The Rise of Stablecoins: A Financial Revolution Challenging Traditional Banking – Insights from Gem Wallet

As of early June 2025, the market capitalization of stablecoins has surpassed $250 billion, with the leader of the sector, Tether (USDT), boasting a market cap of over $153 billion, followed by Circle’s USDC at $61 billion.

Initially developed as a niche tool for cryptocurrency traders, «stablecoins» have evolved into a genuine alternative to traditional banking. Together with the team behind the open-source wallet Gem Wallet, we explore how this transformation occurred and what users should know about securely storing digital assets.

Stablecoins like Tether (USDT) were originally created to meet the needs of cryptocurrency traders, facilitating the locking in of profits from Bitcoin and altcoin trading as well as allowing for the swift movement of capital between exchanges for arbitrage opportunities.

They served as a «digital dollar» within the crypto market at a time when banks were reluctant to cooperate with crypto exchanges, and quick fiat-to-crypto swaps were limited.

By 2024, a significant share of stablecoin transactions was still initiated by bots and large traders. Research conducted by Visa and Allium Labs indicated that out of a total transaction volume of $2.2 trillion, only $149 million stemmed from “organic payment activity.”

«This suggests that stablecoins are still in the early stages of their evolution as a payment tool,» noted Pranav Sood, regional manager at Airwallex.

Nevertheless, the advantages of stablecoins are becoming increasingly evident to a wider audience. Factors contributing to this trend include:

The exponential growth of the decentralized finance (DeFi) sector in 2020 played a crucial role in boosting stablecoin adoption.

Tokens like DAI, USDC, and USDT emerged as essential «fuel» for DeFi protocols, being utilized for lending, borrowing, liquidity provisioning, and yield generation. This synergy created consistent demand for stablecoins and stimulated further growth in their market capitalization.

«By 2025, stablecoins are being used more actively for everyday financial transactions. Companies like Meta are looking into integrating them into their platforms, while the number of users in the crypto industry employing USDT and USDC solely for business and personal transactions is on the rise,» claim Gem Wallet representatives.

Over the past five years, stablecoins have transcended their role as simple fiat substitutes for transferring funds between exchanges and users. They now offer yields that can surpass traditional banking products, serving as an alternative investment route, including assets like gold.

«For instance, while EURT serves as a straightforward euro equivalent, Ondo US Dollar Yield (USDY) represents a more complex financial instrument with an inbuilt mechanism for generating over 4% annual returns,» according to Gem Wallet.

Additionally, one of the appealing aspects of stablecoins is the ability to earn passive income through DeFi platforms, such as decentralized exchanges (DEX) and lending projects. In May, lending protocols outperformed DEXs in terms of volume.

Henrik Andersson, founder of Apollo Capital, attributed this shift to the fact that lending has become the only sustainable income source within DeFi. He explained that DEX liquidity pools are losing attractiveness due to impermanent losses and rising competition.

The yields from the aforementioned applications of stablecoins often exceed those of traditional bank deposits.

«Even simple flexible deposits in USDT at centralized exchanges like Binance can yield up to 7% annually,» noted Gem Wallet.

In comparison, traditional dollar deposits in banks within developing countries often provide lower yields of around 1% or less.

In the United States, as of June 2025, the average interest rate is approximately 0.42% APY, although certain high-yield savings accounts may reach up to 5% annually. In CIS countries, rates on dollar deposits can be higher, but they come with local economic and regulatory risks and usually demand specific conditions (large sums or extended terms).

«One must recognize that high yields in DeFi come with heightened risks, including smart contract vulnerabilities and developer dishonesty. The difference in yield between stablecoins and bank deposits is not a ‘free lunch’—it’s a cost for risk.»

Moreover, the entry barrier to DeFi is higher. While it takes just two clicks to open a bank deposit, purchasing or exchanging stablecoins poses a more complex challenge for novice crypto investors, as emphasized by Gem Wallet.

In addition to fiat-backed stablecoins, there exists a category of tokens backed by other physical assets, such as gold. A prominent example is Tether Gold (XAUt), which surpassed a market capitalization of $830 million in July.

Each XAUt token represents ownership of one troy ounce of physical gold stored in a vault in Switzerland. This token offers several advantages over traditional counterparts:

«The appeal of Tether Gold, PAX Gold, and similar tokens lies not merely in the abstract concept of ‘gold on the blockchain’ but in addressing real-world issues associated with owning precious metals. They democratize access to this asset class, making it more convenient, liquid, and accessible to all,» noted representatives from Gem Wallet.

Stablecoins provide not just an alternative to bank deposits but a fundamentally different approach to financial management. Users have the opportunity to select their risk levels and potential returns, actively engaging in DeFi or opting for more conservative savings methods like XAUt.

However, such an approach requires a greater degree of financial literacy and competence. When managing digital assets, it is crucial to select a reliable cryptocurrency wallet that ensures security and usability.

All crypto wallets can be categorized into two types: custodial and non-custodial. The choice of how to store stablecoins directly impacts the level of control over the assets.

In a custodial wallet, a third party (such as a crypto exchange) holds and manages the private keys on behalf of the user. The user entrusts this party with the security of their crypto assets, similar to how they would trust a bank to safeguard their fiat money.

Advantages of custodial wallets:

Disadvantages:

In a non-custodial wallet, the user alone governs the private keys. No third party has access to them, and the user assumes full responsibility for the security of their assets.

«The term ‘self-custody’ is used in English, emphasizing the ideology of such wallets: ‘Only you are responsible for your assets.’ In Russian-speaking regions, the term ‘non-custodial’ has become established, which does not highlight the owner of the assets,» remarked Gem Wallet representatives.

Advantages of non-custodial wallets:

Disadvantages:

Examples of non-custodial wallets include Gem Wallet, MetaMask, as well as hardware wallets like Ledger and Trezor.

«The choice between custodial and non-custodial wallets depends on the user’s goals, and there is no one-size-fits-all solution. Custodial wallets and accounts on CEXs are ideal for P2P trading, microtransactions, and participating in exchange promotions. However, as users gain experience and capital, a non-custodial wallet becomes preferable, offering higher security and access to new assets.

For instance, the TRUMP token appeared on DEX before it did on CEX, allowing users with non-custodial wallets to acquire it at a better price,» commented Gem Wallet.

The Gem Wallet team offers the following recommendations:

Gem Wallet is a wallet for Android and iOS designed for everyday use. It supports over 60 blockchains and thousands of tokens, including popular stablecoins. Developers plan to add support for Ledger early next year.

The core security principles embedded in Gem Wallet include:

Since 2014, stablecoins have evolved into multifaceted financial assets, capable of providing genuine alternatives to traditional banking services. Their market capitalization indicates substantial acceptance and trust from both businesses and individual users.

As the popularity of stablecoins continues to grow, the issue of their secure storage becomes increasingly critical. The choice between a custodial and non-custodial wallet is a crucial decision for users, influencing the security and convenience of asset usage.

Non-custodial wallets like Gem Wallet grant users complete control over their funds while simultaneously placing full responsibility for the security of their private keys on them.