What are stablecoins and will they replace banks?

A few years ago, if someone had said that millions of dollars would one day be moved without passing through the banking network, it would probably have sounded like a baseless claim. But today thousands of people around the world, from ordinary users to large companies, move their capital every day using stablecoins .

These days, tech companies, major exchanges, financial institutions and even lawmakers are all focused on assets that can move the dollar in a fully digital, fast way, free of the usual banking restrictions. 

As a result, the cryptocurrency market, which until a few years ago was just a tool for crypto traders, has now become one of the most important arenas of competition in the financial industry. This has raised a serious question:

«Are stablecoins just a digital version of the dollar, or can they also change the future of banking?» To answer this question, we first need to know exactly what a stablecoin is, how it works and why it has become one of the most important parts of the digital economy in such a short time.

What Is a Stablecoin?  

To put it clearly, a stablecoin is where «digital currency» meets «stability». That is, unlike cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH), whose prices constantly go up and down, stablecoins are designed to keep their value roughly constant, usually close to a well-known asset such as the dollar, the euro or gold.

Put more simply:

If a stablecoin like Tether (USDT) is worth one dollar today, the goal is for it to stay at around one dollar tomorrow and next week too.

You are probably asking where this stability comes from.

This is where the differences begin. Some stablecoins have real backing, meaning that for every unit of the token, the same amount of dollars is held in bank accounts. Some use other cryptocurrencies as collateral. Others use smart algorithms to adjust supply and demand so the price stays within a set range.

For this reason, not all stablecoins are the same, and their levels of security, transparency and risk differ.

The reason this class of assets is growing in popularity is that they let you shield the value of your assets from sharp market swings without leaving the blockchain world. A very simple example:  

Suppose you hold 10 thousand dollars in Bitcoin. If the market suddenly drops 15 percent, your capital shrinks by the same amount. But if you convert your Bitcoin to a stablecoin like Tether before the drop, your capital stays at roughly 10 thousand dollars.

What Is the Main Purpose of Stablecoins in the Crypto Market?

Although stablecoins now have a wide range of uses, the philosophy behind them rests on three main goals:

Preserving value against the crypto market's extreme volatility

The main goal of stablecoins is to reduce the impact of crypto market volatility. During high-risk periods, traders can convert their assets to stablecoins without cashing out or transferring to a bank, and largely preserve the value of their capital.

For this reason, stablecoins are considered one of the most important tools for risk management in crypto trading.

Building a bridge between fiat money and the blockchain world

Stablecoins have made it easier to connect the traditional financial system with the blockchain -based economy. Users can move assets worth the equivalent of dollars or other fiat currencies on blockchain networks without having to use the banking system every time.

 

 

This is why many crypto exchanges, decentralized finance (DeFi) services and even some payment companies have chosen stablecoins as their main unit of exchange.

 

Fast, low-cost money transfers without a bank intermediary

Sending money through international banks is usually slow and expensive, especially when the transfer is between two different countries. By contrast, many stablecoins run on networks that make it possible to transfer assets in just a few seconds or minutes, with very low fees.

That is why many freelancers, international companies and users in developing countries now use stablecoins to receive or send money.

Types of Stablecoins by Backing

All stablecoins share a common goal: keeping the asset's value within a fixed range. But as we said earlier, the way they achieve this goal is not the same for all of them. Some have cash reserves in banks, some are collateralized with cryptocurrencies, and others try to keep their price stable using only algorithms and supply-and-demand management.

This difference in mechanism is not just a technical matter; it directly affects security, transparency, risk and even how much users trust them. That is why, before choosing a stablecoin, it is better to know how each one maintains its value.

In general, stablecoins can be divided into four main categories:

• Fiat-backed stablecoins (Fiat-Backed Stablecoin)
• Crypto-backed stablecoins (Crypto-Backed Stablecoin)
• Commodity-backed stablecoins (Commodity-Backed Stablecoin)
• Algorithmic stablecoins (Algorithmic Stablecoin)
   

Note: After the collapse of the TerraUSD (UST) project in 2022, the market and lawmakers became far more cautious about algorithmic stablecoins. That is why today most of the market is held by stablecoins with real backing, especially those based on the US dollar.

Centralized vs. Decentralized Stablecoins

When it comes to types of stablecoins, attention usually goes to the type of backing; but there is another important difference that gets less coverage: who controls the stablecoin?

The answer to this question splits stablecoins into two groups: centralized (Centralized) and decentralized (Decentralized).

With centralized stablecoins, a specific company or entity is responsible for issuing the token, managing reserves, redeeming assets and enforcing regulatory rules. With decentralized stablecoins, however, these tasks are handled not by an organization but by smart contracts and on-chain governance mechanisms.

 

This difference may seem minor at first glance, but in practice it directly affects things like asset security, how much control users have, transparency, censorship resistance and even the possibility of accounts being frozen.

 

What Are Centralized Stablecoins?

Centralized stablecoins are issued by a private company or financial institution, and their value is usually backed by reserves such as US dollars, Treasury bills or other low-risk assets.

In this model, users have to trust the issuer that the stated reserves actually exist and that tokens can be redeemed when needed. The issuer can also, in certain circumstances and in line with the law, block some wallet addresses or freeze their assets.

The best-known centralized stablecoins include:

• Tether (USDT): The world's largest stablecoin by market cap and trading volume.
• USD Coin (USDC): A stablecoin known for reserve transparency and regulatory compliance.
• PayPal USD (PYUSD): PayPal's stablecoin, developed to expand digital payments.
• First Digital USD (FDUSD): One of the stablecoins that has grown significantly in recent years, especially on major exchanges.

What Are Decentralized Stablecoins?

Unlike the centralized model, decentralized stablecoins are not controlled by any particular company or bank. These projects are managed by smart contracts and community members, and the network's rules are executed transparently on the blockchain.

In this model, users usually create new stablecoins by putting up cryptocurrencies as collateral, and if the collateral's value drops too far, smart contracts automatically step in to keep the system stable.

 

The best-known examples in this group are:

 

• DAI: The oldest and best-known decentralized stablecoin, which was recently renamed USDS.
• crvUSD; The stablecoin of the Curve Finance ecosystem, which operates with its own risk management mechanism.
• GHO: The official stablecoin of the Aave protocol, minted by users.
   

The world's most reputable and widely used stablecoins

Among the dozens of active stablecoin projects, only a few have managed to earn broad trust from the market, exchanges and users worldwide. «Credibility» here is not just about reputation; it is a combination of reserve transparency, trading volume, global adoption and price stability .

Currently, a large share of the market is held by a handful of stablecoins that effectively serve as the backbone of liquidity in the crypto world.
 

Can stablecoins replace banks?

It is true that stablecoins already handle some of banks' functions well, especially money transfers, fast settlement and storing value. But banks are not just «a place to keep money». They manage part of countries' credit structure, monetary policy and even economic stability.

In fact, the competition between stablecoins and banks is not about full replacement; it is more like a shift of roles within a financial system whose core structures are being redesigned.

The table below will help you compare the similarities and differences between these two structures:
 

What is the GENIUS Act and why are banks worried about it?

In recent years, as the stablecoin market has grown rapidly, the US government and its regulators have tried to create a clear framework for managing these digital assets. One of the most important of these efforts is the GENIUS Act, a federal framework seen as one of the most serious proposed laws for regulating payment stablecoins; according to estimates, its full implementation will likely begin in the 2026 to 2027 period.

The core of this law rests on creating transparency and reducing systemic risk in the stablecoin market. Under its provisions, stablecoin issuers must hold their reserves fully (100%) in cash or very low-risk assets such as short-term treasury bills and periodically publish detailed reports on the composition of these reserves. This requirement effectively turns the concept of «real, verifiable 1:1 backing» into an official standard.

Another important point is the separation of users' assets from the issuing company's assets in the event of bankruptcy. In this structure, stablecoin reserves must be prioritized for repayment to token holders and kept separate from the company's other liabilities. This creates a level of legal protection for users that does not exist for many other digital assets.

The law even provides a path for banks to enter this market, though not directly. To issue stablecoins, banks must act through subsidiaries that operate under the supervision of federal agencies. This means that instead of being a fully independent space, the stablecoin market is gradually becoming connected to the formal structure of the financial system.

Why aren't banks losing their place, for now?

At first glance, the GENIUS Act could be a step toward bringing order and reducing risk; in practice, however, this same law could turn stablecoins into one of the most serious competitors of the banking system. When a stablecoin enters the market with an official license, transparent backing and a clear legal framework, from the end user's perspective its difference from «bank digital money» becomes very small. Under such conditions, the appeal of using it for everyday payments, international money transfers and even as a store of value increases, because these transactions are faster, cheaper and free of the time restrictions that banks have.

The banks' main concern starts right here: if a significant share of users move their assets into regulated stablecoins instead of keeping money in current accounts, the volume of bank deposits will fall. This is not just a simple shift, because banks use these very deposits for lending, credit creation and supplying liquidity to the economy.

A decline in deposit funding can put direct pressure on banks' lending capacity and, as a result, on their traditional revenue model. That is why, from the banks' point of view, the GENIUS Act is not just a financial law but the starting point of a structural shift in the competition over «control of money flows».

That said, this shift does not necessarily mean the elimination of banks. Many analysts believe this law redefines competition more than it eliminates it. As a result, the likely path ahead is not the elimination of banks but the emergence of a hybrid model, in which banks, fintech companies and stablecoin issuers operate in a shared ecosystem but with different roles.

Which is the best stablecoin for Iranians?

For an Iranian user, three key criteria are usually decisive here: real market liquidity, frictionless access on exchanges, and the ability to exit quickly into rials or another asset. If we put these three factors together, we can see that the right stablecoin is not necessarily the one that is theoretically more transparent or more decentralized, but the one that, in practice, offers the most usability within the user's trading ecosystem.

That is why a more professional approach is, instead of searching for «the best stablecoin», to define a selection basket based on your goal: for short-term holding and everyday trading, an option with high liquidity and wide acceptance matters; for DeFi activities or decentralized structures, transparency and control over assets take priority; and for more conservative outlooks, the level of trust in the reserve mechanism and the transparency of audits plays a decisive role.

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