Stablecoins and the Future of Payments: Where Utility Stands Now

A new analysis from the Federal Reserve Bank of Kansas City maps how dollar-pegged tokens circulate across markets, separating trading activity from money movement and everyday payment use.

Key Takeaways on Stablecoin Use

• Franklin Noll, the Kansas City Fed’s lead payments specialist, estimates the overall market value of stablecoins at $300.5 billion as of November 14, 2025. Roughly 48.8% function as trading instruments, including exchange liquidity, lending collateral, and a short-term store of value between crypto swaps.
• About 29.3% facilitate fund transfers that are not classified as payments, such as corporate treasury movement on blockchain rails, based on the Fed’s review of crypto exchange data in a briefing released Friday.
• Outside trading, fewer than 1% (0.7%) power payments. That sliver spans peer-to-peer transfers, business-to-business supplier payments, and business-to-consumer disbursements like payroll.

Deeper Insight: Adoption, Flows, and Market Tracking

The study draws in part on data from DeFiLlama, a crypto research source that tracks digital currencies, highlighting the four largest by circulation: Usdt (Tether), Usdc (Circle), Usde (Ethena), and Usds (Sky Dollar). Together they represent roughly 90% of the stablecoin ecosystem and serve as a practical proxy for the market.

In payments terms, “payment stablecoins” typically refers to stablecoins used primarily as a settlement asset for goods and services, not just as a trading pair or an on-chain parking spot between swaps. In practice, the token may look identical to other stablecoins; the difference is the intended use and the surrounding rails: wallets, checkout flows, compliance controls, accounting, and conversion paths back to bank money.

Stablecoins also differ by how they are designed to hold their peg. Fiat-collateralized stablecoins are generally backed by reserves such as cash and short-dated government securities. Crypto-collateralized stablecoins are backed by other crypto assets, often with overcollateralization to absorb price swings. Algorithmic stablecoins rely on market incentives and on-chain mechanisms to maintain a target price, which can introduce additional fragility if confidence breaks. Commodity-backed stablecoins aim to track assets like gold, with custody and redemption mechanics that differ from dollar-pegged designs.

Issuer economics help explain why many projects focus on scale even when payments remain a small slice of activity. Common revenue sources include interest earned on reserve assets (where applicable), fees charged for minting, redemption, or transfers, and payments-related economics such as interchange-like arrangements through payment gateways or embedded wallet services. Some models also generate revenue from ancillary services like compliance tooling, issuance for third parties, and treasury or liquidity programs built around the stablecoin.

When a stablecoin payment happens, the mechanics are straightforward even if the plumbing is new. A payer holds the token in a wallet (either self-custodied or provided through an app). The merchant or recipient provides an on-chain address or a checkout request. The payer authorizes the transfer, the transaction is broadcast to the network, and validators confirm it into a block. Once confirmed, the recipient can keep the stablecoin, route it into a treasury wallet, convert it through an exchange or payment processor, or settle it into bank balances depending on the setup and local rules.

For payment use cases, the appeal is typically framed around faster settlement compared with some legacy rails, potentially lower end-to-end costs for certain cross-border or multi-intermediary flows, broad reach to internet-connected users, and transparent on-chain recordkeeping that can simplify reconciliation. Programmability is also a core value proposition: payments can be embedded into automated workflows such as conditional releases, invoice-linked transfers, and configurable payout logic.

At the same time, stablecoin payments introduce distinct risks and operational challenges. Regulatory uncertainty can affect where and how tokens may be issued, distributed, or used for checkout. Counterparty risk remains central for reserve-backed models, because users rely on the issuer, custodians, and banking partners to manage reserves and redemptions. Technical vulnerabilities can arise from smart contracts, bridges, wallet security, and operational controls around private keys. For non-fiat-backed designs, the peg itself can be less resilient, leaving users exposed to market-driven volatility at precisely the wrong time.

Acceptance is enabled by a stack of technologies rather than any single breakthrough. Blockchain networks provide the settlement layer. Payment gateways and processors can abstract address handling, confirmations, refunds, and conversion. Wallet infrastructure supports customer experience, key management, and transaction signing. Merchant systems often integrate via API connections into checkout pages, invoicing tools, and enterprise resource planning software, while point-of-sale integrations can map stablecoin receipts into the same operational flows used for cards or bank transfers.

For businesses that want to implement stablecoin payments effectively, the practical work usually centers on deciding which tokens and networks to support, selecting a custody approach (self-custody, qualified custodian, or processor-held balances), and building clear policies for confirmations, chargeback alternatives, and customer support. Back-office execution matters as much as checkout: accounting treatment, reconciliation, and treasury workflows should define when balances are held in stablecoins versus converted, how liquidity is managed for payouts, and how transaction monitoring and customer due diligence are handled in line with local requirements.

Regulation is also uneven across regions, shaping where pilots move fastest. In the U.S., activity is increasingly framed around federal and state approaches to issuer oversight, reserve practices, and permissible payment use, with recent legislation influencing how firms position products and controls. In the European Union, rules focus on issuer authorization, reserve management, disclosures, and operational resilience, with additional constraints tied to scale and systemic risk concerns. Across major Asia-Pacific markets, frameworks often emphasize licensing, consumer protection, custody standards, and strict operational controls for payment services, which can accelerate institutional adoption while narrowing retail distribution paths. Other financial centers tend to blend payments regulation with digital-asset supervision, creating a patchwork that payment companies must navigate market by market.

Beyond the half tied to trading-related uses, the slim payments share, and nearly one-third devoted to non-payment transfers, about one-fifth (21.2%) of balances remain idle.

On the payments front, Noll expects gradual expansion as regulatory guardrails take shape following President Donald Trump’s signing of the Genius Act last year, which created a framework for overseeing these digital assets.

Traditional categories—business-to-business, person-to-person, and similar payment flows—have not delivered the explosive growth many anticipated after the July 2025 law, yet usage for payments is clearly rising.

Even so, the researcher cautions that stablecoin activity is difficult to measure precisely, which helps explain why external estimates can diverge by source.

S&P Global Market Intelligence pegs circulating supply at about $269 billion in 2025 and forecasts the market to reach $434 billion by 2028. The firm also notes just 12% of U.S. consumers are aware of such tokens, underscoring early-stage adoption.

Macquarie Group reports adjusted stablecoin volume reached $1.78 trillion in February, up from $668 billion a year earlier. The surge reflects experiments by payment companies including PayPal Holdings, Mastercard, and Fiserv to integrate on-chain rails into payment infrastructure.

Some pilots are extending abroad. Last month, PayPal made its stablecoin available in 68 countries—including Costa Rica, Honduras, Peru, Singapore, and Greenland—after previously limiting access in its app to users in the U.S. and U.K.

Industry observers also highlight emerging use cases beyond trading as areas where stablecoin acceptance is gaining traction:

• Remittance corridors
• Airline settlement
• Retail marketplace transactions