Article by: JW, Techub News
In the past month, the crypto market has been repeatedly “caught in the door” pattern. Multiple attempts to break above 90,000 have failed, with the market oscillating around the 8-figure level; meanwhile, the total market capitalization of cryptocurrencies has shrunk from $4.4 trillion in October to today’s $3.11 trillion.
Source: AB KUAI DONG
However, amidst this bleak environment, stablecoins seem unaffected by the overall decline and continue to be issued in increasing numbers. According to data from Coingecko, the total market cap of stablecoins has surpassed $310 billion, reaching $312.3 billion, a record high.
Source: Coingecko
The question then arises: with the money clearly increasing, why isn’t the market rallying?
Based on market experience from previous cycles, the issuance of stablecoins is often seen as a “market kickoff signal.” But this cycle is markedly different. On-chain stablecoin totals keep hitting new highs, DeFi TVL is gradually recovering, and funds in lending protocols are piling up. Yet, the overall market remains stagnant, sentiment is low, narratives are weak, trading volume continues to decline, and liquidity in altcoins is noticeably tightening. Where are these continuously issued stablecoins going?
Stablecoins keep growing, so why isn’t the market rising?
Since June 2020, over the past five years, the total market cap of stablecoins has grown from $10.99 million to today’s $312.3 billion, nearly a 30-fold increase. During these bull and bear cycles, stablecoins have not only provided a solid backbone during the booming crypto markets but also served as an essential liquidity tool for the thriving DeFi ecosystem. Moreover, besides the established fiat-backed stablecoins, we have witnessed the rise of crypto-collateralized and algorithmic stablecoins. Data shows that over these five years, USDT’s market cap grew from $960 million to $18.7 billion; USDC’s market cap increased from $950 million to $75.9 billion.
In previous cycles, each issuance of stablecoins like USDT was interpreted by the market as a signal of impending capital inflows, often followed by Bitcoin price rallies of varying magnitude. But recently, despite stablecoins reaching new highs, Bitcoin and other mainstream crypto assets have shown no signs of synchronized strength.
There is a significant misconception here, or rather, a mistaken assumption that experience implies a strict causal relationship. Many investors have long believed that stablecoin issuance necessarily leads to rising prices of Bitcoin and other crypto assets. This is more of an experiential summary, and the validity of this experience depends on certain preconditions.
One of the most obvious changes comes from the rapid maturation of DeFi. With the rise of decentralized lending, liquidity mining, and other mechanisms, stablecoins are no longer just “waiting to be used to buy coins.” Participating in DeFi for yield, executing strategies, and structuring positions often require large amounts of stablecoins as intermediate assets. This has made DeFi an important and ongoing destination for stablecoin flows—something almost nonexistent in the early crypto markets.
As the internal and external environment of the market changes so significantly, investors’ understanding of stablecoin issuance naturally needs updating. More and more stablecoins are not initially intended for secondary markets but are directly absorbed on-chain through lending, cyclic borrowing, and arbitrage over time.
Lending protocols are flooded with funds
As DeFi matures—especially with the development of lending protocols, yield-bearing assets, and interest rate markets—stablecoins are gradually shedding their “waiting to be spent” fate and are becoming assets that can be held long-term and reused repeatedly.
If you look at data from major lending protocols like Aave and Morpho, you’ll find that the core of lending behavior is no longer simple speculation but highly structured arbitrage operations. For example, staking USDe, lending USDC, then swapping the borrowed USDC back into USDe for further staking—repeating this process to leverage and amplify the original annualized yield. Or directly staking PT-stablecoins on Pendle, using future predictable interest as an anchor to leverage more stablecoin positions. These operations are very targeted: “stable and predictable interest income.”
This indicates that the demand for stablecoins has shifted. It no longer mainly comes from “I want to buy the dip,” but from “I need stablecoins as part of an arbitrage chain.” As long as arbitrage opportunities exist, stablecoins will be continuously minted, borrowed, and locked into protocols, rather than flowing into secondary markets to push prices higher.
What we are seeing now is a very “counter-market” scene: the more stablecoins there are, the more active the on-chain activity, but prices remain stable or even sluggish. It’s not that the market lacks money; rather, these funds are not entering the price battle arena.
Stablecoins ultimately heading towards settlement layer
If we step outside the market hype and re-examine stablecoins, we find that their true value does not lie in driving prices higher.
The core value of stablecoins boils down to two words: stability and utility. They do not pursue grand narratives or promise explosive growth. As long as they can exist stably over the long term and be repeatedly used in real-world scenarios, they already possess the fundamental attributes of financial infrastructure.
Payment and settlement, a seemingly traditional and somewhat “old-fashioned” domain, are actually among the easiest parts of the entire financial system to be technologically reconstructed. Payments do not require complex financial innovation; they only need to be faster, cheaper, more stable, and with less friction. If a solution can improve settlement efficiency and reduce overall costs without overthrowing the existing system, adoption is almost just a matter of time.
Essentially, stablecoins are “on-chain dollars.” Users deposit $1 with the issuer and receive an equivalent token, which can circulate on any blockchain worldwide 24/7, nearly instantaneously, with transaction fees as low as a few cents, not dependent on banking hours, and without traditional “in-transit funds.”
Because of this, the earliest applications of stablecoins were almost entirely born in the crypto-native world. But real change has occurred in the past one or two years. Visa has opened USDC settlement on Solana in the US, and Mastercard has partnered with Ripple to test RLUSD-based settlement on XRPL. These traditional payment giants have not overhauled the existing system but have integrated blockchain into the backend, embedding it into current clearing processes.
For ordinary users, all this is almost imperceptible; but for banks and clearing systems, the T+1 and T+2 settlement cycles are being compressed into 24/7 continuous settlement, reducing the time funds are in transit, lowering liquidity requirements, and decreasing friction costs across the system.
Stablecoins will not overthrow the existing financial system but will quietly embed within it, gradually reshaping the flow of funds. This is the true logic behind stablecoins ultimately moving towards the settlement layer.
