Stablecoins: The Quiet Transformation of Financial Infrastructure

Posted: 4 Jul 2025

At MiddleGame Ventures (MGV), we have always sought to position ourselves at the intersection of technological progress and financial innovation. Our approach is to identify and support the foundational changes that quietly, yet profoundly, reshape how economies operate. In this spirit, we see stablecoins as one of the most consequential developments in digital finance—an innovation that is quietly redefining the underlying mechanics of money movement and value transfer.

 

WHY STABLECOINS MATTER NOW

Throughout history, certain technological advances have fundamentally changed commerce: the printing press, the telegraph, the internet. Today, stablecoins are catalyzing a new era—not through spectacle, but through their integration into the core processes of payments and settlements. Unlike the volatility-driven narratives of early cryptocurrencies, stablecoins are gaining traction as reliable, programmable instruments for both individuals and institutions.

Stablecoins are now integral to payroll in Latin America, remittances in Africa, and treasury management for fintechs in Europe. Their adoption is not limited to the crypto community; they are increasingly recognized as efficient, low-cost, and programmable alternatives to traditional money. Our view is that stablecoins are not just a crypto phenomenon—they represent the next step in the evolution of money itself.

Further, we should understand the rise of stablecoins within the current context of a nascent AI economy (powered by advances in generative AI). One of the most interesting vectors of AI growth is the intelligent agent (agentic AI) one. Agentic AI holds the promise of revolutionizing how we interact with data presented to us on the internet. From shopping, to purchasing, to investing, to paying, to leveraging, to managing.

Adding stablecoins to the mix allows for these agents to interact with one another not only at the layer data but also at the clearing and settlement layer. This is a game changer and will trigger, in our opinion an explosion in payment processing (think micro payments, think a profound change to SaaS, think a profound change to how we consume and interact on the internet).

As such, at MGV, we believe the most transformative changes occur in the infrastructure layer—the systems that enable new forms of commerce and financial interaction. Stablecoins are rapidly becoming a key part of this infrastructure, offering programmable, borderless money that is native to blockchain technology and capable of serving a wide range of use cases.

 

GLOBAL LANDSCAPE

In 2024, stablecoins facilitated over $7 trillion in transactions worldwide, a testament to their growing functional relevance. While we closely monitor developments on a global scale, our investment strategy is rooted in the European Union and broader European market. We are convinced that the regulatory clarity and innovation culture in Europe position it as a prime environment for stablecoin-driven financial services.

 

WHAT SETS STABLECOINS APART

Stablecoins are digital tokens engineered to maintain a stable value, usually by pegging to a fiat currency such as the Euro or US dollar. This stability distinguishes them from more volatile digital assets and makes them suitable for everyday transactions, savings, and business operations. The earliest stablecoins, such as Tether (USDT), introduced the model of full or near-full fiat backing, while subsequent innovations have explored collateralization with digital assets and algorithmic mechanisms.

We see three primary roles for stablecoins today:

  • Bridging Traditional And Decentralized Finance – They enable seamless, near-instant value transfer between legacy systems and blockchain-based platforms.
  • Driving Financial Inclusion – In regions with inflation or currency instability, stablecoins offer a practical means to preserve value and access global markets.
  • Serving As Digital Cash – Corporates, DAOs (Decentralized Autonomous Organization), and individuals leverage stablecoins for treasury, payroll, and cross-border payments, with major payment networks now piloting stablecoin settlement rails.

The combination of transparency, 24/7 accessibility, and interoperability makes stablecoins uniquely positioned to become the de facto digital money for the internet era.

 

MARKET SCALE AND DYNAMICS

The stablecoin sector has grown from a niche segment to a central pillar of the digital asset ecosystem. As of Q1 2025, the total market capitalization of stablecoins surpassed $220 billion, up dramatically from just $5 billion in 2019. The majority of this value is concentrated in USDT and USDC, but the ecosystem is diversifying, with new entrants and models emerging.

 

The stablecoin landscape is also witnessing significant activity from both big tech companies and traditional financial institutions, signaling a pivotal moment in stablecoin adoption and acceptance.  Initiatives include:

Visa is developing Visa’s Tokenized Asset Platform (VTAP) to bridge fiat currencies with blockchain networks, enabling banks to manage fiat-backed tokens and stablecoins. BBVA plans to utilize VTAP to launch its own stablecoin in 2025. Read more.

Mastercard unveiled end-to-end capabilities to power stablecoin transactions – from wallets to checkouts. Read more.

PayPal has introduced its own stablecoin, PYUSD, in 2023 and has been rolling out capabilities across various parts of its business. Read more.

JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo are exploring the creation of a joint stablecoin in partnership. Read more.

Stablecoins now underpin much of the activity in decentralized finance (DeFi), acting as the primary medium for lending, trading, and liquidity provision. Their trading volumes often exceed those of Bitcoin on major exchanges, and they are increasingly being used for real-world payments and settlements. In Europe, the introduction of the Markets in Crypto-Assets (MiCA) regulation is expected to further accelerate adoption and innovation, providing a clear legal framework for issuers and service providers.

 

HOW STABLECOINS ACHIEVE STABILITY

There are several approaches to maintaining the value of stablecoins:

  • Fiat-Backed Models – These are issued by centralized entities and fully backed by reserves held in regulated financial institutions. While simple and transparent, they require trust in the issuer’s reserve management and are subject to regulatory oversight.
  • Crypto-Collateralized Models – These rely on overcollateralized digital assets held in smart contracts. They offer greater decentralization and transparency but can be less capital-efficient and more sensitive to market volatility.
  • Algorithmic And Hybrid Models – These use programmatic mechanisms to balance supply and demand, sometimes in combination with partial collateralization. While innovative, purely algorithmic models have faced challenges, as seen in past high-profile failures.

MGV’s primary focus is on fiat-pegged stablecoins, which we believe offer the clearest path to mainstream adoption and regulatory compliance, especially in the European context.

 

REAL-WORLD APPLICATIONS

Stablecoins are now used for:

  • Cross-Border Payments And Remittances – They reduce costs and settlement times compared to traditional providers.
  • Defi And On-Chain Finance – They serve as core instruments for lending, liquidity, and yield generation.
  • Corporate Treasury And Settlements – Businesses are increasingly holding and settling obligations in stablecoins, benefiting from instant liquidity and FX flexibility.
  • Financial Resilience In Emerging Markets – Stablecoins provide a practical hedge against local currency volatility and inflation.

Over and above real world applications, the ability for payment transaction to embed data as stablecoin transactions do is a game changer for all types of applications. We believe this will usher a brand new technology stack for most financial services.

 

THE EUROPEAN FOCUS

While stablecoins are a global phenomenon, EU’s regulatory leadership, particularly through MiCA, creates an environment where compliant, scalable stablecoin solutions can flourish. We actively seek out European startups building the next generation of stablecoin infrastructure, middleware, and compliance tools, while maintaining a global perspective to inform our analysis and strategy.

 

NAVIGATING REGULATION AND RISK

Regulatory clarity is advancing rapidly in Europe, with MiCA setting clear standards for reserve management, transparency, and consumer protection. The UK is also establishing a robust framework for stablecoin oversight. In the US and other regions, regulatory uncertainty remains, but we view Europe as having a strategic advantage for compliant innovation.  However, given the current US administration’s pro digital asset stance and deregulatory approach more broadly, this cannot be taken for granted and European regulators will need to be vigilant and proactive to maintain this strategic advantage.

 

In addition to the regulatory environment, key risks we monitor include:

  • Peg Stability – Market shocks and reserve management failures can lead to de-pegging events.
  • Technical Vulnerabilities – Smart contract risks and banking partner dependencies must be carefully managed.
  • Central Bank Digital Currencies (CBDCs) – These may compete with or complement private stablecoins, depending on design and policy choices.

 

OUR INVESTMENT APPROACH

MGV invests across the stablecoin value chain, with a particular emphasis on infrastructure and middleware that abstract complexity and enable seamless integration for enterprises. We prioritize companies that build compliance, security, and reporting tools, which are increasingly required for scaling stablecoin operations in regulated environments like the EU.

We are less focused on direct investment in stablecoin issuers, given the intense competition and regulatory challenges, and more on the “picks and shovels” that will underpin the next wave of digital financial services.

 

LESSONS LEARNED AND OUTLOOK

The stablecoin sector has demonstrated both resilience and fragility. Projects that prioritize transparency, robust collateralization, and adaptive governance have weathered market cycles, while those reliant on untested mechanisms have faltered. We expect the market to continue its rapid growth, with stablecoins playing a foundational role in tokenized assets, programmable finance, and cross-border commerce.

By 2027, we anticipate the stablecoin market will exceed $500 billion, with Europe emerging as a leading hub for compliant, innovative solutions. Regulatory clarity will be a catalyst, and the most successful ventures will be those that embrace compliance and build for interoperability and scale.

 

STRATEGIC RECOMMENDATIONS FOR FOUNDERS & POLICYMAKERS

Founders – Build compliance and user experience into your core offering; partner with banks and infrastructure providers to drive adoption.

Policymakers – Foster innovation by providing clear, pragmatic regulatory frameworks that balance consumer protection with market development.

Stablecoins represent a new class of programmable money, and Europe is uniquely positioned to lead this transformation. At MGV, we are committed to supporting the infrastructure, governance, and trust mechanisms that will define the future of digital finance.