Grayscale: stablecoin Summer

We expect that improvements in regulatory transparency and a favorable macro backdrop (large budget deficits and potential Intrerest Rate cuts) will continue to provide support for encryption assets in the second half of 2025.

Written by: Grayscale Research

Compilation: Golden Finance xiaozou

Key Points

In a month where cryptocurrency valuations remained relatively calm, market attention focused on fundamentals, with significant positive progress in stablecoins.

The "GENIUS Act" has passed in the Senate with bipartisan support and is submitted for review by the House of Representatives. This act will introduce regulated payment stablecoins in the United States. Meanwhile, U.S. stablecoin issuer Circle has completed its IPO, and its stock price has risen (in contrast to the declining valuations of Mastercard and Visa), highlighting the disruptive impact that traditional digital payment networks may face. Additionally, media reports indicate that other large companies, such as Amazon and Walmart, are also exploring stablecoin businesses.

The currency-related encryption asset sector and the financial encryption asset sector have outperformed the overall encryption market, with the latter's outstanding performance possibly stemming from improved regulatory transparency and the broader adoption prospects of decentralized finance (DeFi) technology. The prediction market Polymarket has benefited from the attention generated by the New York City mayoral election and successfully secured additional venture capital.

We expect that improvements in regulatory transparency and a favorable macro background (large budget deficits and potential interest rate cuts) will continue to provide support for encryption assets in the second half of 2025.

Introduction

Despite the continuous negative news, the market achieved strong returns in June 2025. This divergence can be explained by two characteristics of the current market context: first, although the market faces many challenges, the worst-case scenario has not actually occurred. While the U.S. economy shows signs of slowing down, global trade has not come to a standstill; amid ongoing tariff threats, the White House announced a trade agreement with China; even with the ongoing military conflicts in the Middle East, there has been no significant disruption in oil transportation. Since financial markets price in all possible outcomes (not just the baseline scenario), avoiding tail risks is sufficient to support valuation increases.

Secondly, the overall macro policy combination is favorable (apart from the tariff increases). The U.S. federal government maintains a large budget deficit even with the unemployment rate running at a low level, while the Senate's recent passage of the One Big Beautiful Bill Act will allow most economic stimulus measures to continue. Furthermore, the Federal Reserve is likely to ease monetary policy later this year. This supportive macro policy helps the economy and markets withstand fluctuations from tariffs, geopolitical conflicts, or other issues.

In June, asset returns showed a tendency for positive growth. After risk adjustment (considering the volatility of various assets), emerging market stocks, high-yield bonds, and industrial metals led other market sectors, which is consistent with the trend of increasing investor risk appetite (Figure 1). The US dollar exchange rate continued to weaken, having cumulatively declined by about 10% since its peak in January (based on the Bloomberg Dollar Index). The price of Bitcoin increased by 3% this month, which is relatively limited considering the usual volatility of this asset. The market capitalization-weighted FTSE/Grayscale encryption asset sector all-market index rose by 1.5% this month.

Figure 1: Most stock and bond markets achieve strong returns

1. The momentum of stablecoins is strong.

The encryption industry has begun to use "Stablecoin Summer" to describe the many breakthroughs recently achieved in this sub-sector. Interestingly, stablecoins are most widely used in emerging market economies in the Global South... where it is currently winter. However, the latest developments indeed point to regulatory changes and corporate applications, which may drive the adoption of stablecoins in developed economies like the United States.

Stablecoins are essentially digital dollars on the blockchain. Their structure is similar to money market funds—traded stable value instruments backed by safe collateral (such as U.S. Treasury securities)—but designed specifically for digital payments. Bank deposits (checking accounts) are already a form of digital dollars, but when dollars are tokenized via blockchain, they can leverage the advantages brought by blockchain technology: including cross-border payments, near-instant settlement, potentially lower costs, and high transparency. Estimates from Visa and encryption data experts suggest that stablecoins handle approximately $800 billion in digital transactions per month (Figure 2). Reference data: Visa's average monthly payment volume in 2024 is projected to be $1.1 trillion.

Figure 2: Stablecoins handle an average monthly transaction volume of approximately 800 billion USD

Similar to commercial bank currencies, stablecoins are issued by private institutions. Issuers profit from the difference between the interest on assets (such as government bonds) and zero interest on liabilities (the stablecoin itself), creating a sustainable business model. The second largest stablecoin in the US, USDC, was listed by its issuer Circle on June 4 ($CRCL). Equity investors have shown great enthusiasm for the stablecoin business model: the company's stock price skyrocketed from an issuance price of $31 per share to $181 by the end of the month. At this price, Circle's 2024 EBITDA multiple exceeds 150 times, indicating that investors are optimistic about the high growth prospects of the USDC stablecoin and Circle's revenue. Notably, Circle's stock performance after the listing stands in stark contrast to the sluggish stock prices of traditional digital payment companies Visa and Mastercard (Figure 3).

Figure 3: Circle stock price has a negative correlation with Visa and MasterCard

At the same time, the U.S. Congress has made new progress in the comprehensive legislation of stablecoins. The "GENIUS Act" was supported and passed by bipartisan vote in the Senate on June 17 and has now been submitted to the House for review. This bill establishes a legal framework for payment stablecoins in the U.S. market, covering reserve composition requirements, anti-money laundering compliance rules, information disclosure, and auditing standards. The bill explicitly prohibits the issuance of interest-bearing stablecoins (presumably to avoid competition with commercial bank deposits) and the issuance of stablecoins by non-financial institutions. Grayscale Research believes that interest-bearing stablecoins would benefit U.S. consumers and suggests re-evaluating them in future legislation or rule-making. Overall, the "GENIUS Act" is expected to promote the adoption of stablecoins in the U.S., while also setting reasonable safeguards for consumer protection and financial stability.

Encouraged by the clarity of regulations, many non-encryption companies have recently announced their plans to enter the stablecoin space. The related companies are almost too numerous to count, mainly including commercial banks (such as JPMorgan Chase and Société Générale), market infrastructure providers (such as DTCC), fintech companies (such as Shopify, Fiserv, and Revolut), and non-financial companies (such as Amazon and Walmart). Although these industry leaders belong to different sectors, they all see the potential value of stablecoins in enhancing digital payment efficiency and/or reducing costs.

2. Clarification of Regulation Boosts Market Performance

Shortly after President Trump took office, he signed an executive order on digital assets, requiring relevant working groups to formulate supportive policy proposals within 180 days. Policymakers are busy advancing reforms ahead of the deadline in late July. For example, the U.S. Securities and Exchange Commission (SEC) announced on June 13 that it would withdraw the unfinished rules drafted by the previous administration, which aimed to classify certain DeFi applications as securities exchanges. Additionally, Federal Housing Finance Agency Director William Pulte requested that federal mortgage institutions Fannie Mae and Freddie Mac include digital assets in the net worth assessment of homebuyers in their underwriting standards. Finally, the Federal Reserve announced that its regulatory standards would no longer consider "reputational risk" factors, a mechanism that previously limited the banking industry's access to services in certain areas of the encryption industry.

According to the FTSE/Grayscale series index, the currency-type crypto asset sector and the financial-type crypto asset sector have performed outstandingly among various crypto sub-markets (see Figure 4). The increase in the currency sector primarily reflects a slight rise in Bitcoin prices. In the financial sector, Hyperliquid, Uniswap, Aerodrome, Maple Finance/Syrup, and Aave contributed the largest positive returns, and these projects are currently on the Grayscale Research Top 20 list. Decentralized exchanges (DEX) such as Hyperliquid, Uniswap, and Aerodrome are currently as competitive in price as centralized exchanges (CEX) and may continue to maintain an advantage in the long-tail chain asset trading field.

Figure 4: The performance of currency and financial encryption assets sectors is more stable

In our view, aside from stablecoins, no other encryption application has achieved more groundbreaking success than prediction markets in the past year. Due to the public attention generated by the New York City mayoral election, Game 7 of the NBA Finals, and global conflicts, Polymarket's popularity surged again in late June (Figure 5). The two largest prediction markets by trading volume, Polymarket and Kalshi, both received additional investments in June: Polymarket raised $200 million from institutions including Founders Fund at a valuation exceeding $1 billion, while Kalshi raised $185 million from institutions like Paradigm at a $2 billion valuation.

Figure 5: Polymarket captures the shift in sentiment for the New York City Democratic mayoral primary

The macro-level demand for Bitcoin can be said to be the most important driving force for the cryptocurrency asset class so far. However, the progress in June well reminded us of the broad range of technologies supporting blockchain finance, including stablecoins, decentralized exchanges, and prediction markets. Although the overall cryptocurrency valuation saw a slight correction in June 2025, the fundamentals of the industry continue to improve, and we believe that this will eventually be reflected in the valuation.

In addition, the macro policy background may continue to remain supportive in the coming months. In the short term, the "Great American Beautiful Act" may soon receive President Trump's signature. Budget experts estimate that, under the current text, the bill will increase the federal deficit by approximately $3 trillion over the next 10 years, and if certain due terms are extended, the deficit could reach as high as $5 trillion. Furthermore, Trump has repeatedly called for the Federal Reserve to cut interest rates. Although the Federal Reserve is an independent body, Trump will have the opportunity to appoint a new chair next year (subject to Senate approval). Overall, we believe that the ongoing fiscal deficit, lower real Intrerest Rates, and a potentially weakening dollar will create a favorable combination of driving forces for Bitcoin and encryption asset classes.