Stablecoins are digital currencies designed to keep a stable value, usually tied to an external asset such as the US dollar, gold, or a diversified pool of financial instruments. They were created to solve a major challenge in early cryptocurrencies: price volatility. While Bitcoin, Ethereum, and similar assets can rise or fall by double digits within hours, stablecoins aim to maintain near-constant value, with most targeting a 1:1 ratio to the US dollar. This stability is achieved through three main models.
The first model is fiat-collateralized stablecoins such as USDT, USDC, and the former BUSD. These rely on issuers holding reserves in bank accounts or short-term securities such as Treasury bills. The circulating supply is meant to match the value of the reserves, with audits or attestations offered to build trust. The second model is crypto-collateralized stablecoins such as DAI, where users lock volatile crypto assets into smart contracts. These tokens are over-collateralized, meaning the value of the locked assets must exceed the value of the tokens issued. If market prices fall too sharply, automated liquidations help maintain the peg.
The third model is algorithmic or seigniorage-based systems, which adjust token supply, minting when demand rises and burning when demand falls. These systems attempt to operate without reserves, though many have failed or shifted to hybrid approaches following the collapse of Terra’s UST in 2022.
Stablecoins emerged because early cryptocurrencies were difficult to use as everyday money. Decentralisation and permissionless access provided new possibilities, but volatility made routine payments, savings, and business transactions impractical. Stablecoins created a digital medium of exchange that could move globally at any time and settle within seconds. This made them useful in several areas.
In cryptocurrency trading, exchanges rely heavily on USDT and USDC. Traders move funds into stablecoins during market swings instead of withdrawing to traditional bank accounts, avoiding delays and additional costs. In decentralised finance, stablecoins support lending platforms such as Aave and Compound, derivatives markets like Synthetix and dYdX, and automated credit systems. DAI alone has supported tens of billions of dollars in decentralised loans.
Stablecoins are widely used for cross-border payments and remittances. Workers and freelancers in regions such as Nigeria, the Philippines, and Argentina receive stablecoin payments from overseas clients or employers, bypassing expensive remittance providers that often charge 7% or more on international transfers. Transfers made with USDT or USDC can cost less than 1% and reach recipients within minutes.
Stablecoins also play a role in economies facing high inflation. In Venezuela, Argentina, Turkey, and Lebanon, many residents use dollar-pegged stablecoins to store value and protect savings from rapid currency depreciation. As tokens on blockchains, stablecoins can also be programmed into smart contracts, enabling automated payments, instant settlement, and transactions that traditional bank systems cannot easily support.
The total stablecoin market in 2025 exceeds $200 billion. These tokens settle hundreds of billions of dollars each month and are used in global finance, e-commerce, and decentralised applications. Despite their growth, most stablecoins rely on centralized issuers that hold off-chain reserves, which introduces concentration risks even as adoption expands.
Stablecoins are widely adopted in Kenya for cross-border payments, global trade, remittances, and as a buffer against local currency volatility. They offer an alternative to traditional financial channels, where transfers can take days and cost between 4% and 7%. By comparison, stablecoin transactions often settle instantly and cost under 1%. Kenyans conducted an estimated KSh 426.4 billion (about $3.3 billion) in stablecoin transactions between January 2023 and June 2024, showing substantial uptake among individuals, freelancers, and businesses.
The country has also introduced the Virtual Asset Service Providers (VASP) Act, 2025, which sets out registration, compliance, and operational requirements for digital asset service providers. This legal framework is expected to support legitimate players and improve confidence in the market. Local fintech startups and exchanges such as Yellow Card and TransFi are developing platforms that connect blockchain-based assets with Kenya’s mobile money ecosystem. These integrations make it easier to convert between the Kenyan shilling and stablecoins, strengthening the role of stablecoins in Kenya as a practical financial tool for both consumers and businesses.
Jefferson Wachira is a writer at Africa Digest News, specializing in banking and finance trends, and their impact on African economies.