Stablecoins: the on-chain cash for successful trading

Bridging the gap between traditional and tokenized finance
by Andy Do Tuan Senior Business Development Manager @21X
and Philip Filhol Senior Business Development Manager @21X

Tokenized assets promise efficiency gains that traditional market infrastructures have lacked for many years. Ownership transfer, registry management, and settlement can all take place on a single DLT layer. The constraint is familiar: a digitized security requires a payment leg that is equally digital, stable, and final. As long as the cash leg continues to move through fragmented payment channels, tokenization remains an incomplete innovation.

Stablecoins close this gap. They are digital currencies that typically maintain a one-to-one value relative to a fiat currency such as USD or EUR. The peg is not to central bank money, but to fiat money in the form of commercial bank deposits held as reserves by the issuer. These reserves largely consist of short-term, highly liquid, and low-risk assets, such as treasury bills or reverse repos.

Stablecoins, therefore, do not provide central bank finality. Instead, they enable cost-efficient, always-on, and programmable transfers on public, permissionless blockchains, which can significantly reduce post-trade friction and the number of intermediaries involved.

In 2024, global stablecoin transfer volumes reached approximately USD 27.6 trillion, already exceeding the combined annual payment volumes of Visa and Mastercard. Outstanding supply stood at around USD 255 to 260 billion by mid-2025, predominantly USD-denominated.[1][2][3] Stablecoins are not “just another cryptoasset,” but the functional digital means of payment that tokenized markets require – programmable, globally accessible, and free from the delays inherent in traditional post-trade systems.

Stablecoins are the digital means of payment that give DLT-based markets real end-to-end coherence. They reduce latency in the payment leg, lower counterparty risk, and enable cost-efficient, programmable settlement on the same infrastructure as the tokenized asset. Without them, tokenized markets remain technically feasible but operationally fragmented; with them, they form a more integrated and efficient market environment.[1][2]

Understanding digital money options

Even highly liquid cryptocurrencies such as Bitcoin or Ether are only of limited use as payment or settlement instruments. Analyses by the BIS and the ECB show that their short-term price volatility, including intraday movements, remains significantly higher than that of major fiat currencies.[1][2] They therefore lack the stability required for quoting, margining, or settlement in institutional workflows.

What these processes require are digital payment instruments with predictable and transparently backed value, typically supported by short-term, highly liquid reserve assets. This is precisely the function fulfilled by fiat-referenced stablecoins and e-money tokens (EMTs), whose value does not depend on market sentiment but on a clear reserve and governance structure.[3][4]

The main stablecoin models can be summarized as follows:[1][5]

Fiat-collateralized stablecoins, such as Circle’s USDC or Tether’s USDT, are backed by bank deposits or short-term money market instruments, including treasury bills. They represent the majority of market capitalization (nearly $160 billion as of mid-2025 data) and transfer volume, and are currently the most practical model for institutional trading due to relatively transparent reserve disclosures and robust liquidity buffers.[1][2]

E-money tokens (EMTs): Tokens denominated in a single official currency and regulated as electronic money under MiCAR. They must be fully redeemable at par and backed by safeguarded reserves held by licensed credit or e-money institutions.

Commodity-backed stablecoins are tokens whose value is tied to physical assets such as gold or other commodities. Their stability is derived from real, verifiable reserves, typically held by a custodian and periodically audited. Gold-backed models like PAXG or XAUT are the most common examples.

Crypto-collateralized stablecoins, such as DAI or sUSD, rely on overcollateralized cryptocurrency portfolios. During periods of stress, such as the corrections of 2022, their exposure to volatility and liquidity shortages becomes evident. Collateral ratios rise, and forced liquidations can intensify price movements. They are therefore only partially suitable for professional settlement.[5][9]

Algorithmic stablecoins attempt to maintain price stability through software mechanisms. The collapse of TerraUSD (UST) in 2022, which at its peak exceeded USD 18 billion in market capitalization, demonstrated how quickly such systems can enter a downward spiral.[5][16] Their empirical record is weak, and they are effectively irrelevant for regulated markets.

Regardless of the model, stablecoins are currently the most practical digital payment instrument for tokenized markets. Participants on-ramp regulated digital currencies into their wallets to buy, trade, or post margin for tokenized securities. Without such a digital settlement asset, trading on DLT remains technically feasible but operationally fragmented: the security is digital, yet the payment leg remains anchored in the traditional system. Only with a stable digital means of payment – whether a stablecoin, an e-money token, or, in future, tokenized deposits – does a genuinely seamless and efficient DLT-based market process emerge.[2][3][4]

For institutional use today, fiat-backed models dominate by a wide margin, representing close to 90 percent of all stablecoin value in circulation. Commodity-backed and crypto-backed variants serve niche purposes, while algorithmic approaches are effectively absent from regulated markets.[1][2][5]

The 21X advantage: digital currency agnosticism

21X applies a principle that is absent in many market structures: digital currency neutrality. The platform does not prescribe a specific stablecoin or e-money token. What matters is that the chosen instrument is regulatory compliant, technically sound, and fully auditable.

This neutrality removes a major friction point that slows many DLT projects: dependence on a single digital currency that may not align with a firm’s treasury requirements. Institutional users differ in their views on issuer risk, transparency, jurisdiction, and balance sheet treatment. MiCAR, for example, limits the issuance of euro-denominated e-money tokens to credit institutions and e-money institutions and distinguishes between “significant” and “non-significant” tokens with differing supervisory expectations.[4][8] 21X leaves the selection of compliant instruments with the participants rather than embedding a single issuer or token design into the infrastructure.

“MiCA-regulated e-money tokens provide supervisory oversight and full reserve protection within the stablecoin space. Using EMTs on 21X allows trading participants to settle tokenized assets with a level of trust comparable to traditional financial infrastructure, combining this with the EU DLT Regime to give 21X a clear competitive advantage over other secondary markets worldwide.”
– Philip Filhol, Senior Business Development Manager, 21X

The aim is to enable atomic Delivery versus Payment (DvP). On-chain DvP ensures that the security token and the payment token transfer within the same smart contract. This simultaneous exchange reduces counterparty risk and can shorten effective settlement cycles from T+2 in traditional markets to potentially T+0 on DLT platforms.[2][7] Stablecoins and e-money tokens are the most effective tools for this because they share the same technical finality as the digital security itself.

21X provides the regulated market environment under the EU DLT Pilot Regime, together with the trading logic and settlement infrastructure. The choice of digital payment medium remains with those who operate it within the applicable regulatory framework.

Regulatory landscape and market friction

The regulatory landscape is advancing worldwide, though at different speeds.

• Europe has introduced MiCAR, the first comprehensive regulatory framework for Asset Referenced Tokens (ARTs) and E-Money Tokens (EMTs). The stablecoin provisions begin applying in 2024 and impose strict requirements on reserves, governance, safeguarding, and transparency. Significant tokens face enhanced supervision by the European Banking Authority.[4][6][8] For institutional users, this creates regulatory certainty and brings digital money into the supervised domain.
• The United States is considering proposals such as the GENIUS Act, which would define payment stablecoins as part of financial market infrastructure, require full 1:1 backing in cash and high-quality liquid assets, and impose frequent disclosures.[1][5] Analysts note that such a framework could raise structural demand for short-dated US treasuries by several hundred billion dollars, reinforcing the global position of the dollar.[5][9]
• The United Kingdom is developing a regime for “systemic stablecoins” with a focus on solvency, interoperability, and payment safety. The Bank of England and the Prudential Regulation Authority have highlighted potential contagion risks where banks, e-money institutions, and stablecoin issuers are closely interconnected.[12][13]

One challenge persists. Some market participants insist on fully off-ramping digital currencies into fiat and then on-ramping them back into stablecoins for every transaction. This practice undermines the efficiency gains that tokenization is designed to deliver.

Why is it unnecessary?

Because the digital payment instrument is already stable, regulated, and auditable. The additional step through bank transfers introduces cost, delay, and extra counterparty risk. It re-fragments processes that DLT aims to streamline. A robust tokenization strategy requires digital settlement to remain digital.

Conclusion: stablecoins as the future of trading

Over the next 12 to 24 months, institutions should assess how stablecoins can be incorporated into their trading, treasury, and settlement processes. Small pilot projects are a practical first step, for example, using regulated USD or EUR stablecoins to execute on-chain DvP for a limited universe of tokenized bonds or money market instruments.[2][6] Driven by Citi’s base-case outlook, which anticipates the stablecoin market rising from $282 billion today to $1.9 trillion by 2030 and potentially facilitating up to $100 trillion in annual transaction volume, traditional financial institutions are accelerating on-chain initiatives. U.S. Bank has begun piloting a proprietary stablecoin on the Stellar network and JPMorgan, for instance, is broadening its JPMD tokenized deposit to enable round-the-clock institutional settlement. A consortium of major banks, including Bank of America, Citibank, Wells Fargo, MUFG, Barclays, TD Bank, Santander, and BNP Paribas, is evaluating G7-currency-backed stablecoin issuance under emerging regulatory frameworks. Against this backdrop, it is imperative that incumbent institutions launch proof-of-concept efforts now to avoid falling behind early adopters in the rapidly advancing on-chain cash ecosystem.[10]

At the same time, infrastructure strategies should be reassessed, particularly regarding whether platforms such as 21X offer the technological and regulatory basis required.

Tokenized markets only function end-to-end when the cash leg is digital. Stablecoins are the most realistic tool for achieving this. Institutions that integrate them early will be among the first to benefit from the next stage in the evolution of capital markets.[1][2][5]

Stablecoins provide the stability and efficiency needed in tokenized markets and already serve as the de facto settlement layer across large parts of the crypto-asset ecosystem and emerging tokenized instruments.[1][2][9]

This is where 21X positions itself. The platform is currency agnostic, technologically open, and fully regulated. Participants can use the digital form of money that aligns with their risk profile and governance requirements. In doing so, 21X becomes an enabler of the next phase of trading and settlement.

References

[1] Jones Day (2025): Stablecoins: Revolutionising Global Finance? White Paper, July 2025.
[2] Oesterreichische Nationalbank / Boston Consulting Group (2025): Euro Money Tokens – A strategic opportunity for Europe’s digital monetary system.
[3] OeNB (2025): Open Forum – Euro Money Tokens: Potential Economic Role of CBDCs and Euro-Denominated Stablecoins.
[4] Edoardo D. Martino (2025): E-Money Tokens in the EU Legal Framework.
[5] Peter Bofinger (2025): Stablecoins, the Dollar and European Monetary Policy. IMK Study No. 100.
[6] Melachrinos / Economic Governance Unit (2025): Stablecoins and Digital Euro: Friends or Foes of European Monetary Policy? Study for
the European Parliament, PE 764.387.
[7] Deutsche Bundesbank (2023): Digital Money: Options for Payments and Digitales Geld: Daten und Fakten.
[8] Regulation (EU) 2023/1114 on Markets in Crypto-Assets (MiCAR) and Directive 2009/110/EC (EMD).
[9] Ahmed, R. / Aldasoro, I. (2024): Public Information and Stablecoin Runs. BIS Working Paper No. 1164.
[10]Citigroup (2025): Stablecoin 2030 – Web3 to Wall Street
[12] Bank of England / PRA (2023): Innovations in the Use by Deposit-Takers of Deposits, E-Money and Regulated Stablecoins.
[13] Deutsche Bundesbank / BIS / Citigroup (2018–2023): Work on RLN, tokenised deposits and wholesale CBDC.