Thank you for the opportunity to discuss stablecoins today. As a significant advancement in the cryptocurrency landscape, stablecoins hold great promise for enhancing both retail and international payment systems.¹ Over three years ago, I shared my insights on the advantages and risks associated with stablecoins.² This conference serves as a perfect platform to explore the evolving stablecoin market and the challenges that may prevent these digital assets from realizing their full potential.

In this presentation, I will define stablecoins as digital assets intended to maintain a consistent value relative to a national currency and backed at least one-to-one with secure, liquid assets. This entails holding a reserve of assets that enables stablecoins to be redeemed for traditional currency promptly.

For stablecoins—and indeed any payment method—to thrive, they must exhibit 1) a definitive use case and 2) a robust commercial case to ensure economic viability. Though these concepts are often intertwined, they are distinct yet equally vital. A use case is essential for attracting users, while a sustainable business model is crucial for the ongoing operations of stablecoin issuers. As innovators in the private sector strive to broaden stablecoin applications and develop scale, what challenges might they encounter? This is a critical query I intend to explore today, including from the perspective of public policy. As a policymaker, my aim is not to support specific use cases or business models but to highlight the diverse ecosystem that requires attention from policymakers.

I will begin with an overview of stablecoin use cases, covering both established and emerging applications. The primary use case for stablecoins is as a secure digital store of value. In the initial stages of cryptocurrency trading, transactions involved exchanging one crypto asset for another. Given the volatility of cryptocurrency prices, assets that lack stablecoin status are prone to considerable price risk. Financial markets universally benefit from the availability of a low-risk asset, enabling traders to shift from high-risk positions to safe havens where the asset’s price remains stable and predictable. The beauty of financial innovation is that demand sparks supply—hence the creation of stablecoins.

A stablecoin’s value is typically linked to a fiat currency, with the U.S. dollar being the predominant choice among various stablecoins. This correlation allows stablecoins to function as synthetic dollars. In daily transactions, the U.S. dollar acts as a medium of exchange and a unit of account, and by mirroring the dollar, stablecoins fulfill this role within the crypto ecosystem.

So, how does one exchange a “real” dollar for a “synthetic” dollar, like a stablecoin? Historically, exchanges facilitated movement in and out of the cryptocurrency space, but these transactions often incurred time and costs. Stablecoins present a solution by allowing users to represent dollars on exchanges, which enhances transaction speed and efficiency. Today, stablecoins account for over 80% of trading volume on major centralized crypto exchanges.³

A second use case for stablecoins is their function as a means to access and store U.S. dollars. Presently, around 99% of stablecoin market capitalization is denominated in U.S. dollars, and the majority of digital asset transactions are priced in dollars.⁴ This aligns with the significant role of the U.S. dollar in global finance and trade, suggesting that stablecoins can help sustain and expand the dollar’s international influence.⁵ U.S. dollar-denominated stablecoins may be particularly attractive to individuals in countries experiencing high inflation or those lacking reliable access to dollar cash or banking facilities.

Thirdly, stablecoins offer advantages for cross-border transactions. The “stablecoin sandwich” model is gaining traction, where fiat currency in one nation is first converted to a U.S. dollar stablecoin, then sent to another party, and subsequently converted back into local currency. This method simplifies the complexities associated with correspondent banking networks, thereby enhancing transparency, reducing costs, and improving transaction speed. As this use case progresses, it is essential for participants to adopt stringent anti-money laundering measures and uphold relevant consumer protections.

Lastly, the use of stablecoins in retail payments is currently limited. However, there is a growing number of private sector players eager to bolster retail payment capabilities through stablecoins. For instance, companies providing point-of-sale technology are acquiring innovative fintech firms or developing their own solutions to facilitate stablecoin transactions for purchases. This evolution would grant consumers additional payment options, and companies are also exploring the integration of stablecoins—along with cryptocurrencies generally—into peer-to-peer payment applications.

Ultimately, it remains uncertain whether stablecoins can achieve substantial scale as a method of retail payments. This shift would necessitate a significant increase in consumer adoption of stablecoins, alongside businesses making essential investments to enable stablecoin transactions. Retail payment habits are often entrenched, and any changes typically unfold over extended periods. Should retail adoption of stablecoins rise, it may take years to materialize significantly. However, if stablecoins reduce transaction costs or help merchants attract customers, retailers might be incentivized to accept them. In the end, market dynamics will determine whether consumers and businesses are motivated to utilize stablecoins in this context.

Beyond having well-defined use cases, it is vital for stablecoin issuers to adopt viable business models. For instance, Red Lobster’s popular endless shrimp promotion was appealing but ultimately unsustainable. Let me outline my understanding of the incentives that guide stablecoin issuers, although I am here to gain insights as well.

Currently, the majority of stablecoin issuers seem to derive revenue from securing higher yields on their reserve assets compared to their incurred expenses. By issuing a zero-interest liability and investing in interest-earning assets, they benefit from the differential. Similar to bank deposits, interest rate conditions greatly influence the profitability of firms issuing stablecoins. Rising interest rates generally lead to higher yields on reserve assets, thereby boosting issuer revenue. However, such conditions may also make non-interest-bearing assets less appealing to consumers. Nonetheless, users holding stablecoins as a convenient, secure store of U.S. dollar-denominated value may remain relatively indifferent to interest rates, as evidenced by some holders of physical U.S. dollars today.

Stablecoin issuers can also generate income through fees, including minting and redemption charges when a customer buys a new stablecoin for a real dollar or redeems it for fiat currency. This is analogous to the foreign exchange market typical in traditional finance. Additionally, as seen with many payments firms, issuers can profit from transaction-related fees.

Moreover, stablecoin issuers might position stablecoins as part of broader strategies to attract customers for additional products and services, employing them as a “loss leader” to drive traffic towards more lucrative offerings.

Except for the latter scenario, the sustainability of other business models hinges on stablecoins’ ability to gain traction as a payment solution and how consumers and businesses respond. For instance, if stablecoin issuers distribute interest earnings on their assets, this makes their product more appealing but diminishes profits from issuing the stablecoin. The tighter the interest rate spread, the more crucial scale becomes. In fee-based models, open market access could lead to reduced fees, as observed in other sectors, which would lower revenue from stablecoin issuance.

In this marketplace, achieving scale is critical for fulfilling specific use cases and satisfying certain business models. For example, if consumers are skeptical about the broad acceptance of stablecoins as a payment form, they are unlikely to embrace them. Conversely, if stablecoin issuers cannot achieve substantial revenue from interest on backing assets or fees, they may struggle to grow. I refer to this dilemma as the “Field of Dreams” problem—if you establish it, will they come?

Now, let’s delve into some potential challenges or obstacles necessary to overcome for stablecoins to fully realize their ambitions.

The first area of concern relates to the safety and soundness of stablecoins and the pressing need for a coherent regulatory framework in the United States concerning stablecoins.⁶ As forms of private money, stablecoins are inherently susceptible to run risks, and we have witnessed instances of some stablecoins “depegging” in recent years. Moreover, all payment systems are prone to operational failures; stablecoins also face risks related to clearing, settlement, and other payment processes. Importantly, the risks encountered by stablecoin issuers differ from those faced by traditional banks. The stablecoin ecosystem would significantly benefit from a defined U.S. regulatory framework that directly addresses the specific risks associated with stablecoins, allowing both banks and non-banks to issue regulated stablecoins while considering the impact on the broader payments landscape and competing payment infrastructures.

I stress the importance of ensuring U.S. legislation provides for the regulation and oversight of stablecoin issuers proportionate to the risks they present, without stifling their innovative capacity during this evolving marketplace. I am confident in the private sector’s ability to create solutions that serve both businesses and consumers, while public authorities should ensure a fair regulatory environment for market participants and establish measures that safeguard consumers and the financial system overall. Consistency in regulation is vital for encouraging businesses to invest in new offerings while fostering consumer confidence.

The following area of concern is fragmentation, beginning with a technical viewpoint. Currently, various blockchain networks operate separately from one another. Companies aiming to scale their efforts across multiple blockchains are actively pursuing technical solutions for cross-chain interoperability. Will this ultimately yield an efficient process, especially amidst a landscape of numerous stablecoin providers operating across different blockchain combinations? Alternatively, could we see competing ecosystems, where one stablecoin thrives on certain blockchains while another prevails elsewhere? Conversely, a highly interoperable stablecoin market could foster a diverse array of issuers and blockchain technologies, allowing consumers to select from various stablecoins and platforms. The impact of these dynamics on stablecoin business models and use cases is still uncertain, requiring close observation as firms navigate growth and evolution.

Fragmentation regarding the use and acceptance of stablecoins could also hinder scaling efforts and influence how stablecoin applications evolve. As mentioned, stablecoins will be seen as practical for payments only if holders expect broad acceptance. The greater the number of merchants recognizing a stablecoin, the more convenient its usage becomes. Concerning retail payments: how feasible is it for consumers to utilize stablecoins at points of sale, both physically and online? From the merchants’ perspective, what incentives would drive them to accept stablecoins? Similarly, regarding cross-border transactions, which firms and their banking partners will adopt stablecoins in their operations? Additionally, could the emergence of stablecoins recreate and intensify existing challenges linked to correspondent banking, leading to further fragmentation? Or might stablecoins evolve in such a manner as to transform the structure of cross-border payments?

Regulatory fragmentation could also inhibit stablecoins from achieving their full potential. As previously noted, the U.S. stablecoin market lacks a streamlined regulatory structure. While efforts to establish global standards have commenced, the creation of varied international stablecoin regulatory frameworks raises the possibility of conflicting regulations both domestically and abroad.⁷ Such regulatory inconsistencies could impede U.S. dollar stablecoin issuers from flourishing on a global stage. As already pointed out, scale is imperative for any payment method to operate at its full capacity.

For instance, under the European Union’s Markets in Crypto-Assets Regulation, stablecoin issuers can earn income from their reserve assets, while other proposed regulations may require that reserves for stablecoins considered systemically important be maintained as non-interest-bearing central bank deposits, thus confining stablecoin issuers to a limited business model. Additionally, state-level regulations in the U.S. have played a significant role in the stablecoin market’s advancement, and various states are either drafting or finalizing regulations pertaining to stablecoin issuance. However, conflicting state regulations could hinder the use of the same stablecoin across all states, ultimately diminishing scalability. Similar to the dual banking system in the U.S., a collaborative regulatory approach involving both state and federal authorities could stimulate innovation and foster the benefits of a harmonized regulatory environment.

Moreover, divergent regulatory frameworks are creating differing demands for reserve assets and redemption protocols for stablecoin issuers, adding another layer of regulatory fragmentation. For example, European regulations mandate that non-systemic stablecoin issuers hold a minimum of 30% of their backing assets in bank deposits, with further proposals establishing concentration limits per institution.⁸ These requirements differ from those imposed on certain state-regulated issuers in the U.S.⁹ As a result, stablecoin issuers aiming for global scalability may need to issue the same token under multiple regulatory frameworks with distinct reserve and redemption mandates. Will this approach prove efficient, particularly if regulatory regimes grow both domestically and globally? Should we expect stablecoin issuers to adjust their reserve policies whenever a stablecoin is transferred among users in various jurisdictions? Creating a consistent federal standard could empower federal regulators to engage with international counterparts, ensuring global regulations align with the interests of U.S. consumers and businesses while positioning the U.S. as a leader in regulation for an asset class primarily valued in our national currency.

In conclusion, I am hopeful that the future of the stablecoin market will depend on the intrinsic benefits they offer to consumers and the broader economy. For the private sector, this necessitates a continued focus on developing innovative solutions that meet market demands while establishing sustainable business models. For the public sector, the priority lies in establishing precise and targeted legal and regulatory standards while fostering cooperation across state and national borders to enable private-sector innovation on a global scale.

Thank you.

1. I extend my gratitude to Marc Rodriguez, Alex Sproveri, Sonja Danburg, and David Mills of the Federal Reserve Board for their assistance with this text. The viewpoints expressed herein are my own and not necessarily reflective of those held by my colleagues on the Federal Reserve Board. Return to text

2. Refer to Christopher J. Waller, “Reflections on Stablecoins and Payments Innovations” (address at “Planning for Surprises, Learning from Crises” 2021 Financial Stability Conference, Cleveland, OH, November 17, 2021). Return to text

3. See “Share of Trade Volume by Pair Denomination,” The Block, last modified February 10, 2025, https://www.theblock.co/data/crypto-markets/spot/share-of-trade-volume-by-pair-denomination. Return to text

4. Visit “DefiLlama-Defi Dashboard,” https://defillama.com/. Return to text

5. Refer to Christopher J. Waller, “The Dollar’s International Role” (speech at “Climate, Currency, and Central Banking,” Nassau, BS, February 15, 2024). Return to text

6. Refer to Christopher J. Waller, “Reflections on Stablecoins and Payments Innovations.” Return to text

7. See Committee on Payments and Market Infrastructures and Board of the International Organization of Securities Commissions, Application of the Principles for Financial Market Infrastructures to stablecoin arrangements (PDF) (Basel: Bank for International Settlements, July 2022). Return to text

8. Refer to Regulation (EU) 2023/1114 of the European Parliament and of the Council of 31 May 2023 on markets in crypto-assets, amending Regulations (EU) No 1093/2010 and (EU) No 1095/2010 and Directives 2013/36/EU and (EU) 2019/1937. For more, see European Banking Authority, Draft Regulatory Technical Standards specifying highly liquid financial instruments with minimal market risk, credit risk, and concentration risk under Article 38(5) of Regulation (EU) 2023/1114 (PDF) (Paris: European Banking Authority, June 2024) and European Banking Authority, Draft Regulatory Technical Standards for liquidity requirements under Article 36(4) of Regulation (EU) 2023/1114 (PDF) (Paris: European Banking Authority, June 2024). Return to text

9. For further details, refer to “Virtual Currency Guidance,” New York State Department of Financial Services, last modified June 8. Return to text