Cryptocurrencies completely changed global finance by offering a real, decentralized, and fast alternative to traditional banks. However, one of their main disadvantages is price volatility, which can hinder their use for commercial transactions or corporate financial planning.
It is at this point that stablecoins emerge, crypto-assets specifically designed to eliminate “price change” risk through a parity mechanism to a stable asset, generally a fiat currency like the US dollar (USD). Below, we will learn more about the history of stablecoins and why they have become so important for mass payments worldwide.
Inspiration in antiquity
Although stablecoins are a 2014 invention, their fundamental concept (stable money backed by an asset of value and used as a medium of exchange) is inspired by ancient historical mechanisms of money and credit.
Commodity backing system (gold, silver, etc.)
Many stablecoins are inspired by the gold standard and ancient monetary systems where coins or bills represented a fixed amount of precious metal. An example of this is the gold and silver coins of Lydia (6th century BC), Greece, and Rome, where value was “stable” because it was anchored to scarce, universally accepted assets like gold and silver.
Tally sticks
Tally sticks were used in many cultures since antiquity (China, the Maya, medieval England, and, until the 19th century, in the British Treasury). They were wooden sticks with notches that represented debts or taxes. They were split into two: one for the debtor and the other for the creditor. These sticks circulated as money because they represented a promise of payment backed by the State or by personal trust. They functioned as a debt accounting system that created liquidity. Many people consider this to be the conceptual origin of “money as debt,” which stablecoins use (a token representing a dollar or a real asset).
First modern idea
A key starting point occurred in 2013 with projects like Mastercoin, which later evolved into what we know today as the Omni Layer. This first experiment demonstrated that the ecosystem needed tokens that could move without relying on Bitcoin’s volatility. The technical proposal was simple but ambitious: to issue an asset that represented fiat currencies directly on top of the existing blockchain infrastructure.
With this initiative, an attempt was made to resolve the great contradiction of the time: how to take advantage of immediate cross-border transfers without blockchain intermediaries while avoiding the price volatility of cryptocurrencies. This was how the first “bridges” between traditional money and the immutable digital records of the blockchain began to be built.
Failed projects
It is important to note that not all were successes, since before the well-known stablecoins, there were some failed projects:
BitUSD (the first stablecoin)
BiUSD was launched on July 21, 2014, on the BitShares blockchain. It was created by Dan Larimer (founder of BitShares) and Charles Hoskinson (co-founder of Ethereum and Cardano). Its model was backed by crypto assets, primarily the BTS (BitShares) token. It was an innovative experiment, but it had serious problems: when the price of BTS fell sharply, BiUSD lost its peg to the US dollar. Ultimately, the project lost relevance in 2018.
NuBits (NuUSD)
NuUSD was launched in September 2014, using an algorithmic dual-token system: NuBits (stable) and NuShares (which absorbed volatility). The project attempted to automatically adjust supply. Although it had some initial success, it collapsed in 2016 and again in 2018 during sharp market drops. The project demonstrated the risks of purely algorithmic models.
Tether USDT
USDT was the real leap for stablecoins into the mass market. It all started in 2014 when an asset was launched under a project called Realcoin, which standardized the most direct and easy-to-understand model: a one-to-one (1:1) backing with cash. After changing its name, this project became Tether (USDT).
The rule was simple: for every USDT token issued on the network, the company had to maintain a physical US dollar in a traditional bank account. This idea changed the game for investors of that era, as they finally had a haven within the crypto ecosystem to protect their profits without needing to withdraw funds to their local bank. The success of USDT made it clear that stability was the most sought-after asset in the industry, setting a market benchmark.
Decentralized revolution with crypto-collateralization
With the arrival of the Ethereum network and smart contracts, the landscape changed completely in 2017, as there was no longer a need to “blindly trust” a centralized company keeping dollars in traditional banking. The decentralized revolution emerged thanks to a group of developers (under the name MakerDAO) who demonstrated that the same could be done transparently by creating DAI.
At this point, the mechanism took an important technical turn since, instead of backing the currency with physical dollars, they decided to use other native cryptocurrencies as collateral (over-collateralization or crypto-collateralization). In this way, for the system to issue DAI, a much larger amount of assets, such as Ethereum (ETH), had to be locked in an automated contract. If the price of the backing asset fell, the system balanced itself through algorithms, demonstrating that stability could be managed autonomously and transparently, without relying on traditional banking.
The DeFi summer
During the years 2018 and 2020, stablecoins went from being a simple refuge for moments of panic to becoming the fuel for Decentralized Finance (DeFi), a completely new industry that experienced its peak in the famous “DeFi Summer” of 2020, in which stablecoins transformed into the main source of liquidity on the blockchain.
At this point, users who had adopted stablecoins no longer just stored them; they used them in automated applications to request loans, generate interest, or finance projects without relying on traditional banking. Demand increased so much that its real value for moving capital around the world without bureaucratic or border frictions was proven.
Institutional entry and regulatory compliance
Along with the growth of DeFi, in 2018 and 2021, large corporations and investment funds sought to enter the game, but they viewed with suspicion the lack of regulation for some currencies and for purely decentralized models or those with opaque reserve structures. This opened the door to the emergence of stablecoin alternatives, such as USD Coin (USDC), backed by entities with a rigorous focus on regulatory compliance.
The companies associated with these launches combined blockchain technology with highly regulated traditional financial structures. However, what defined this stage was the level of transparency, as the companies behind USDC opened their books and underwent monthly audits to prove that every digital cent was backed by banks regulated by law. This strategic move worked as the perfect bridge for large enterprise treasuries to adopt digital liquidity without violating their own internal compliance rules.
The collapse of algorithms and the reaffirmation of value
In May 2022, the sector’s hardest blow occurred: the collapse of TerraUSD (UST), which exposed the dangers of pure algorithmic stablecoins that attempted to maintain a one-dollar value parity through mathematical formulas and arbitrage, but without real reserves to sustain them.
The fall of UST erased billions of dollars from the market in a matter of days, serving as a harsh lesson and a global warning for the ecosystem. Following that crisis, users and companies stopped believing in mathematical promises and migrated en masse toward stablecoins (such as USDT or USDC) that could demonstrate verifiable physical reserves or transparent systems. The entire industry learned that real liquidity is worth more than any algorithm.
Present day
Currently, the stablecoin market exceeds 250-300 billion dollars and is mainly dominated by USDT (58%) and USDC (24%). USDT remains the clear leader, as it is the most widely used stablecoin for private transactions, trading, and e-commerce, especially in emerging markets and on the Tron network. On the other hand, USDC is the second-most-used stablecoin and is considered the favorite of institutions and regulated companies due to its greater transparency and regulatory compliance.
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