Stablecoins represent a growing but potentially risky part of the financial system. What do fintech leaders need to know?
- Stablecoins are digital assets meant to maintain the same value as an identified asset, which is often the U.S. dollar.
- For fintech companies, stablecoins represent an opportunity to create products and services that facilitate rapid money transfers, cross-border payments and general payment processing.
- However, stablecoins are not a risk-free asset, so fintech companies should conduct careful due diligence on potential stablecoin partners before incorporating stablecoins into their offerings.
Stablecoins play an increasingly significant role in the modern financial system. With a total market size of over $300 billion, they also offer a growth opportunity for fintech companies looking to appeal to both consumer and commercial customers.
But that opportunity carries risk in addition to the benefits. Keep reading to learn more.
What are stablecoins?
Stablecoins are digital assets that are designed to maintain a stable price over time. A stablecoin is pegged to a specific asset — typically the U.S. dollar or another fiat currency — and then holds the value of that asset.
To do this, an institution that issues stablecoins will typically stockpile reserves of cash or cash equivalents equal to the total value of those stablecoins. For example, an institution issuing $1 billion worth of $1 stablecoins would need to keep $1 billion in U.S. dollars or Treasury bills in its accounts so its stablecoins can maintain a 1:1 equivalence with those underlying assets.
This reliability is why stablecoins have become increasingly popular as a tool for cross-border payments or moving money from one country to another. They may also be used in other forms of payment processing.
Stablecoin versus bitcoin: What’s the difference?
Like bitcoin and other cryptocurrencies, a stablecoin is a digital asset. However, it is not a cryptocurrency.
- Cryptocurrencies are speculative assets that experience frequent and often dramatic shifts in value, while stablecoins are meant to facilitate the transfer of value without volatility.
- Stablecoins should always be worth the value of their underlying asset, usually $1.
- If a stablecoin is no longer equal in value to its pegged asset, something has gone very wrong.
Why should more fintech companies pay attention to stablecoins?
Stablecoins offer use cases for both consumers and financial institutions. As fintech companies cater to both groups, fintech leaders have opportunities to appeal to both consumer and commercial customers by adding stablecoin-related product or service offerings.
Crucially, from a consumer standpoint, stablecoins are very easy to use. You can quickly set up a digital wallet and start using stablecoins to move money or store value with minimal effort.
What are the top stablecoin use cases?
Stablecoins offer a fast, flexible way to move money and make payments. The major stablecoin use cases include:
- Cross-border payments or transfers: Stablecoins make it easier to move money internationally, allowing for virtually instant cross-border payments or transfers by both consumers and businesses or institutions.
- Payment processing: Stablecoins are increasingly used as a faster alternative to payment systems like wire transfers or ACH.
- Storing value: Because stablecoins maintain their value over an extended period of time, they can be a safe way to store value outside of a traditional bank account.
- Settlement for tokenized assets: For other assets that have been turned into digital tokens, like tokenized deposits, real-world assets or blockchain-based securities, stablecoins can allow for an instant, simultaneous exchange of assets and payment on blockchain-based technologies.
The GENIUS Act means stablecoins are now regulated by the U.S. government
Fintech leaders should also consider that stablecoins are now regulated by the U.S. government. The GENIUS Act, which passed in 2025, established an oversight framework for stablecoins that:
- Defines which institutions may issue stablecoins.
- Sets reserve requirements for stablecoin issuers.
- Requires monthly attestations for all stablecoin issuers.
- Mandates annual audits for institutions with more than $50 billion in outstanding stablecoins.
- Creates additional governance and compliance oversight at both the federal and state levels.
The GENIUS Act essentially made stablecoins a formal part of the U.S. financial system and was meant to bolster confidence in their use.
What are the risks of using stablecoins?
Stablecoins are not a risk-free asset. The point of a stablecoin is to hold a stable value, so if the value suddenly drops significantly, your customers can lose huge sums of money.
This kind of event isn’t supposed to happen (beyond normal fluctuations measured in tiny fractions of 1%), as stablecoins are meant to be backed by 1:1 reserves of whatever asset they are pegged to. But occasionally, it happens anyway.
Historically, stablecoins have been vulnerable to unusual market events like the collapse of Silicon Valley Bank, a major loss of investor confidence or unscrupulous behavior on the part of a stablecoin issuer. Stablecoins that are backed by a cryptocurrency, digital asset or even an algorithm may also be more susceptible to a loss of value than those pegged to a fiat currency like the dollar.
To manage risks for you and your customers, do your due diligence on potential stablecoin partners
The GENIUS Act is meant to reduce the risk of any notable change in stablecoin value. However, fintech leaders should do careful due diligence on any potential stablecoin partners from a compliance, risk management and customer well-being perspective.
- Review regulatory filings, including audit paperwork.
- Ensure your stablecoin partners maintain adequate 1:1 asset reserves.
- Consider a stablecoin issuer's reputation in the marketplace.
What’s next?
To explore potential stablecoin opportunities for your fintech business, take steps like:
1. Understand the market opportunities
Assess the market opportunities around stablecoins from both consumer and institutional customer perspectives. Are your current customers or clients using stablecoins — and if so, what for?
2. Decide if stablecoins fit your business
Look at your existing service or product offerings. Would it make sense for any of these to have a stablecoin component? Make sure the market opportunities align with your business strategy and make sense.
3. Consider compliance
If you move forward with a stablecoin offering of your own, carefully consider compliance requirements, including both the GENIUS Act and the still-in-Congress CLARITY Act. Post-GENIUS Act, the bar is higher here and regulators also tend to give new products additional scrutiny.
4. Conduct careful due diligence
Before settling on a final stablecoin partner or partners (there are several major options to choose from), do your due diligence to help ensure any stablecoins you incorporate into your offerings meet regulatory requirements and are operating as reliable, good-faith assets.
How Wipfli can help
We advise fintech companies on financials, regulatory compliance and growth. If you’re curious about how to make stablecoins a responsible part of your business, let’s talk. Start a conversation.
Wipfli also offers strategic planning and customer journey mapping services to help fintechs ensure new products and services make sense for their long-term success.
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