Introduction
Stablecoins have become the linchpin of the crypto ecosystem. Acting as a bridge between traditional finance and blockchain technology, they bring much-needed stability to a famously volatile market. This unique quality makes them indispensable for traders, institutions, and newcomers alike. Below, we spotlight seven of the most noteworthy stablecoins shaping the market in 2025—each with its own approach to ensuring price stability.
1. Tether (USDT)
- Issuer/Reserve Model: Issued by Tether Limited, USDT maintains a 1:1 peg to the U.S. dollar, backed by cash, cash equivalents, and other short-term assets.
- Market Dominance: Launched in 2014, Tether capitalised on its first-mover advantage to become the most traded stablecoin globally.
- Liquidity Leader: Practically every crypto exchange supports USDT, making it highly liquid and accessible.
- Critical Infrastructure: Its ubiquity makes it a baseline for stablecoin comparisons, ensuring it remains under the industry microscope.
2. USD Coin (USDC)
- Issuer/Reserve Model: A collaborative effort by Circle and Coinbase, USDC is pegged 1:1 to the U.S. dollar, with reserves in short-term U.S. Treasuries and cash.
- Transparency and Trust: USDC undergoes regular attestations from leading accounting firms, emphasising full reserve backing.
- Institutional Grade: Its backing by major fintech and crypto players (like Coinbase) signals confidence to retail and institutional investors alike.
- Widely Integrated: From DeFi lending to cross-border payments, USDC is becoming a go-to for regulated financial applications.
3. Binance USD (BUSD)
- Issuer/Reserve Model: Issued by Paxos in partnership with Binance, BUSD is fully backed by U.S. dollars in FDIC-insured banks or U.S. Treasuries.
- Exchange Ecosystem: Binance, the world’s largest crypto exchange, heavily incentivises BUSD use through trading pairs and reduced fees.
- Regulatory Oversight: Paxos is regulated by the New York State Department of Financial Services, adding a layer of compliance.
- Global Footprint: Binance’s extensive user base boosts BUSD’s adoption, making it a prominent option despite emerging regulatory challenges.
4. Dai (DAI)
- Issuer/Reserve Model: Created by MakerDAO, Dai maintains its peg through on-chain collateral (ETH, WBTC, and other assets). Smart contracts and over collateralisation keep it stable.
- Decentralisation Ethos: Dai isn’t controlled by a single company. Instead, its peg is managed by a global community of MKR token holders.DeFi Staple: Since 2017, Dai has been foundational to decentralised exchanges (DEXes), lending platforms, and yield farming protocols.
- Community Governance: MakerDAO participants vote on parameters like stability fees and collateral ratios, offering a clear example of on-chain governance in action.
5. TrueUSD (TUSD)
- Issuer/Reserve Model: Managed by TrustToken, TUSD is pegged 1:1 to the U.S. dollar, with reserves verified by independent third parties.
- Daily Transparency: TUSD was one of the first to offer daily attestations of dollar reserves, building trust among users.
- Market Synergies: With increased listing on major exchanges (including Binance), TUSD continues to gain traction.
- Multiple Escrow Accounts: TrustToken’s diversified approach—using several trust companies—minimises single-point-of-failure risks.
6. FRAX
- Issuer/Reserve Model: FRAX is a fractional-algorithmic stablecoin. Part of its supply is collateralised (e.g., by USDC or other stablecoins), and part is algorithmically balanced.
- Innovative Design: FRAX blends collateralised and algorithmic strategies, reducing capital inefficiencies while maintaining stability.
- DeFi Focus: It’s well-integrated into leading DeFi platforms, offering unique yield and governance features (via veFXS tokens).
- Adaptive Collateral Ratio: FRAX autonomously adjusts how much collateral it needs, a cutting-edge feature in stablecoin dynamics.
7. LUSD (Liquity USD)
- Issuer/Reserve Model: LUSD is a decentralised stablecoin generated from the Liquity protocol, backed solely by Ether (ETH). It relies on over-collateralisation and a clever liquidation mechanism to maintain its peg.
- Minimal Governance: Liquity’s protocol design is largely immutable and free of active governance, lowering governance risk.
- Interest-Free Borrowing: Users can generate LUSD against locked ETH without paying ongoing interest fees, appealing to DeFi enthusiasts.
- Strong Decentralisation: Because it accepts only ETH collateral, it avoids exposure to centralised stablecoins or multi-asset complexities.
Honorable Mentions
Ethena
In our 2024 Holland Park Digital Assets Fund analysis, we highlighted Ethena as an emerging stablecoin project bringing novel ideas around dynamic collateralisation. While still in its growth phase, Ethena’s model combines:
- On-Chain Reserve Audit – A plan to provide near real-time reserve reporting.
- Hybrid Collateral Approach – Balancing between crypto and off-chain assets.
- User-Centric Governance – Token holders can vote on protocol parameters, with a focus on sustainable peg maintenance.
As Ethena matures, expect to see more integrations across DeFi platforms, further cementing its place among innovative stablecoin contenders.
The Terra UST Lesson
While not listed as a “hot stablecoin” post-2022, Terra’s UST - and its subsequent crash remains a valuable case study. UST was a purely algorithmic stablecoin that lost its peg, triggering a massive market disruption. This event sparked renewed interest in transparent reserve backing, robust collateralisation, and clarity in compliance among newer and existing stablecoins.
Key Takeaways
- Heightened Regulatory Climate In the wake of market volatility and high-profile collapses, stablecoins that demonstrate transparent attestations and regulatory compliance (e.g., USDC, TUSD) are gaining preference.
- Decentralisation vs. Centralisation Projects like Dai and LUSD champion decentralisation, appealing to users wary of centralised control. Meanwhile, centralised players like Tether, Circle, and Binance offer liquidity and brand trust.
- Use Cases Are Evolving Beyond trading, stablecoins now power real-world payments, DeFi-based lending, remittances, and much more. Expect continued innovation as the world explores digital dollar alternatives.
- Bespoke Mechanisms FRAX’s fractional approach underscores the appetite for more efficient ways to maintain a stable peg. Users will likely see further experimentation with hybrid and algorithmic models.
Closing Thoughts
Stablecoins are integral to the crypto landscape’s growth, offering relative price stability in a famously volatile industry. As both regulators and innovators step up, we can expect tighter standards and even more creative stablecoin models. Whether you’re drawn to robust compliance, algorithmic innovation, or full decentralisation, there’s a stablecoin out there that meets your needs in 2025.
Holland Park Digital Assets Fund believes that the evolution of stablecoins will continue to drive mainstream adoption of blockchain technology. As a key part of your crypto toolkit, stablecoins can help enhance liquidity, reduce volatility risks, and unlock new opportunities within the digital asset space.
