoin company Bridge to enable cross-border payments with Latin America, and invested in startup BVNK to further develop its stablecoin payment capabilities.

Stablecoins are not just financial instruments; they are rapidly becoming strategic assets. With 83% pegged to the dollar, Tether ranks among the largest holders of U.S. Treasury bonds. This series of trends not only represents the rise of a new asset class but also implies the consolidation and expansion of dollar hegemony through digital means.

European Concerns: Dollar Stablecoins Invading the Eurozone

Stablecoins are cryptocurrencies that maintain stable value by pegging to existing currencies like the dollar or euro. Currently, the global circulation of stablecoins exceeds $200 billion in value, with monthly transaction volumes reaching hundreds of billions of dollars, providing a digital alternative to traditional currencies.

Recently, Luis Garicano, Professor of Public Policy at the London School of Economics, warned in a speech that the widespread adoption of dollar stablecoins across Europe would constitute a form of "digital dollarization," with serious macroeconomic implications. This would weaken the European Central Bank's ability to manage the Eurozone economy, as a significant portion of transactions would bypass the euro system, reducing the effectiveness of interest rate adjustments and other monetary policy tools.

This outcome also brings financial stability risks. Garicano pointed out that European businesses and households earning in euros but paying in dollar stablecoins would face dangerous currency mismatches if the euro depreciates. Moreover, the ECB cannot act as a lender of last resort for dollar-denominated instruments, limiting its ability to manage crises involving these stablecoins.

Ultimately, the proliferation of foreign digital currencies would erode Europe's monetary sovereignty, weaken the ECB's control over its payment system, and increase dependence on U.S. financial infrastructure.

These concerns are not unfounded. According to recent research, although using dollar-denominated stablecoins may seem illogical for Europeans due to exchange rate risks, these digital assets offer three undeniable advantages.

Firstly, there's an overwhelming market advantage. Euro-denominated stablecoins account for only a negligible share of the global market - the top ten euro stablecoins have a total market capitalization of about 600 million euros, accounting for just 0.24% of the entire stablecoin market. This limited liquidity results in higher transaction costs for euro stablecoins in practical applications.

Secondly, there are significant differences in regulatory environments. The EU's Markets in Crypto-Assets (MiCA) regulation attempts to impose strict controls on stablecoins, requiring all issuers wishing to sell stablecoins in the EU to register locally and follow strict regulations. In contrast, the U.S. has yet to introduce similar comprehensive legislation, which, while potentially bringing higher systemic and consumer risks, also creates more room for innovation and expansion.

Thirdly, dollar stablecoins have already dominated early application scenarios and benefit from strong network effects. Cryptocurrency trading ecosystems and decentralized finance (DeFi) platforms primarily use dollar stablecoins, further strengthening their market position.

Transaction Volume Explosion: Stablecoins Surpass Traditional Payment Giants

Deutsche Bank's latest research report shows that stablecoins have evolved from niche crypto tools to mainstream global financial payment infrastructure.

The research, co-authored by Marion Laboure and Camilla Siazon, points out that the total size of the stablecoin market has surged from $20 billion in 2020 to $246 billion in May 2025, with Tether (USDT) alone growing from $67 billion in June 2022 to over $149 billion in May 2025.

As stablecoins gain momentum as a medium of exchange and store of value, stablecoin transaction volumes have grown by 598% since 2020.

More notably, stablecoins processed $27.6 trillion in transaction volume in 2024, surpassing Visa and Mastercard. Active stablecoin wallet addresses increased from 22.8 million in February 2024 to over 35 million in February 2025, a 53% growth.

Visa itself is actively embracing this trend, recently announcing a partnership with stablecoin company Bridge to launch cross-border payment business in Latin America, and investing in startup BVNK to further develop its stablecoin payment capabilities.

According to Deutsche Bank, some well-known companies have also started adopting stablecoins. For example, Shopify customers can pay in USDC through Solana Pay; Gucci has accepted cryptocurrencies including stablecoins in certain stores since 2022; PayPal announced in April that customers can earn 3.7% yield through its PYUSD stablecoin.

According to a Visa survey, reasons users prefer stablecoins over banks include higher yields (45%), higher efficiency (41%), and lower risk of intervention (39%).

Stablecoins' programmability and global accessibility make them attractive during periods of geopolitical uncertainty. A survey conducted by Visa showed that in Nigeria, Indonesia, Turkey, Brazil, and India, 38% of users use stablecoins instead of dollars to hedge against inflation. Stablecoins are also seen as a tool to hedge against geopolitical turmoil. The Russian government has begun to consider cryptocurrencies as an alternative international payment tool to circumvent sanctions.

Deutsche Bank points out that stablecoins are not just financial instruments; they are rapidly becoming strategic assets. With 83% pegged to the dollar and Tether ranking among the largest holders of U.S. Treasury bonds, they are reinforcing the dollar's dominance in a fragmented world.

As the GENIUS Act progresses, regulatory clarity in the U.S. is improving, which will enable mainstream application scenarios and deeper financial integration. Although the bill currently faces political resistance, Deutsche Bank expects it to pass before August 2025.

Stablecoins: Unexpected Savior of Dollar Hegemony

As the Trump administration undermines external confidence in U.S. sovereignty and global de-dollarization rhetoric intensifies, stablecoins are becoming an unexpected force supporting dollar hegemony.

U.S. Treasury Secretary Scott Bessent clearly stated at the White House's first Digital Assets Summit: "As per President Trump's instructions, we will maintain the dollar's position as the world's dominant reserve currency, and we will use stablecoins to achieve this goal."

Why can stablecoins strengthen dollar hegemony? There are several key factors:

Reserve Asset Demand: According to Deutsche Bank research, Tether (USDT)'s reserve holdings of U.S. Treasury bonds grew from near zero in 2020 to about $98 billion (81% of its reserve composition) in 2025. Circle (USDC) now holds about $24 billion in U.S. Treasury bonds, up from about $12 billion in December 2022. Ripple held about $70 million in U.S. Treasury bonds as of March 31.

Reinforcing Dollar Demand: 83% of fiat-pegged stablecoins are pegged to the dollar, with stablecoins holding over $120 billion in dollar reserves.

Accelerating Informal Dollarization: USDT is widely used as a tool to hedge against inflation and capital controls in emerging markets, accelerating the process of informal dollarization.

Political Support: Trump and Republican lawmakers publicly support stablecoins over central bank digital currencies (CBDCs), positioning them as a private sector solution for digital currencies.

Standard Chartered Bank's latest research report predicts that once the U.S. Congress passes the GENIUS Act, stablecoin supply will grow nearly tenfold over the next four years, inflating from the current $230 billion to about $2 trillion by the end of 2028, absorbing $400 billion in Treasury bonds annually. By then, stablecoin transactions will account for 10% of foreign exchange spot market transaction volume, far higher than the current approximately 1%.

Fed Governor Waller once pointed out: "Most transactions in decentralized finance (DeFi) involve the use of stablecoins, which peg their value one-to-one with the dollar. About 99% of stablecoin market capitalization is pegged to the dollar, which means crypto assets are essentially traded in dollars. Therefore, any expansion of transactions in the DeFi world may only strengthen the dollar's dominance."