Will Stablecoins Become The Backbone Of A New Monetary Order?

During 2025, stablecoin supply, volume, and active users surged to all-time highs, thanks to the landmark passage of the GENIUS Act1 legitimizing their role as privately issued digital money. This article builds on a recent ARK Bitcoin Brainstorm podcast with Tether CEO Paolo Ardoino, famed economist Dr. Arthur Laffer, and ARK CEO/CIO Cathie Wood. Our conversation focused on the similarities between stablecoins and the private money created before 1913, the year the US government appointed the Federal Reserve as the sole issuer of US currency. Art Laffer compared the explosive growth of blockchain-based, privately issued dollars today to the monetary system in place before the Federal Reserve ended “free banking.”2 While the technology rails associated with stablecoins are new, private money is not. Indeed, private money served as the economic foundation upon which the US economy was built. With this backdrop, this article addresses three key questions: How did stablecoins emerge? What is the technology behind stablecoins? What will be the trajectory for stablecoins?

In 2014, Giancarlo Devasini launched USDT and Tether when the digital asset landscape was still in its infancy.3 At the time, a handful of exchanges—Kraken, Bitfinex, Coinbase, Poloniex, and Bitstamp—dominated global trading in the “Wild West” crypto ecosystem characterized by little regulation, security risks, and fragile infrastructure. In February 2014, the collapse of Mt. Gox, the largest bitcoin (BTC) exchange at the time, underscored those vulnerabilities. Other exchanges operated in different jurisdictions and traded the only real token at the time—bitcoin. While it was a global phenomenon, arbitrageurs trading bitcoin across exchanges could not move dollars—between and among banks, brokers, and countries—quickly or inexpensively enough to take advantage of arbitrage opportunities. When bitcoin traded at $115 on Kraken and $112 on Poloniex,4 an arbitrageur should have been able to sell one BTC on Kraken, wire the USD to Poloniex, and buy BTC back at $112. In practice, those transfers took one to two days. Thanks to Giancarlo and Paolo, USDT became the solution, moving dollar equivalents at the speed of the internet. Launched in July 2014 as “Realcoin,” Tether built USDT on the Omni Layer—on top of Bitcoin—as Ethereum and other smart contract chains did not yet exist. In November 2014, they rebranded the project “Tether” and introduced three fiat-pegged tokens: USDT (US dollar), EURT (Euro), and JPYT (Japanese yen).5 In 2015, Bitfinex, one of the largest exchanges, embraced USDT and created its first deep liquidity pool. Between 2017 and 2019, Tether expanded beyond Omni to Ethereum and later to Tron, Solana, Avalanche, and other chains while improving the speed of transactions, lowering fees, and enhancing interoperability. In 2019, USDT was the most traded crypto asset by volume, with daily turnover surpassing even that of bitcoin.6 By the end of 2019, as competitors proclaimed that their stablecoins were backed 100% by cash or cash equivalents, Tether disclosed that its reserves included A1 and A2 rated commercial paper and signaled plans to shift gradually toward short term U.S. Treasuries and cash.7 COVID catapulted USDT into a period of exceptional growth. In the two years ended March 2022, at a time when the rest of the global financial system was under enormous stress, USDT’s supply skyrocketed 25-fold from $3.3 billion to $80 billion,8 thanks primarily to emerging markets. Its primary use case shifted from speculation and arbitrage in crypto markets to a lifeline in the face of local currency devaluations. Between 2020 and 2023, people in Venezuela, Lebanon, Argentina, and other emerging markets who were suffering through sharp currency devaluations against the US dollar turned to USDT for protection, as shown below. For many, USDT functioned as a savings account, means of payment, and a store of value. With reduced access to black-market dollars as countries shut down physical interaction, children introduced their parents and grandparents to “digital dollars.” From their homes, they accessed faster, safer, and more scalable ways to preserve wealth in dollars—without relying on fragile banking systems or vulnerable currencies. Source: rwa.xyz as of December 31, 2025.9 For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any particular security or cryptocurrency. Past performance is not indicative of future results.

With $187 billion in supply and 60% market share, Tether is the largest stablecoin in the digital asset industry, rivaled only by Circle’s USDC at $75 billion.10 With more than 450 million global users and the addition of ~30 million users every quarter, USDT is headquartered and regulated in El Salvador, its reserves custodied by Cantor Fitzgerald.11 The US government has developed a strategic interest in Tether. With a balance sheet composed largely of U.S. Treasury bills rivaling the size of those held by developed nations, Tether is one of the largest and fastest-growing sources of demand for US debt, as shown below. Source: Tether as of December 31, 2025.12 For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any particular security or cryptocurrency. Including corporate bonds, gold, bitcoin, and secured loans, Tether had more than $5 billion in surplus collateral relative to the value of USDT liabilities in circulation as of January 2026.13 Given continued growth in the supply of stablecoins, Tether’s dominance in emerging markets, and the passage of the GENIUS Act, some observers have noted the similarities between the banking landscape today and the so-called free banking era at the turn of the nineteenth century. Critics often highlight the same period when recounting the risks associated with privately issued money. During our conversation, Dr. Arthur Laffer argued that stablecoins will introduce a new and more efficient form of free banking in the US and that negative views are unfounded. Critics often claim that stablecoins will introduce 19th-century “wildcat banking”14 as private entities like Tether or Circle issue their own notes. Dr. Laffer explained that the nineteenth century notes frequently traded at discounts to par, as users assessed the creditworthiness of issuers. Importantly, the US government did not guarantee the notes: they were liabilities of the individual banks, redeemable in specie—gold or silver—only if the issuing bank was solvent. Both Brian Domitrovic, Laffer Center Historian, and Dr. Laffer noted that currencies competed against each other domestically before the Federal government created the Federal Reserve in 1913. Delving deeper, Dr. Laffer explained that the US government created the gold peg in 1834 by fixing the price at $20.67 per ounce, but it did not stand behind each banknote in circulation. Redemption depended entirely on the issuing bank’s balance sheet and reputation. That arrangement violated the “no-questions-asked” principle of money, in which a currency is accepted at face value, free of doubts about its redemption. Even so, prices were remarkably stable over an extended period. From 1776 to 1913—the year the Federal government created the Federal Reserve—cumulative inflation in the United States was zero. Prices changed year-to-year around a constant par value. Some free banking systems outside the United States fared even better, particularly Scotland (1716–1845) and Canada (1817–1914). Those systems fostered low inflation, relatively few bank failures, and banknotes that typically traded at par. Partly responsible for their success were mechanisms like competitive redemption and the use of clearinghouses, both of which introduced market discipline. In contrast, the US experience (1837–1861) was shaped by restrictive state-level rules like bans on bank branching and requirements to post risky state bonds as collateral. After a rocky period in the early 1840s, “busted bank notes”—or currencies that the home “banks” could not redeem—settled at less than 2% on average which, interestingly, is the Fed’s inflation target today. During that period, economic growth was strong, laying the financial groundwork for the industrial revolution that hit with full force after the Civil War ended in 1865. Stablecoins share some similarities with the currencies of that era: they are privately issued liabilities backed b

Stablecoins like Tether and Circle cannot intervene actively by issuing or redeeming tokens to control the peg. Only whitelisted, KYC-compliant16 institutions can mint new USDT by depositing cash or redeeming tokens and sending them back to Tether. Institutions maintain the peg through arbitrage, while Tether and Circle guarantee one US dollar for each USDT/USDC in circulation. While he believes this model is valuable in emerging markets and inflation-prone economies, Dr. Laffer argues that a more advanced model is necessary for widespread adoption in developed markets: a stablecoin that maintains its peg to the dollar but also appreciates in line with inflation, preserving its value against goods and services. Based on the recently passed GENIUS Act, Tether Co-Founder Paolo Ardoino believes that any stablecoin passing yield directly to users should be classified as a security and face U.S. Securities and Exchange Commission (SEC) scrutiny. Today, yield-bearing “tokenized money markets” are restricted to accredited investors and qualified purchasers. Dr. Laffer believes that eventually stablecoins will be pegged to an index of goods and services and backed by long-term assets like bitcoin or gold. Already, Tether has introduced Alloy (AUSDT), a gold-backed stablecoin, and XAUT, a tokenized version of gold. As Ardoino noted, this structure allows users to be long bitcoin or gold while transacting in a stable-value instrument that appreciates with the collateral and expands borrowing capacity, as Joseph Lubin describes in the X post below. Note: “CDP”: Collateralized Debt Position, an on-chain, over-collateralized loan where users lock crypto as collateral to borrow stablecoins, with automatic liquidation if collateral value falls too far. Source: Lubin 2025.17 For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any particular security or cryptocurrency. Notably, this approach is not new in crypto. One of the earliest and most enduring decentralized finance (DeFi) experiments—Sky (once called MakerDao)—pioneered the idea of crypto-collateralized stablecoins. Sky operates as a decentralized bank that issues the USDS stablecoin, enabling users to deposit assets like ETH into smart contracts and borrow USDS against them. To ensure solvency, loans are overcollateralized, their liquidation triggered if collateral values fall below safe thresholds. Now, USDS is incorporating diversified collateral that seeks to maximize efficiency and yield while minimizing risk. Please see the diversified USDS collateral in the chart below, based on these components: Stablecoins: USDS collateral held in other major stablecoins (eg., USDC, USDT, etc.). This is the most liquid and least risky portion of the backing. On-chain Crypto Lending: Over-collateralized loans issued on-chain (eg., lending to borrowers who post crypto collateral worth more than the loan). Higher return than stablecoins, but still programmatically risk-managed. AAA Corporate Debt: Exposure to high-quality, investment-grade corporate bonds. Short-Duration Treasury Bills: Short-term US government debt (T-bills). This is sovereign-grade backing, commonly used by stablecoin issuers. OTC Crypto Lending: Off-chain, over-the-counter crypto loans to vetted counterparties. Higher risk than on-chain lending but typically collateralized and relation-based. Others: Miscellaneous assets, operational buffers or smaller strategies. Source: Sky Ecosystem 2025.18 For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any particular security or cryptocurrency. To stabilize the peg further, Sky uses its Peg Stability Module (PSM). The PSM enables direct swaps between USDC and USDS, allowing arbitrageurs to keep USDS near $1 and provide liquidity and redemption capacity beyond volatile crypto collateral. In addition to transactions, Sky offers a savings mechanism thro