Stablecoins: The Overlooked RWA Subcategory with the Biggest Potential

Introduction

In our previous discussion, we examined leading Real-World Asset (RWA) tokens and provided updates on their project developments. One notable example is Ondo Finance's USD Yield (USDY) token, a yield-bearing digital asset secured by U.S. Treasuries, which had referring the concept of a U.S. dollar stablecoin.

Stablecoins have become integral to both decentralized finance (DeFi) and centralized finance (CeFi) platforms due to their inherent stability and ease of understanding, facilitating smoother transactions and broader adoption. Innovative projects often utilize stablecoins as foundational elements of their products, leveraging their stability to enhance user trust and engagement.

In a significant regulatory development, President-elect Donald Trump has nominated Paul Atkins, a known advocate for cryptocurrencies, to chair the Securities and Exchange Commission (SEC). Atkins has previously advised the Reserve Rights project, which coincidentally aligns with the stablecoin variants we are discussing today.

Given these advancements, we will explore prominent stablecoin and stablecoin-variant projects to gain a comprehensive understanding of the progress within the crypto RWA sector, thereby informing future investment decisions.

Key Takesaway

The two largest and most widely circulated stablecoins, USDT and USDC, together account for over 90% of the stablecoin market share. Both maintain their value through full collateralization with equivalent U.S. Dollar fiat reserves. While not everyone categorizes stablecoins as part of the RWA sector, they are undoubtedly a critical component of it.

Due to stablecoin's low barrier to understanding, ease of circulation, ability to store value, and compatibility with other DeFi products, stablecoins have become the product of choice for many innovative projects—including, but not limited to, those in the RWA space. In 2024, the rise of stablecoin variants further highlights the innovation in this sector.

As a vital part of the RWA investment landscape, understanding and closely monitoring stablecoins and their innovative variants is essential for capturing the growth opportunities in this rapidly expanding industry.

Classic Stablecoin

What Are Stablecoins, and How Do They Work?

Why Do We Need Stablecoins?

Stablecoins emerged as a solution to the volatility of cryptocurrencies, whose prices have historically experienced significant fluctuations. To address this, stablecoins were introduced as on-chain representations of fiat currencies, providing cryptocurrency holders with a tool to hedge their assets during volatile market conditions. Over time, their utility has expanded to include smoother transactions, reliable value storage, and global remittances with lower fees.

While Central Bank Digital Currencies (CBDCs) are now part of the global conversation, no government has yet issued fiat currencies directly on the blockchain. This gap in the market has driven private companies to step in and offer stablecoin solutions.

Who Are the Major Stablecoin Issuers, and How Are They Performing?

In the table below, I’ve listed the top stablecoin issuers, focusing on their use cases and adoption rather than market capitalization. For instance, while USDe from Ethena has already achieved a significant market cap, it has yet to see widespread adoption. The majority of its use cases are currently limited to being staked within its own protocol to earn yields. (But don’t worry, we’ll dive deeper into ENA in the later.)

*There are currently no legal frameworks explicitly prohibiting the operation of stablecoin issuance businesses without prior permission or licensing. As a result, the state of the stablecoin market today is a direct outcome of organic market behavior and dynamics.

So far, these issuers dominate the tokenized U.S. dollar market and are the most widely adopted choices, supported by the largest liquidity pools across major centralized exchanges(CEX) and decentralized exchanges (DEXs). Their primary responsibility as stablecoin issuers is to ensure that their tokens can always be redeemed for their equivalent value in underlying assets—for example, 1 USDC token for 1 U.S. dollar.

But have you noticed something missing here? These issuers generate substantial revenue by leveraging the time value of the collateral backing their tokens which they don't need to share with the collateral providers. For example, Tether reported an impressive net profit of $7.7 billion in the first nine months of 2024. This figure becomes less surprising when you consider the vast amount of USDT in circulation, which serves as a proxy to estimate their collateral value, alongside the U.S. Treasury bond yields this year.

Notably, Tether is not aggressively maximizing profits. Instead, it balances profitability with liquidity management by investing in highly liquid T-bills, which offer lower returns but ensure better flexibility. This strategic approach already makes Tether one of the most profitable crypto companies globally, and also highlights the immense market potential for others in the space.

Developers and innovators are increasingly recognizing the opportunities that stablecoin collateralization and yield generation present. In the next section, I’ll introduce some standout projects that have achieved notable milestones in 2024, showcasing their contributions to this evolving landscape.

Stablecoin Variant

What Are Stablecoin Variant?

What Are Stablecoin Variants? As discussed above, classic stablecoin issuers use real-world USD as collateral for their digital tokens, with the most common and zero-risk approach to realizing the time value of capital being investments in U.S. Treasury bonds. With interest rates expected to remain high into 2025, the yields in such settings are likely to remain attractive.

This has inspired multiple innovative projects to adopt similar principles, many of which have chosen stablecoins—or variants of them—as the ultimate form of their product. These variants often diverge from the classic model, with some no longer strictly pegging their tokens to 1 USD. Instead, they experiment with dynamic mechanisms, offering features like yield generation or exposure to other assets, thereby broadening the scope and utility of stablecoins in the digital economy.

What Are the Leading Stablecoin Variants, and How Are They Performing?

The table below highlights some of the top stablecoin variants by market capitalization, showcasing projects that have adopted innovative and tested approaches. While these projects have achieved notable milestones, they remain far behind classic stablecoins like USDT and USDC in terms of adoption and liquidity. However, as these variants are still in their early stages, they hold significant potential and may experience exponential growth as the market matures.

What Do These Mean for Investors Exploring RWA Opportunities?

Although the concept of Real-World Assets (RWA) has gained traction more recently than stablecoins, it’s clear from the discussion above that stablecoins are currently the closest crypto assets to Real World Assets. Stablecoin issuers, however, often refrain from issuing investment tokens due to various considerations, such as regulatory challenges or strategic priorities. Nevertheless, there remains a possibility that these issuers could list their businesses or introduce tokens in the future.

Given their already proven business models and significant influence within the crypto ecosystem, keeping a close eye on stablecoin issuers is essential for investors tracking the development of the tokenized assets and RWA sectors. These companies are at the forefront of bridging traditional finance with the blockchain economy, and their evolution could play a pivotal role in shaping future investment opportunities.

Conclusion

In many definitions, stablecoins are not traditionally categorized as part of the Real-World Assets (RWA) sector. However, a closer examination reveals that stablecoins fully align with the core definition of RWAs. Moreover, with the composability of stablecoins in DeFi, they are inherently more scalable as a product, making their investment potential even greater.

As new technologies, innovative solutions, and emerging players（i.e. PYUSD from Paypal) continue to shape this space, the proven profitability of the stablecoin business model is bound to generate a wealth of investment opportunities. Staying closely and comprehensively informed will be crucial to ensuring that we don't miss any of the industry's growth potential.