Morgan Stanley IM: Stablecoins – Modernizing financial infrastructure

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Blending the stability of fiat currencies— primarily the U.S. dollar—with the efficiency and programmability of blockchain technology. These digital assets have scaled rapidly, acting as foundational scaffolding underpinning a new infrastructure for payments, settlement and value transfer across borders. As the U.S. and EU move toward regulatory clarity, stablecoins are poised to gain broad institutional acceptance, potentially reinforcing the dollar’s dominance.

Understanding Stablecoins

Stablecoins are digital tokens designed to maintain a stable value, typically pegged to an underlying fiat currency. By leveraging blockchain technology’s speed and accessibility, they enable cross-border payments almost instantaneously and at minimal costs, eliminating friction points and fees that plague traditional financial rails.

Stablecoin adoption is on the rise. In September 2025, the total stablecoin market capitalization 1 reached $300 billion, a 75% increase from a year earlier. By some estimates, the market could exceed $2 trillion by 2028 driven by use cases far beyond crypto trading, from remittances and e-commerce to global B2B settlement. While stablecoins still represent a small slice of global payments ecosystem, their usage is expanding fast, especially in markets with volatile currencies or weak banking infrastructures.

Unlike volatile cryptocurrencies such as Bitcoin or Ethereum, stablecoins are engineered to pursue price stability. Fiat-backed stablecoins maintain a 1:1 exchange ratio with their underlying currency and are backed by reserves of cash, short-term U.S. Treasury bills (if pegged to USD) and other liquid instruments. This makes them uniquely suited for both real-time settlement and store-of-value use cases in high-inflation economies.

Multinational corporations, logistics companies and fintech firms are increasingly using stablecoins for 24/7 cross-border payments and treasury operations. In a sign of mainstream adoption, in early 2025, payments giant Stripe acquired stablecoin firm Bridge for $1.1 billion. Credit card companies, Visa and Mastercard have developed infrastructure to offer cards whose payments can be funded by stablecoins. A number of large banks have announced plans 2 to issue their own coins, pending regulatory clarity.

Risk Considerations

Digital assets, sometimes known as cryptocurrency, are a digital representation of a value that function as a medium of exchange, a unit of account, or a store of value, but generally do not have legal tender status. Digital assets have no intrinsic value and there is no investment underlying digital assets. The value of digital assets is derived by market forces of supply and demand, and is therefore more volatile than traditional currencies’ value. Investing in digital assets is risky, and transacting in digital assets carries various risks, including but not limited to fraud, theft, market volatility, market manipulation, and cybersecurity failures—such as the risk of hacking, theft, programming bugs, and accidental loss. Additionally, there is no guarantee that any entity that currently accepts digital assets as payment will do so in the future. The volatility and unpredictability of the price of digital assets may lead to significant and immediate losses. It may not be possible to liquidate a digital assets position in a timely manner at a reasonable price.

Regulation of digital assets continues to develop globally and, as such, federal, state, or foreign governments may restrict the use and exchange of any or all digital assets, further contributing to their volatility. Digital assets stored online are not insured and do not have the same protections or safeguards of bank deposits in the US or other jurisdictions. Digital assets can be exchanged for US dollars or other currencies, but are not generally backed nor supported by any government or central bank.