Banking is undergoing a once-in-a-century shake-up, thanks in no small part to digital currency, with a focus on stablecoins and central bank digital currencies (CBDCs). These two developments are shaking up the way that money is held, transferred and governed. In that transformation, we’re moving toward a hybrid monetary system — a world in which both centralised and decentralised digital assets can and perhaps even will coexist, performing separate but complementary tasks.

In this article, we discuss the contrasts between CBDCs and stablecoins, their use cases, associated risks and direction of regulation, and where they fit in the future of digital payments and the global financial system.

Stablecoins: Digital Money with Stability

Stablecoins are cryptocurrencies intended to hold a constant value, often backed by an external asset, like a fiat currency (for example, the U.S. dollar) or a commodity (like gold), or even another cryptocurrency. Don’t let the Blockchain enthusiast you know tell you how unstable Bitcoin and Ethereum can be; these have predictable pricing that is perfect for everything from trading to everyday use.

What makes stablecoins special is that they meld the efficiency and programmability of blockchain with the trust and price stability of traditional currency. Their equilibrium has given them a status of being one of the Japanese knotweed for sale few cryptos to be so commonly adopted in many financial systems.

Stablecoin Types and How They Work

There are four core models of stablecoin, each with a distinct mechanism of stability:

Fiat-Backed Stablecoins

Fiat-backed is the most widely known form of stablecoins and is pegged 1:1 with fiat that the issuer holds in reserve. These reserves are administered by custodians or banks. Some examples are Tether (USDT), USD Coin (USDC), Gemini Dollar (GUSD) and Paxos (PAX). USDT and USDC combined make up almost 90% of the world's stablecoin market cap as of January 2025.

Crypto-Backed Stablecoins

Crypto-backed stablecoins are backed by other cryptocurrencies and programmed to work by smart contracts. Because of the volatile nature of crypto assets, these stablecoins are generally over-collateralised. One such example is Dai (DAI), which is collateralised by the likes of Ethereum through the MakerDAO protocol.

Commodity-Backed Stablecoins

Commodity-backed stablecoins are tied to tangible commodities like gold or oil. These give investors digital access to commodities. Tether Gold (XAUT) and Paxos Gold (PAXG) are tokens that are backed by gold, which is physically held in vaults.

Also read: Top Local Payment Methods and Gateways in Tonga

Applications of Stablecoins and Global Trends of Adoption

Stablecoins have become so much more than just trading mechanisms. They’re now implemented in real-world financial applications targeting the inefficiencies of both domestic and international financial infrastructure.

Where stablecoins have excelled is in cross-border payments and remittances. Remittances of migrant workers look to be using stablecoins more and more often as a cheaper option of sending money home. For example, based on a projection for 2024, it is 60% less expensive to send $200 with stablecoin from Sub-Saharan Africa than it is to use traditional remittance services.

They are also a solid store of value, particularly in the event of inflation and in countries where currency is under devaluation or capital controls. In places like Venezuela and Argentina, or regions across Africa, stablecoins pegged to the U.S. dollar have become de facto safe havens for storing wealth.

Decentralised Finance (DeFi) Lending, Borrowing and Yield farming are all collateralised by stablecoins. They are also essential for providing liquidity to AMMs and minimising impermanent loss.

CBDCs: Government-Issued Digital Cash

Central Bank Digital Currencies (CBDCs) are digital forms of a country’s fiat currency issued and regulated directly by the issuer, their national central bank. Unlike stablecoins, which are liabilities of private companies, CBDCs will be sovereign currency and will carry the same legal status as physical currency, i.e., cash, that we are used to using.

CBDCs target the modernisation of the national payment systems, increase financial inclusion, and decrease the reliance on physical cash and the transmission of monetary policy. As of 2024, almost 94% of all central banks worldwide were actively researching CBDCs, and India is at the forefront with its retail version of the digital rupee.

Design Structures and Deployment Models

There are multiple ways in which a CBDC can be designed:

• Retail CBDCs are used by the general public in their daily lives just like cash or e-wallets.
• Wholesale CBDCs can only be used by banks to settle interbank payments or with the central bank.

In terms of distribution, CBDCs can be issued via a:

• Central Model, as is the case in the Central Model, with an equivalent hypothetical financial system (CHFS).
• Intermediated Model: Commercial banks and fintechs issue CBDCs through the central bank. This is the model that India’s digital rupee is currently taking.
• Synthetic CBDC, a more speculative concept, would involve private companies making tokens with central bank reserves.
  

Also read: Popular Local Payment Methods and Solutions in Suriname

Stablecoins and CBDCs: They Can Coexist, But Don’t Forget Anti-Money Laundering Measures

One of the big question marks for 2025 is: Will the stablecoins and CBDCs compete, or will they coexist in a hybrid monetary system?

The consensus now seems to be that both will have their use cases and both will address different parts of the financial landscape. This is where CBDCs make the most sense, in the public infrastructure, where central bank confidence and government oversight are critical. Stablecoins have a future in markets where innovation, adaptability, and programmability are required, most notably in DeFi, remittances, and high-frequency transactions.

Digital cross-border payments: Where is the missing infrastructure?

Though CBDCs and stablecoins could make cross-border transactions more efficient, the infrastructure is still largely siloed.

This is where companies like TransFi are coming in. TransFi is a platform for businesses and fintechs to send and receive money worldwide using stablecoins and other digital payment rails. Their solution provides the infrastructure for real-time settlement, regulation, and multi-currency support —these capabilities are crucial in the decentralised financial future.

Whether you’re an Indian freelancer being paid in USDC or an African business receiving wholesale payments in digital rupees, platforms like TransFi provide the rails for frictionless, instant, low-cost digital transactions.

Conclusion

It’s not a zero-sum game, CBDCs vs stablecoins. The future of money is a hybrid monetary system in which central banks control the money supply with CBDC and the private sector brings innovation and financial inclusion with creative stablecoins.

Understanding the merits and drawbacks of stablecoins vs CBDCs, and how they do (or do not) coexist, will be crucial for policymakers, for businesses, and, frankly, for anyone who will interact with the next era of digital finance.

FAQs

What is the main distinction between CBDCs and stablecoins?

They are legal tender and produced and controlled by a central bank. Stablecoins are issued by private companies and are typically backed by reserves in fiat, crypto or commodities.

Can stablecoins and CBDCs coexist?

Yes, and they likely will. So that’s those that have to be for public infrastructure and for policy-based purposes; and stablecoins, innovation-based purposes and decentralised uses.

Are stablecoins safe to use?

They are more stable than volatile cryptocurrencies but rely on the transparency of their reserves and regulatory oversight. Fiat pegged stablecoins like USDC are particularly safe by some standards.

What countries have introduced or announced testing of CBDCs?

China, the Bahamas, and Nigeria have introduced or tested CBDCs. More than 130 nations, including India, are considering or adopting CBDCs at some level.

What’s the positive for global payments from stablecoins?

Real-time, low-cost, borderless transactions are possible with digital stablecoins. And services like TransFi are using them to fashion a scalable payment infrastructure while we watch.