Stablecoins: Depegging, fraudsters and decentralization
By: the crypto news wire|2025/05/02 18:00:01
0
Share
Opinion by: Merav Ozair, PhD Lately, stablecoins are everywhere — this time around, headed by “traditional” financial institutions. Bank of America and Standard Chartered are considering launching their own stablecoin, joining JPMorgan, which launched its stablecoin, JPM Coin — rebranded as Kinexys Digital Payments — to facilitate transactions with their institutional clients on their blockchain platform, Kinexys (formerly Onyx). Mastercard plans to bring stablecoins to the mainstream, joining Bleap Finance, a crypto startup. The aim is to enable stablecoins to be spent directly onchain — without conversions or intermediaries — seamlessly integrating blockchain assets with Mastercard’s global payment rails. In early April 2025, Visa joined the Global Dollar Network (USDG) stablecoin consortium. The company will become the first traditional finance player to join the consortium. In late March 2025, NYSE parent Intercontinental Exchange (ICE) announced that it is investigating applications for using USDC ( USDC ) stablecoin and US Yield Coin within its derivatives exchanges, clearinghouses, data services and other markets. Why the renewed interest in stablecoins? Regulatory clarity and acceptance Recent moves by regulatory bodies in the United States and Europe have created more straightforward guidelines for cryptocurrency use. In the US, Congress is considering legislation to establish formal standards for stablecoins, bolstering confidence among banks and fintech companies. The European Union’s Markets in Crypto-Assets regulation requires that stablecoin issuers operating within the EU adhere to specific financial standards, including special reserve requirements and risk mitigation. In the UK, financial authorities plan to conduct consultations to draft rules governing stablecoin use, further facilitating their acceptance and adoption. The Trump administration executive order 14067 , “Strengthening American Leadership in Digital Financial Technology,” supports and “promotes the development and growth of lawful and legitimate dollar-backed stablecoins worldwide” while “prohibiting the establishment, issuance, circulation, and use of a CBDC within the jurisdiction of the United States.” This executive order, followed by Trump’s World Liberty Financial company launching a stablecoin called USD1, signals that this is the era of stablecoins, particularly those pegged to the USD. Do we need more stablecoins? The stablecoin landscape There are over 200 stablecoins, most pegged to the US dollar. Two established stablecoins dominate the stablecoin landscape. Tether’s USDt ( USDT ), the oldest stablecoin, launched in 2014 and USDC, launched in 2018, capturing 65% and 28% of stablecoins market cap, respectively — both are centralized fiat collateralized. Recent: Crypto wanted to overthrow banks, now it’s becoming them in stablecoin fight In third place, a relatively new one, USDe, launched in February 2024, holds about 2% of the stablecoin market cap and has an unconventional mechanism based on derivatives in the crypto market. Although it runs on a DeFi protocol on Ethereum, it incorporates centralized features since centralized exchanges hold the derivatives positions. There are three primary mechanisms of stablecoins: Centralized, fiat-collateralized: A centralized company maintains reserves of the assets in a bank or trust (e.g., for currency) or a vault (e.g., for gold) and issues tokens (i.e., stablecoins) that represent a claim on the underlying asset. Decentralized, cryptocurrency-collateralized: A stablecoin is backed by other decentralized crypto assets. One example can be found in the MakerDAO stablecoin Dai ( DAI ), which is pegged to the US dollar and encapsulates the features of decentralization. While a central organization controls centralized stablecoins, no one entity controls the issuance of DAI. Decentralized, uncollateralized: This mechanism ensures the stability of the coin’s value by controlling its supply through an algorithm executed by a smart contract. In some ways, this is no different from central banks, which also don’t rely on reserve assets to keep the value of their currency stable. The difference is that central banks, like the Federal Reserve, set a monetary policy publicly based on well-understood parameters, and its status as the issuer of legal tender provides the credibility of that policy. Depegging, risk and fraudsters Stablecoins are supposed to be stable. They were created to overcome the inherent volatility of cryptocurrencies. To maintain their stability, stablecoins should (1) be pegged to a stable asset and (2) follow a mechanism that sustains the peg. If stablecoins are pegged to gold or electricity, they will reflect the volatility of these assets and thus may not be the best choice if you are seeking a no-risk (or close to no-risk) asset. USDe maintains a peg to the USD through delta hedging. It uses short and long positions in futures, which generates a 27% yield annually — significantly higher than the 12% annual yield of other stablecoins pegged to the USD. Derivative positions are considered risky — the higher the risk, the higher the return. Therefore, it encapsulates an inherited risk due to its reliance on derivatives, which runs counter to the purpose of stablecoins. Stablecoins have been around for more than a decade. During this time, there were no major depegging fiascos other than the case of Terra. The collapse of Terra was not the result of a reserve problem or mechanism but rather the act of fraudsters and manipulators. TerraUSD (UST) had a built-in arbitrage mechanism between UST and the Terra blockchain native coin, LUNA. To create UST, you needed to burn LUNA. To entice traders to burn LUNA and create UST, the creators of the Terra blockchain offered a 19.5% yield on staking, which is crypto terminology for earning 19.5% interest on a deposit, through what they called the Anchor protocol. Such a high interest rate is simply not sustainable. Someone has to borrow at such a rate or above for the lender to receive 19.5% interest. This is how banks make their profit — they charge high interest on borrowing (such as mortgages or loans) and provide low interest on savings (such as a traditional savings account or a certificate of deposit account). Analysis of the Anchor protocol in January 2022 showed it was at a loss. One of the allegations in the lawsuits against Terraform Labs’ founders is that the Anchor protocol was a Ponzi scheme. In March 2025, Galaxy Digital reached a $200-million settlement with the New York Attorney General over claims the crypto investing company promoted the LUNA digital asset without disclosing its interest in the token. In January 2025, Do Kwon, founder of Terra, was found liable for securities fraud and is facing multiple charges in the US, including fraud, wire fraud and commodities fraud. If regulators are interested in preventing future cases like Terra, they should focus on how to deter fraudsters and manipulators from issuing or engaging with stablecoins. Decentralization: Rekindling the premise of Bitcoin Most stablecoins are centralized assets collateralized. They are controlled by a company that could conduct unauthorized use of customers’ funds or falsely claim that reserves fully back a stablecoin. To prevent companies’ misconduct, regulators should closely monitor these companies and set rules similar to securities laws. Centralized stablecoins run counter to the notion of blockchain and the premise of Bitcoin. When Bitcoin was launched, it was supposed to be a payment platform free of intermediaries, not controlled by any company, bank or government — a decentralized mechanism — run by the people for the people. If a stablecoin is centralized, it should follow the regulations of any other centralized asset. Maybe it’s time to rekindle the premise of Bitcoin but in a more “stable” fashion. Developing an algorithmic, decentralized stablecoin that is free of any control of a company, bank or government and reviving the core notion of blockchain. Opinion by: Merav Ozair, PhD. This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
You may also like

The cryptocurrency industry has waited for five and a half years, and what they got is half a ticket
The hand that opens this door is not the rule, but the direction of the wind.

The trend of Ethena reveals what information about the cryptocurrency market
Through Ethena's data insights: the collective hedging and self-protection of VCs and project parties is leading the crypto market into an extreme risk-averse moment of "complete balance between bulls and bears" for the first time in history.

I've been in the crypto industry for five and a half years, and all I got was half a ticket.
The hand that opens this door is not a rule, but a wind.

Crude Oil Surges 25%, Hyperliquid Unfolds On-Chain Showdown
Hyperliquid users now need to keep an eye on the latest developments in the Iran Hormuz Strait, while a DeFi OG is using on-chain derivatives to hedge against war risk.

$20 Billion Valuation, Is Kalshi Engaging in an Arms Race with Polymarket?
US-Iran Conflict + World Cup + Eve of Elections, Predicts Market Key Data Points to Reach New All-Time Highs in 2026.

Will Not Messing with OpenClaw Lead to Obsolescence in the AI Era? | Lobster Fuss Summit
Amazon Web Services On-Site Guidance to Deploy OpenClaw, Low-Cost and User-Friendly

Anticipating the Market's New Challenge to Political Elections
The next US presidential election will depend on the prediction markets

The Shadow Business Empire of Iran's New Supreme Leader: Oil, Real Estate, and Financial Intrigue
From political and military influence to shaping the financial network, Mujataba has secretly laid the groundwork to assume the ultimate leadership position.

Next-Generation Software Built for Trillion-Agent Scale
When the Agent becomes a key user of the software, software design, infrastructure, and business model will all change accordingly
Lessons From a Top 10 AI Trading Strategy in the WEEX AI Hackathon
A Top 10 finalist in the WEEX AI Hackathon shares how a market-neutral AI trading system competed against high-leverage strategies in live crypto markets.
From 27th to 4th: The AI Trading "Survivor Strategy" Behind a WEEX Hackathon Comeback
After a logic failure dropped him to 27th place, ClubW_9Kid rebuilt his AI trading framework and finished 4th in the WEEX AI Hackathon. In this interview, he explains the lessons behind disciplined AI execution, risk control, and why survival beats complexity in algorithmic trading.

TRON Industry Weekly Report: Non-Farm Payrolls "Surprise" Triggers Stagflation Concerns, Comprehensive Analysis of the Strategy Engine Bitway for Converting On-Chain Assets into Sustainable Income
TRON Industry Weekly Report

WEEX Trade to Earn: Trade More, Earn More with Instant WXT Rebates
Join WEEX Trade to Earn event from March 9–31, 2026. Earn instant WXT rebates on every trade, invite friends for bonuses, and climb the leaderboard. Register now!

Key Market Information Discrepancy on March 9th - A Must-Read! | Alpha Morning Report
1. Top News: Bitcoin Resumes Downtrend as Oil Price Surge Triggers Safe-Haven Rush
2. Token Unlock: $MOVE

Claude skill documentation spam, Polymarket trading volume surpasses Kalshi, what is the English community talking about today?
What Have Foreigners Been Most Interested in the Past 24 Hours?

Gulf Oil Crisis is Here
The Suez Canal Blockage has triggered an unprecedented energy crisis, reaching a level of escalation far beyond what all parties had previously anticipated.

Oil Surges, What's the Next Target?
Silicon is replacing oil as the new strategic resource

ETHDenver 2026 Observation: Side Events Cut in Half, AI Explosion, Builders Seeking New Paradigms
ETH Denver 2026 Observation: The number of side events plummeted by 68%, revealing cost-cutting in the industry. AI has completely "invaded" the venue, hackathon prizes have shrunk but are still supported by the resilience of developers, creating an AI×Crypto experimental field.
The cryptocurrency industry has waited for five and a half years, and what they got is half a ticket
The hand that opens this door is not the rule, but the direction of the wind.
The trend of Ethena reveals what information about the cryptocurrency market
Through Ethena's data insights: the collective hedging and self-protection of VCs and project parties is leading the crypto market into an extreme risk-averse moment of "complete balance between bulls and bears" for the first time in history.
I've been in the crypto industry for five and a half years, and all I got was half a ticket.
The hand that opens this door is not a rule, but a wind.
Crude Oil Surges 25%, Hyperliquid Unfolds On-Chain Showdown
Hyperliquid users now need to keep an eye on the latest developments in the Iran Hormuz Strait, while a DeFi OG is using on-chain derivatives to hedge against war risk.
$20 Billion Valuation, Is Kalshi Engaging in an Arms Race with Polymarket?
US-Iran Conflict + World Cup + Eve of Elections, Predicts Market Key Data Points to Reach New All-Time Highs in 2026.
Will Not Messing with OpenClaw Lead to Obsolescence in the AI Era? | Lobster Fuss Summit
Amazon Web Services On-Site Guidance to Deploy OpenClaw, Low-Cost and User-Friendly