Sonic SVM Research_How can new stablecoins corner overtake?

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Ep.01: Stable, but Not Settled - Stablecoins at Scale: Market Maturity, Competitive Dynamics, and the Next Frontiers

TL;DR

Stablecoins are emerging as the most scalable, institutionally relevant use case in crypto.

The market keeps growing, but far from settled. New entrants still have a chance to define the next phase of crypto liquidity — if they move fast, integrate deeply, and learn from the playbooks of those who came before.

This series of reports will explore:

Catch-ups about recent regulatory advances in the U.S., Hong Kong, and Europe and institutional players are accelerating the adoption of stablecoins.

The evolving competitive dynamics between dominant players like USDT and USDC, and emerging challengers like USDe and USD1.

Chain-specific insights on supply vs. volume, revealing how newer stablecoins are carving out traction across ecosystems.

A strategic lens on how integration with emerging Layer 1 and Layer 2 networks could be the key to dethroning incumbents.

1. Recent momentum and the open question for stablecoins

Stablecoins have become the most actively discussed asset category in crypto in recent weeks, catalyzed by Circle’s successful IPO and increasing engagement from traditional financial market. A series of recent developments across regulation and market adoption suggest stablecoins may become the first true product-market fit for crypto at scale.

Regulatory Tailwinds

United States: In June 2025, the U.S. Senate passed the GENIUS Act, the country’s first federal regulatory framework for dollar-pegged stablecoins. This legislation positions stablecoins as a key tool in the broader "digital dollarization" agenda, reinforcing U.S. ambitions to modernize global payments and sustain financial leadership.

Hong Kong: In May 2025, Hong Kong enacted the Stablecoin Ordinance—the world’s first comprehensive legal framework for fiat-backed stablecoins. Effective August 1, the law mandates licensing for any stablecoins issued in, or pegged to, the Hong Kong Dollar.

Europe: The European Union introduced the Markets in Crypto-Assets Regulation (MiCA), establishing a unified regulatory regime for crypto-assets. This marks a shift from AML-focused policy under the 5th Anti-Money Laundering Directive to a broader prudential and conduct framework for crypto, including stablecoins.

Institutional Acceleration

Institutional involvement is intensifying:

Major financial players—PayPal, Santander, and Deutsche Bank—are actively exploring or launching stablecoin initiatives. Meanwhile, Visa and Stripe are upgrading their infrastructure to support stablecoin integration.

President Donald Trump has launched a stablecoin through his family venture, World Liberty Financial Inc., signaling growing political and media engagement.

In China, tech giants JD.com and Ant Group are applying for stablecoin licenses, targeting remittances and cross-border payments.

J.P. Morgan recently announced plans to develop stablecoin-based infrastructure for cross-border settlements and merchant payments.

A Glimpse of the Current Landscape

Stablecoins have existed for over a decade, with more than 150 launched during this period. Yet two dominate: USDT (launched in 2014) and USDC (launched in 2018), leading in both total supply and market capitalization.

Despite their dominance, competition continues to emerge. Recent examples include USDe and USDtb (Etherna), USD1 (WLFI), and USDG (Paxos), all aiming to carve out market share through differentiated strategies and chain-native integrations.

The Open Question

For Layer 1 and Layer 2 networks building core infrastructure in crypto, stablecoins are an inescapable strategic context. The central question becomes:

How will competition among stablecoins evolve—and can new entrants realistically challenge incumbents like USDT and USDC?

Our key hypothesis:

New stablecoins can grow market share by deep integration with emerging blockchain ecosystems, where they act as the default unit of account for liquidity, leverage, and capital efficiency.

Future reports will expand on this thesis with in-depth case studies and data.

2. Stablecoin Market and Competition Dynamics

Stablecoins in DeFi: What They Do

We’ll skip the basics. The market now broadly accepts that stablecoins are foundational in crypto—for pricing, payments, and yield.

In DeFi, stablecoins play two pivotal roles:

Liquidity Medium: Stablecoins act as the primary medium for moving capital between DeFi protocols—serving as “money glue” that binds the system together.

Yield Engine: DeFi creates multiple yield-generating scenarios for stablecoins, turning them into balance-sheet tools for protocols, much like how commercial banks operate.

Market Size and TAM: Far from Being Reached

Stablecoins remain far from saturating their addressable market. Growth potential is significant:

According to Citi's research, the global stablecoin market could reach $1.5T (base case) to $3.7T (bull case) by 2030, driven largely by use cases in traditional finance.

Even focusing strictly on crypto-native use cases, the projected market size ranges from $525B to $718B, representing a 124%–206% increase from today.

For perspective: global digital payments total $13.9T, and current stablecoin volume is ~$2.1T—just ~15% of that.

Types of Stablecoins: Fiat Colleterized Becomes Mainstream

Among the top 10 stablecoins (by supply), the majority are fiat-collateralized stablecoins.

With the pass of GENIUS Act, we could expect the new stablecoin entrants also follow the regulated way to issue stablecoins with fiat collateral.

Competitive Landscape

Currently, 73 live stablecoins have positive supply and transaction volume (source: Artemis). USD-pegged tokens dominate 99% of supply, with minor shares tied to EUR and JPY.

Of the top 20 stablecoins by supply, 11 launched post-2024 (incl. USDS, the re-branded DAI). This rapid turnover underscores how nascent and dynamic the stablecoin market remains. The competition is not yet settled.

USDT and USDC together command 88.5% of the market by total supply:

USDT has become the default offshore crypto settlement asset, favored for its deep liquidity across CEXs and DEXs.

USDC, with U.S. regulatory backing and attested reserves, is the preferred stablecoin for regulated DeFi and the trading pairs in CEXs.

Ethereum and Tron dominate stablecoin supply, accounting for 83.11% of the total:

Ethereum remains the central liquidity hub for stablecoins, holding 51.46% of the total supply. It aggregates stablecoin capital for lending protocols, cross-chain bridges, and DeFi infrastructure. Newer chains often rely on Ethereum-based liquidity to bootstrap their ecosystems, while investors view Ethereum-issued assets as credible collaterals when evaluating new networks or tokens.

Tron has become the de facto settlement layer for USDT, driven by the widespread adoption of TRC-20 USDT in emerging markets and payment rails. Its dominance in USDT supply positions it as a critical player in day-to-day crypto liquidity flows.

In 2025, the growth of USDT issuance on Tron surpasses Ethereum (30.15% vs. -5.07%, PANews)

(Preview of upcoming research: How did Tron succeed in building a stablecoin-first ecosystem?)

Zooming in on the chain distribution of the top 3 stablecoins reveals several notable patterns:

The 24h volume distribution supports our earlier insight: Ethereum is increasingly functioning as a “store of value” layer for stablecoins, rather than a hub for active transactional flows.

USDC exhibits a distinct pattern compared to USDT and USDe, reflecting growing traction from Base and Sui—at the expense of Solana. With its recent IPO, Circle is actively expanding USDC’s use cases and positioning it to challenge USDT as the default settlement layer in crypto.

However, the competitive landscape is still fluid. Arbitrum recently announced a tokenized stock partnership with Robinhood, which could reshape stablecoin usage on that chain. Meanwhile, Base continues to benefit from Coinbase’s native support and integration with on-chain protocols.

For incumbents, the key performance metric is supply. Since many stablecoin issuers operate with business models resembling commercial banks, higher supply means greater liabilities on their balance sheet—translating into increased assets under management and revenue potential.

For new entrants, volume is a more critical signal. It reflects real-world usage, liquidity depth, and willingness to hold—essential precursors for sustainable supply growth.

3. Preview of Next Report: New Stablecoins on the Rise

Beyond USDT and USDC, a new cohort of stablecoins is emerging—including USD1, USDe, and potentially PYUSD.

How are they issuing and distributing their tokens? What strategies are they using to build both supply and transactional volume? And what can their trajectories teach us about overtaking the incumbents?

In the next installment of this research series, we’ll deep dive into case studies to answer these questions and explore how new stablecoins are challenging the old guard.

Sonic SVM Research_How can new stablecoins corner overtake?_Ep.01