Introduction
Stablecoins represent a significant innovation in digital assets, bridging the gap between traditional financial systems and blockchain technology. These digital assets are designed to maintain a stable value by pegging to established assets like fiat currencies or commodities, providing the benefits of blockchain technology while minimizing the volatility typically associated with cryptocurrencies.
With market capitalization surging by about 50% to surpass US$200 billion in 2024, stablecoins now account for approximately 5.7% of the US$3.7 trillion virtual asset market.[1] Their growth reflects increasing recognition of their potential to transform financial operations, particularly in trade settlement and treasury management.
The Asia Pacific region stands at the forefront of this transformation. Leading financial centers like Singapore, Hong Kong, and Japan are actively developing regulatory frameworks to support stablecoin adoption, while major banks are exploring stablecoin applications to enhance operational efficiency.
Stablecoins: An Overview
The stablecoin ecosystem encompasses several distinct varieties, each employing different mechanisms to maintain stability. At the forefront are fiat-backed stablecoins, such as USDT and USDC, which maintain their stability through direct backing by traditional currencies, typically holding reserves in a 1:1 ratio. These have become the dominant form, accounting for 93% of the current stablecoin market.[2]
Beyond fiat-backed options, commodity-backed stablecoins, particularly those backed by gold, offer an alternative stability mechanism. These tokens derive their value from physical assets held in reserve, providing a hedge against currency fluctuations while enabling easier trading and transfer of commodity value. Meanwhile, algorithmic stablecoins, exemplified by the DAI stablecoin, maintain their stability through smart contracts and automated algorithms that manage supply based on market conditions. These stablecoins are often collateralized by other cryptocurrencies and employ complex mechanisms to maintain price stability.
Stablecoins in Trade Settlement
The traditional trade settlement landscape is marked by significant inefficiencies that impact global commerce. The standard T+1 or T+2 settlement cycles result in capital remaining locked for extended periods, creating substantial opportunity costs and increasing counterparty risks. These delays, combined with limited banking hours and complex clearing processes, create substantial friction in global trade operations. Financial institutions face additional challenges with international settlements due to time zone differences, varying regulatory requirements across jurisdictions, and the need to maintain multiple correspondent banking relationships.
Stablecoins are transforming this landscape by enabling real-time, 24/7 settlement capabilities. By leveraging blockchain technology, they facilitate near-instant transfers and reduce reliance on traditional intermediaries. Major financial institutions are already embracing these solutions – for example, JPMorgan Chase & Co. has created JPM Coin which allows blockchain-based payment by wholesale clients and handles US$1 billion transactions daily, while Citi has launched Citi Token Services, combining tokenized deposits with smart contracts for more efficient cash and trade finance operations.[3],[4]
Stablecoins in Treasury Management
Treasury management in traditional banking faces fundamental challenges that extend beyond basic liquidity management and cash flow optimization. Banks must navigate complex international payment systems, manage multiple currency exposures, and coordinate transactions across different time zones, all while maintaining sufficient liquidity for day-to-day operations. The current system's limitations often result in excess cash buffers, reduced investment returns, and increased operational costs due to fragmented liquidity pools across various markets and entities.
Stablecoin payments are revolutionizing these processes through programmable, real-time transactions that operate continuously. This innovation enables banks to implement sophisticated treasury strategies that were previously impractical. By providing 24/7 access to global liquidity pools, stablecoins allow treasurers to optimize cash positions across multiple jurisdictions without time zone constraints. The technology facilitates more efficient collateral management, enables dynamic liquidity reallocation, and supports real-time monitoring of global cash positions. For international banks, this means better visibility of group-wide liquidity, reduced buffer requirements, and improved yield on treasury assets. The integration of smart contracts adds another dimension, enabling automated execution of treasury operations based on predefined parameters and market conditions, fundamentally transforming how banks approach liquidity management and treasury operations.
In regions facing currency volatility, gold-backed stablecoins have emerged as a compelling solution. Turkey's BIGA platform, supported by six major Turkish banks, exemplifies how gold-backed stablecoins can provide stability in markets where traditional fiat currencies may be volatile.[5] Similarly, Tether's XAUT offers a digital representation of gold, combining the stability of precious metals with the efficiency of blockchain technology.[6]
Why Stablecoins Are Thriving in Asia Pacific
Asia Pacific's regulatory landscape has evolved significantly to support stablecoin innovation and adoption. Singapore, through its Monetary Authority (MAS), has taken a leading role by establishing clear regulatory frameworks for digital assets, including stablecoins. After extensive consultation initiated in 2022, the MAS is finalizing the framework governing single-currency stablecoins (SCS).[7]
The region's acceptance of stablecoins continues to grow, particularly in key markets like Hong Kong and Japan. Hong Kong has adopted an innovative sandbox approach to stablecoin oversight. In March 2024, the Hong Kong Monetary Authority (HKMA) launched its Stablecoin Issuer Sandbox, designed to facilitate controlled testing of new services while ensuring regulatory compliance.[8] The HKMA's July 2024 response to a joint consultation with the Financial Services and Treasury Bureau (FSTB) outlined specific requirements for stablecoin issuers, including mandatory licensing, local incorporation requirements, and robust stabilization mechanisms through high-quality reserve assets.
Japan's progressive stance began with its pioneering 2016 regulatory framework and strengthened in June 2022 when legislation formally classified stablecoins as digital money. The Japan Financial Service Agency (JFSA) has established clear guidelines limiting fiat-referenced stablecoin issuance to licensed banks, fund transfer service providers, and trust companies, while implementing robust consumer protection measures and anti-money laundering (AML) and combating the financing of terrorism (CFT) requirements. This regulatory clarity has fostered innovation, exemplified by Hokkoku Bank's announcement of its launch of a deposit-backed stablecoin in early 2024, marking a significant step in institutional adoption of digital assets in Japan.[9]
Challenges and Opportunities in Stablecoin Integration
Despite growing adoption, the stablecoin sector faces significant regulatory challenges. The lack of unified regulatory frameworks across Asia Pacific creates complexity for institutions operating across borders. While Singapore mandates 90% of customer assets be held in cold wallets, Hong Kong enforces a stricter 98% requirement, with Japan following at 95%.[10] These variations complicate compliance efforts and increase operational costs.
Security in another area that remains a paramount concern in the stablecoin ecosystem. The digital asset space faces ongoing challenges with endpoint security, particularly in wallets and exchanges. Recent data shows funds stolen by hacking cryptocurrency platforms surged 21% year-on-year to US$2.2 billion in 2024.[11] Then, in February this year, in what is being heralded as the largest heist ever, US$1.46 billion in crypto assets were stolen from Bybit, a Dubai-based exchange, likely using malware to trick the platform into approving transactions.[12]
However, these challenges are balanced by substantial growth opportunities. The emergence of institutional-grade stablecoins presents new possibilities for treasury operations and trade settlement. The successful implementation of stablecoin solutions by major financial institutions demonstrates their potential to transform traditional financial operations while maintaining regulatory compliance and security.
The Role of Digital Custody in Enabling Stablecoin Adoption for Institutions
Digital custody solutions have become a cornerstone in the rapidly expanding stablecoin ecosystem. As stablecoins gain wider adoption across various industries, the need for secure, reliable, and compliant custody services has reached new heights. These solutions offer the essential infrastructure that businesses and institutions require to store, manage, and transact with stablecoins, effectively bridging the gap between traditional finance and the blockchain world.
The role of digital custody in the stablecoin space is particularly critical due to several factors. First and foremost, these solutions provide enhanced security by safeguarding the cryptographic keys that prove ownership of stablecoin assets. With stablecoins designed to maintain a stable value and often serving as a bridge between fiat currencies and digital assets, ensuring the security of these assets is vital to protecting their integrity and value.
Furthermore, the importance of regulatory compliance cannot be overstated. As stablecoins continue to gain traction, their widespread adoption by institutional investors and traditional financial entities is deeply tied to compliance with evolving regulatory frameworks. Custodians play an essential role in ensuring that stablecoin issuers and users adhere to legal requirements, which, in turn, fosters trust and legitimacy within the ecosystem. This commitment to compliance provides the foundation needed for institutions to feel confident in their adoption of stablecoins.
Finally, digital custody solutions also facilitate the seamless integration of stablecoins into various financial applications. Whether it is e-commerce or cross-border transactions, custodians help to streamline the management of large-scale transactions and settlements by offering security and operational efficiency. This enables businesses to confidently engage in stablecoin transactions without compromising on reliability or scalability.
How Digital Custody in Asia Pacific is Evolving with Stablecoins
The Asia Pacific region has become a key player in the integration of stablecoin solutions, with custody providers forming strategic partnerships with financial institutions. These collaborations are driving the development of bank-grade security and compliance standards, tailored to meet the stringent requirements of regulated financial entities.
This evolution of custody services is improving critical aspects of cross-border payments, such as liquidity management and transaction efficiency. By offering secure, compliant infrastructure, digital custodians are supporting real-time liquidity transfers and risk management, helping to address key pain points in transaction banking.
Moreover, the region’s commitment to sustainability and transparency in the stablecoin space is a growing trend. Custody providers are enhancing their security measures through multi-layer encryption, cold storage solutions, and real-time monitoring of transactions. These innovations not only protect digital assets but also promote trust and reliability in the broader stablecoin ecosystem.
Through these advanced security protocols, custody solutions in Asia Pacific are laying the groundwork for more efficient cross-border payments, better liquidity management, and ultimately, the continued growth and adoption of stablecoins.
Conclusion
Stablecoins are rapidly emerging as essential tools for modernizing trade settlement and treasury operations in Asia Pacific. As the region continues to lead in digital asset innovation, financial institutions have an unprecedented opportunity to enhance efficiency and reduce costs through stablecoin adoption. Ripple's vision of scalable, inclusive, and sustainable financial ecosystems, supported by solutions like RLUSD, is helping shape this transformation.
As financial institutions look to capitalize on the benefits of stablecoins, integrating institutional-grade custody infrastructure becomes paramount. This infrastructure is key to unlocking new revenue streams, boosting operational efficiency, and ensuring long-term competitiveness in an increasingly digital and regulated financial ecosystem.
To learn more about how these custody solutions are shaping the future of digital assets, download our report, created in collaboration with Ripple: “Future-Proofing Digital Asset Custody: Why Asia Pacific Banks Must Act Now.”
[1] CoinGecko, Global Cryptocurrency Market Cap Charts, https://www.coingecko.com/en/global-charts
[2] Ripple, 2024, ‘The Functional Evolution of Digital Assets’, https://ripple.com/lp/functional-evolution-of-digital-assets/
[3] Bloomberg, October 2023, ‘JPMorgan Says JPM Coin Now Handles $1 Billion Transactions Daily,’ https://www.bloomberg.com/news/articles/2023-10-26/jpmorgan-says-jpm-coin-now-handles-1-billion-transactions-daily
[4] Citi, September 2023, Citi Develops New Digital Asset Capabilities for Institutional Clients,’ https://www.citigroup.com/global/news/press-release/2023/citi-develops-new-digital-asset-capabilities-for-institutional-clients
[5] Ledger Insights, September 2019, ‘Turkey’s Takasbank unveils gold trading platform using blockchain,’ https://www.ledgerinsights.com/turkey-takasbank-gold-trading-platform-blockchain/
[6] Tether Gold, ‘About: Gold Made Easy,’ https://gold.tether.to/
[7] State Street, December 2024, ‘Tokenized cash: A regulatory view of unlocking a digital financial market,’ https://www.statestreet.com/pl/en/asset-owner/insights/digital-digest-december-2024-regulatory-update-tokenization
[8] Hong Kong Monetary Authority, March 2024, ‘HKMA launches the stablecoin issuer sandbox arrangement,’ https://www.hkma.gov.hk/eng/news-and-media/press-releases/2024/03/20240312-4/
[9] CoinGeek, April 2024, ‘Hokkoku Bank launches Japan’s first stablecoin backed by bank deposits,’ https://coingeek.com/hokkoku-bank-launches-japan-first-stablecoin-backed-by-bank-deposits/
[10] The Straits Times, November 2024, ‘Singapore to have new measures to ring-fence customers’ crypto assets: MAS,’ https://www.straitstimes.com/business/singapore-to-have-new-measures-to-ringfence-customers-crypto-assets-mas
[11] Economic Times, December 2024, ‘Losses from crypto hacks jump to $2.2 bln in 2024, report says,’ https://economictimes.indiatimes.com/markets/cryptocurrency/losses-from-crypto-hacks-jump-to-2-2-bln-in-2024-report-says/articleshow/116486615.cms
[12] Elliptic, February 2025, ‘The largest theft in history - following the money trail from the Bybit Hack,’ https://www.elliptic.co/blog/bybit-hack-largest-in-history