A Federal Reserve Board FEDS Notes article examines developments in the stablecoin industry during 2025 and assesses their implications for financial stability, highlighting rapid market growth alongside deeper links between stablecoins, DeFi activity and the traditional financial system. The note identifies three developments that could reshape the sector and introduce new vulnerabilities: increasingly complex intermediation chains between issuers and third-party service providers, strategic vertical integration across multiple business functions, and accelerating retail adoption through digital wallet partnerships and payments use cases. The analysis reflects staff views rather than an official policy position. Aggregate stablecoin market capitalization reached USD 317 billion as of April 6, 2026, representing more than 50 percent growth since early 2025, with transaction volumes on Ethereum up 50 percent since the July 18, 2025 signing of the Guiding and Establishing National Innovation for US Stablecoins Act. Using attested disclosures, the authors contrast reserve practices, noting that Tether’s USDT reported about 1.04 times reserves per coin outstanding with around 0.74 times held in higher-quality reserves, while Circle’s USDC reported full backing with higher-quality reserves, and they associate safer and more liquid reserves with relatively stronger adoption. The note argues that multilayered service stacks, stablecoin “wrapping” and open issuance platforms can reduce transparency and raise contagion risk, while vertical integration and expanding ties to payment networks, banks and broker-dealers, including initiatives referenced involving Zelle, Lead Bank, Mastercard, Coinbase and Interactive Brokers’ use of USDC for account funding, could increase the scope for operational disruptions or liquidity strains to transmit across the traditional financial system.

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