Accelerate Asia Stablecoins with Interoperability

by Heechang，Four Pillars

Key Takeaways

• Stablecoin is inevitable. The total stablecoin supply has grown significantly, reaching $225 billion in February 2025, with user adoption and transfer volumes also surging. Regulatory clarity in each countries is laying the foundation for further growth.

• Asia is preparing for the stablecoin adoption. Different Asian countries are taking varied approaches, from government-driven initiatives in Japan and Hong Kong to institution-driven efforts in Singapore. Some countries like China and India are focusing on CBDCs instead of stablecoins.

• Interoperability is also inevitable for stablecoins. Cross-chain functionality is essential for stablecoins to expand its TAM(Total Addressable Market). Issuers are adopting strategies like token frameworks (e.g. OFT by LayerZero), custom cross-chain infrastructures, and monitoring solutions to ensure seamless operation across multiple blockchains.

• LayerZero leads in stablecoin interoperability. Many major stablecoin issuers are using LayerZero's OFT standard and customizable security stack. This allows for unified supply management across multiple chains and configurable security through Decentralized Verifier Networks (DVNs), with some issuers even running their own DVNs for greater control.

• Asian countries now recognize that stablecoins are inevitable and their benefits are clear. However, Asian stablecoins must do more than focus on issuance. Stablecoins need to be used on-chain, and each blockchain ecosystem requires its own custom strategy, similar to a local business. To achieve this, interoperability isn't just optional, it's essential.

1. The Proliferation of Stablecoin

1.1 Stablecoin Had Been Inevitable

1.1.1 Data Shows the Continuous Growth of Stablecoin

Source: Stablepulse: Analysis of Stablecoin Data by Electric Capital

Stablecoins are being recognized as an inevitable asset class. The circulating supply of stablecoin is continues increasing, whether the market is bad or good. Unlike volatile cryptocurrencies such as Bitcoin, stablecoins offer the benefits of crypto while maintaining price stability, making them particularly attractive for everyday transactions and as a bridge between traditional finance and the crypto ecosystem.

Recent data supports the stablecoins' inevitable rise, with remarkable growth metrics:

• The total stablecoin supply has rose from $138 billion in February 2024 to $225 billion in February 2025, representing a 63% year-on-year increase. (Source)

• User adoption has similarly surged, with active wallet addresses growing by 53% from 19.6 million to over 30 million during the same period. (Source)

• Monthly transfer volumes have more than doubled, increasing 115% from $1.9 trillion to $4.1 trillion, with an all-time high of $5.1 trillion recorded in December 2024. (Source)

• There are now more than 200 stablecoins, and 60 are over 20M, 26 are over 100M in terms of market cap. (Source)

This explosive growth trajectory suggests that stablecoins have moved beyond niche applications to become essential components of the crypto economy.

1.1.2 Regulatory Clarity is Laying the Foundation for the Growth of Stablecoin

Source: Stablecoin Regulation Gains Global Momentum | S&P Global Ratings

Regulatory recognition is further accelerating the stablecoins' inevitable place in global finance, with governments worldwide developing frameworks to accommodate these digital assets. The European Union has already implemented its Markets in Crypto-Asset Regulation (MiCA), with stablecoin issuers like Circle receiving approvalto operate within the EU. Hong Kong is poised to pass a new Stablecoin Bill in 2025, potentially positioning itself as the leader for crypto asset innovation in the Asia-Pacific region. In the United States, Bernstein analysts have identifieda "perfect storm" of factors creating strong momentum for stablecoin regulation in 2025, including White House support, a Republican-led Congress, and crypto-friendly agency heads. Even President Trump has described the growth and promotion of US dollar stablecoins as a policy objectivefor his administration.

With current growth trends, stablecoins are projected to reach even greater heights in the coming years. Analysts expectthe total stablecoin supply to exceed $300 billion by early 2026, with monthly transfer volumes increasing by another 40% in 2025. If current trajectories continue, stablecoins could facilitate over $50 trillion in transaction volume by 2026, solidifying their role as the foundation of crypto payments systems. While USDT by Tether currently dominates with 63% market share and a capitalization of $142.32 billion, other stablecoins like USDC are also seeing significant growth, with capitalization of $59.6B, with YoY growth of 101%.

These metrics, combined with increasing clarity of regulation, institutional adoption and expanding use cases, make it clear that stablecoins are not merely a possibility for the future of finance - they are indeed inevitable.

1.2 Stablecoins will be Inevitable Given Their Clear Benefits

The inevitability of stablecoins is driven by their practical advantages as a new asset class. Traditional volatility of crypto assets has limited utility for everyday transactions—as Patrick Harker, the president of the Federal Reserve Bank of Philadelphia noted, "It's hard to have a currency that's bouncing around all the time, so when you go to Starbucks, you don't know how many of whatever coins you're going to have to use that day." Stablecoins address this problem while also overcoming the slow and expensive process of converting between fiat and crypto assets.

Stablecoins offer substantial cost advantages over traditional payment methods, particularly for international transactions. By enabling direct peer-to-peer transfers without intermediaries, they significantly reduce transaction fees and processing times. This makes stablecoins highly attractive for remittances, cross-border trade, and regular financial transactions.

Stablecoins are now started to get adopted by businesses for various use cases such as payroll processing, invoicing, liquidity management, and mitigating foreign exchange risks. Major corporations leverage stablecoins to streamline operations and enhance economic leverage in international markets. According to recent research, institutional are now responsible for over 60% of stablecoin transfer volumes.

Source: How stablecoins will eat payments, and what happens next - a16z crypto

However, for now, the primary use case of stablecoins has been on being the settlement tokens for trading. As of March 2025, over 33% of USDT (Tether) supply is held by centralized exchanges (CEXs), inlcuding Binance, Bybit, OKX, and Bitget. This concentration of stablecoins on exchanges underscores their importance as a stable unit of account and a means of efficiently moving funds between blockchains and exchanges.

Source: All Stablecoins(ERC20): Exchange Reserve - All Exchanges | CryptoQuant

Despite their current concentration in trading, the potential benefits of stablecoins is expected to extend beyond their use as quote assets. As the fintech companies like Paypal, Revolut, Robinhood, etc enter the stablecoin ecosystem, we may see an expansion of use cases beyond trading. This can potentially range from cross-border payments, remittances, and other financial services in the coming years.

1.3 USD Stablecoins Dominate, But How About Other Currencies?

Source: Dollar Dominance in the International Reserve System: An Update

As of February 2025, USD based stablecoin including USDT, USDC, USDe, etc command a combined market share of 99.7%. While USD-pegged stablecoins continue to dominate the market, more diverse range of currency-backed stablecoins are emerging.

However, there is a growing trend towards non-USD stablecoins, driven by the need for more localized solutions. Tether has announced plans to introduce a stablecoin pegged to the United Arab Emirates dirham, catering to the demand for Gulf currencies. Also, the European Union's Markets in Crypto-Assets (MiCA) regulation is expected to pave the way for euro-backed stablecoins, while other regions are also exploring local currency options. Now the EURO stablecoin market cap is around $280M.

As the stablecoin market continues to evolve, it's likely that we'll see a more balanced distribution between USD and non-USD stablecoins. While USD-pegged stablecoins will likely maintain their dominant position due to the dollar's global status, the growth of non-USD options will provide greater flexibility and utility for users in their local region.

Source: RWA.xyz| Stablecoins

2. Asia is Preparing for the Inevitable Stablecoin

Stablecoins are gaining significant attention in Asia as governments and institutions explore their potential benefits and implementation. Many countries in the region are focusing on local-currency stablecoins to modernize payment systems, and reduce dependency on the U.S. stablecoin. Historically, non-USD stablecoins faced challenges such as unclear regulations, limited institutional interest, and the dominance of dollar-pegged stablecoins in the crypto ecosystem. However, the landscape is shifting with clearer regulatory frameworks emerging in countries like Japan, Singapore, and Hong Kong, alongside growing awareness of the efficiency and cost-saving advantages of local-currency stablecoins for trade.

Asian markets are cautiously embracing stablecoins pegged to their own currencies. Currently, four key entities play critical roles in driving the adoption of stablecoin:

1. Governments: They establish regulatory frameworks that define how stablecoins should be issued and managed. Clear regulations reduce operational risks and create opportunities for growth within defined boundaries.

2. Institutions: Businesses and financial institutions use stablecoins for payments, investment strategies, or participate as custodians and issuers. While they can drive adoption and explore new business opportunities, their actions are often contingent on regulatory clarity.

3. Issuers: These entities issue, manage, or integrate stablecoins into blockchain ecosystems. For instance, Tether issues stablecoins pegged to various currencies like USD, CNH, and MXN, leveraging crypto-native infrastructure to facilitate usage across multiple blockchains. However, in Asia for now, institutions play the role of protocols as issuers.

4. Retail Users: These are individuals who use stablecoins for small to mid-sized transactions, representing the end-users driving grassroots adoption.

Different Asian countries are taking varied approaches to stablecoin integration. For example, China has banned private stablecoins outright while focusing on its central bank digital currency (CBDC). In contrast, Japan, Singapore, and Hong Kong are actively developing regulations to integrate stablecoins into their financial systems. Let’s look into how each countries are taking actions in the stablecoin landscape.

Source: National Stablecoins: Asia’s Strategy to Reduce Dollar Dependency

2.1 Government Driven - Japan, Hong Kong

The stablecoin sector in Asia is advancing under close scrutiny from governments and regulators, especially since events like the TerraUSD collapse in 2022 heightened concerns. Many Asian jurisdictions see benefits in stablecoins, but also worry that there are cross-border transactions happening out of the regulatory oversight. So most governments are crafting strict rules to mitigate risks.

Japan has established a clear legal framework that distinguishes stablecoins from other crypto assets. In 2022, Japan passed amendments to its Payment Services Act (effective June 2023) to explicitly regulate stablecoins. In June 2023, it became the first major market to implement a comprehensive stablecoin law. This means a law allows a regulated financial institution in Japan to issue a stabelcoin – for example, a bank could issue a yen stablecoin as a form of deposit, while a trust company can issue one backed 1:1 by assets held in trust. Recent regulatory tweaks even allow some reserves to be held in low-risk government bonds (up to 50%) rather than all in cash deposits, to give issuers flexibility.

However, although Japanese government has provided clear guidance, the actual usage and implementation have been slow.

Hong Kong is positioning itself as a crypto-friendly hub, and that includes plans for regulated stablecoins. The Hong Kong Monetary Authority (HKMA) has conducted consultations and is crafting a regulatory regime for “fiat-backed stablecoins”, with new laws expected to require issuers to be licensed in Hong Kong.

In the meantime, Hong Kong is running pilot programs: it launched sandboxes for stablecoin issuers and even gave select projects interim flexibility to experiment ahead of formal regulations. Local banks are already testing the waters. Hong Kong’s Bank of East Asia (BEA) ran a proof-of-concept issuing HKD-denominated stablecoins using the Universal Digital Payments Network (UDPN). The UDPN pilot not only minted and redeemed stablecoins but also tested interoperability between stablecoins and CBDCs across different blockchains. These efforts show Hong Kong’s focus on integrating stablecoins into mainstream finance under a supervised environment.

However, although these countries are providing clear regulatory guidance, the actual implementation by the government or institutions have been very slow, and most are not in the production.

Source: Eastern Asia Geos Report: Institutions Drive Adoption in 2024

2.2 Institution Driven - Singapore

Singapore has gone one step ahead by having clear regulation and having institutions to launch stablecoins. It embraced stablecoins with a “regulated innovation” approach. The Monetary Authority of Singapore (MAS) introduced a regulatory framework in 2023for single-currency stablecoins pegged to currencies like the Singapore dollar (SGD). Under MAS rules, issuers must maintain 100% reserve backing and redeem tokens at par value, with stringent disclosure and audit requirements. As of November 2024, MAS had issued 29 digital payment token (DPT) licenses.

This clarity has enabled licensed institutions to launch stablecoins linked to SGD. A leading example is XSGD, the Singapore dollar-backed stablecoin by StraitsX. Launched in 2020, XSGD has seen over 8 billion SGD in transaction volume on networks like Ethereum and Polygon, making it one of the world’s largest non-USD stablecoins.

Also, Singapore’s major financial institutions are getting involved. In 2024, Standard Chartered partnered with StraitsX to manage the cash reserves backing XSGD and a USD stablecoin XUSD. By providing custody and cash management for the reserve assets, the bank adds an institutional layer of trust and transparency to these stablecoins. This partnership exemplifies how traditional banks in Asia are beginning to participate to incorporate stablecoins into their services. With a top global bank ensuring each token is fully backed and secure, businesses and users can gain confidence in using stablecoins for payments and settlements.

Singapore’s example shows that with clear regulations and bank-grade safeguards, stablecoins pegged to local currencies can thrive as a bridge between traditional finance and the digital asset economy. Collaboration between governments, and traditional financial institutions is crucial for accelerating adoption.

Source: RWA.xyz| StraitsX Singapore Dollar

2.3 Retail Driven - Korea

Since the collapse of TerraUSD in 2022, South Korea has maintained a strict approach to stablecoins. This regulatory scrutiny intensified following the listing of Tether (USDT) on major Korean cryptocurrency exchanges. USDT's influence grew at a rapid pace. As of October 2024, it comprised 8.3% of South Korea's total trading volume, demonstrating significant adoption of USD stablecoins in the market. This led the government to suspect unmonitored cross-border payments were taking place.

In response to this trend, South Korean authorities have announced plansto establish a virtual asset transaction monitoring system by 2025. This system aims to regulate the influx of cross-border crypto transactions, including stablecoins, and will require businesses involved in such transactions to pre-register with relevant regulatory bodies and submit monthly reports to the Bank of Korea.

Source: “9조 거래” USDT(테더), 韓 시장서 빠르게 확산 < 뉴스 < 기사본문 - 디지털애셋 (Digital Asset)

2.4 No Room for Stablecoin - China, India

Mainland China takes a very different approach – it has largely banned crypto activities, focusing instead on its official central bank digital currency (the digital yuan). As a result, private stablecoins are not legally circulating in China’s domestic market. Chinese tech companies have not launched RMB-pegged crypto stablecoins for public use, and authorities have cracked down on yuan-linked tokens in the past. The emphasis is on the Digital Currency Electronic Payment (DCEP) system, where the central bank controls digital yuan issuance.

However, it’s worth noting that Hong Kong (as discussed) and some Chinese financial technology firms are looking at stablecoin infrastructure in controlled environments (like UDPN) that might connect with China’s trade networks. Additionally, offshore Chinese yuan stablecoins (pegged to CNH, the offshore yuan) do exist – for example, CNHC is a small-scale stablecoin used in some overseas markets. But these remain niche. The landscape could change if China finds a way to reconcile private stablecoins with its monetary controls, but for now, it’s focused on CBDC over stablecoins.

India has also adopted a stringent stance on stablecoins. Currently, India is prioritizing its own pilot digital rupee over any privately issued INR stablecoin. High taxes and strict regulations on crypto trading in India have dampened the use of even major USD stablecoins in the country. The government imposes a 30% tax on crypto gains and a 1% TDS on transactions, impacting traders significantly, as detailed in cryptocurrency regulations in India. There are no prominent rupee-pegged stablecoins in circulation, as regulators have not provided a clear path for them. Instead, India’s strategy leans toward a state-controlled digital currency to modernize payments.

3. Infra for the Stablecoins - From Issuance to Interoperability

3.1 Regulated Stablecoin Stack

As stablecoin policies evolve and adoption accelerates, it is crucial to understand stablecoin infrastructure to assess its risks and develop effective strategies.

The regulated stablecoin stack, by Rui from SevenX Ventures, represents the whole infrastructure powering stablecoins in a regulated financial environment. Each layer of the stack plays a critical role in ensuring the functioning of stablecoins, from settlement to licensing. Here's an explanation of the key layers:

1. Settlement: At the base, stablecoins operate on blockchain networks such as Ethereum, Base, Solana, and others. These blockchains provide the foundation for transactions.

2. Composability: This layer enables stablecoins to interact across different protocols and chains. Tools like swaps (e.g., Uniswap), cross-chain bridges (e.g., LayerZero), and APIs facilitate movement of stablecoins between ecosystems.

3. Distribution: Stablecoins are distributed and used through wallets (e.g., MetaMask), centralized exchanges (CEXs like Binance), payment systems (e.g., PayPal, Stripe), merchants (e.g., Shopify), and cards (e.g., Visa). This wide distribution ensures accessibility for both individuals and businesses.

4. On/Off Ramp: The on/off ramp layer connects fiat currencies with stablecoins. CEXs like Binance and Coinbase, along with Banks and B2B APIs, play a crucial role in converting fiat to stablecoins and vice versa.

5. Issuance: Stablecoin issuance is handled by entities like PayPal or licensed issuers such as Paxos. Custody and reserve management are overseen by trusted institutions like BlackRock and BNY Mellon to ensure stability and compliance.

6. License: Governments regulate stablecoin issuance and usage through frameworks like MiCA (EU) or MAS (Singapore). Licensing ensures compliance with reserve requirements, stability measures, and anti-money laundering protocols.

License, Issuance, and on/off ramp are closely related to the regulation. If regulation gets more clear in the asian market, new entities in Asia will emerge to provide the infrastructure. These entities will have expertise in local regulation, and understanding of customers in TradFi.

However, “interoperability” layer is where “expertise in crypto” is needed. As stablecoins expand across networks, issuers face complex challenges: security risks from vulnerable bridges ($2.5B+ exploited in 2023-2024), fragmented liquidity from wrapped assets, and operational inefficiencies in managing reserves across chains. Traditional solutions - such as centralized bridges or wrapped tokens - introduce single points of failure, inflated costs, and compliance blind spots. This complexity demands crypto-native expertise to navigate cross-chain environment.

Source: Stablecoin Playbook: Flipping Billions to Trillions — SevenX Ventures

3.2 Cross-Chain Interoperability is The Key Layer for Acceleration

Stablecoin accelerated the usage of Fiat, and Interoperability is accelerating the usage of Stablecoin. Stablecoin has allowed fiat currency into a semi-global asset, providing the stability of traditional currencies with the digital accessibility of crypto. By pegging their value to underlying assets like the US dollar, stablecoins have enabled cross-border transactions. However, despite this advancement, stablecoins still face limitations due to fragmentation across different blockchain networks and protocols.

Interoperability is now moving stablecoins toward becoming truly global assets by breaking down the barriers between isolated blockchains. This allows stablecoins to flow seamlessly between different networks, protocols, expanding their use cases. It ensures that liquidity is not siloed within individual blockchains but can flow freely across ecosystems.

As there are now 311 L1 blockchains and 56 L2s in mainnet, and out of these 367 blockchains, around 50 blockchains have TVL more than $50 Million. All these blockchains have their own unique applications, so now, the interoperability strategy is essential.

Will the number of blockchains continuously increase? As we can see from recent new announcements,even stablecoin projects are launching their own Layer1s. For example:

• Ondo L1: It is a proof-of-stake Layer 1 blockchain for tokenized real-world assets (RWAs), combining institutional-grade features with public blockchain accessibility. It uses a permissioned validator system, supports tokenized asset staking, and is backed by major institutions like BlackRock and PayPal.

• Ethena and Securitize Convergence: It is an EVM-compatible blockchain launching in Q2 2025 that connects traditional finance with DeFi. The platform supports Ethena's $6 billion stablecoins, serves as Securitize's primary issuance layer, and features a three-tiered architecture with cross-chain capabilities through LayerZero, while using USDe/USDtb as native gas tokens.

• Noble L1: A Cosmos SDK-based application-specific blockchain purpose-built for native asset issuance, particularly stablecoins and RWAs. It features comprehensive token management (minting, burning, blacklisting), and has launched its own yield-bearing stablecoin called Noble Dollar (USDN).

• Plasma: A Bitcoin sidechain purpose-built for stablecoins, Plasma combines a trust-minimized BTC bridge, EVM-compatible execution, and state anchoring to Bitcoin. Backed by Bitfinex and USDT, it enables zero-fee USD₮ transfers and aims to drive global stablecoin adoption.

This trend means that the stablecoins will be fragmented and limited to a single blockchain if cross-chain strategy is not considered. TradFi is also acknowledging the importance of cross-chain interoperability, as recent survey by paradigm showed that it is the sixth most important strategy for the institutions.

Source: TradFi Tomorrow: DeFi and the Rise of Extensible Finance

4. Interoperability Strategy for Stablecoins

As Asian stablecoin projects take off, a major challenge looms: each operates on potentially different blockchains, which can silo liquidity and users. The primary goal of stablecoins is wider issuance and adoption across diverse use cases. Without interoperability, a stablecoin might thrive on one network but remain unusable on others. For stablecoins to achieve their full promise as an universal money, they need cross-chain functionality to connect these isolated networks.

So how should stablecoins build their cross-chain strategy? The key strategy for interoperability lies on three key area:

1. Issuance: On-chain token issuance in multiple networks is needed because it allows stablecoins to be natively deployed and managed across various blockchain ecosystems simultaneously. This approach enables stablecoin issuers to expand their reach, and be used in many different applications.

2. Cross-chain operation: Operating the cross-chain infrastructure for locking, minting, and burning stablecoins is crucial because it facilitates asset transfers across different blockchains. In order to control the issuance, and prevent risks, stablecoin issuers can operate the infrastructure.

3. Monitoring: Monitoring stablecoins in multiple networks is essential to prevent risks and track liquidity. By monitoring across various chains, issuers can quickly respond to potential threats or market fluctuations, thereby reducing the risk of system failure.

4.1 Issuance: Fiat to Stablecoin, Stablecoin to Token Framework

Source: Design Exploration: Cross-Chain Asset Fragmentation | Galaxy

Stablecoins should be omnichain, not siloed to a single blockchain. Traditionally, if a stablecoin isn’t natively available on a particular blockchain, users resort to “wrapped” versions – locking the original coin in one chain and issuing a wrapped token on another. This approach quickly becomes unwieldy: multiple incompatible versions of the same stablecoin crop up (e.g., more than 10 different USDC version in a single blockchain), confusing users and fragmenting liquidity. This further hurts composability as developers face extra work integrating each version and which version to support. Also, the liquidity is split into many small pools. This is why omnichain token isn’t just a nice-to-have feature – it’s essential.

Source: Omnichain Tokens (OFT & ONFT) | LayerZero

The current solution is a token framework. One of the leading token framework is Omnichain Fungible Token (OFT) by LayerZero Labs. A stablecoin that adopts OFT can be minted and burned across multiple chains, maintaining one unified total supply (instead of separate siloed pools). When a user moves the stablecoin from Chain A to Chain B, the tokens are burned on A and minted on B, so no duplicate liquidity is created. This ensures the stablecoin’s value and liquidity aren’t diluted across chains, and users don’t have to juggle different “wrapped” versions. However, if the token issuers don’t want to burn and mint their tokens, they can use OFT adapter, which can have lock and mint in specific blockchains.

Also there are other token frameworks in the market like ITS by Axelar, NTT by Wormhole, Hyperlane’s Warp Token, xERC20, etc.

Source: Comparing Token Frameworks. ITS vs. NTT vs. OFT vs. Warp Token vs… | by Arjun Chand | LI.FIBlog

4.2 Operation: Cross-Chain Infra

Token frameworks are relatively a new concept, and have gained lots of adoption in the past one year. Before token framework was available, token issuers had to independently build their own infrastructure to manage issuing, burning, and verification processes across various blockchains.

For example, USDC’s Cross-Chain Transfer Protocol (CCTP) mitigated risks associated with bridge vulnerabilities by enabling native token transfers across different chains with its centralized server. Since Circle is the issuer of USDC, it could burn and mint USDC tokens if they allowed with CCTP.

Additionally, major stablecoin protocols have invested heavily in developing their own cross-chain infrastructures. For instance, MakerDAO created its proprietary cross-chain infrastructure named “Teleport,” enabling efficient and trust-minimized token transfers between supported chains. Similarly, Frax developed “Frax Ferry,” which simplifies and secures the movement of Frax tokens across ecosystems.

Source: LI.FI- Circle's Cross-Chain Transfer Protocol (CCTP) — A Deep Dive

However, this is difficult to build and maintain, so messaging protocols have emerged as solutions for cross-chain attestation for token issuance across multiple chains. Some issuers have leveraged protocols like LayerZero, Wormhole, or Axelar to connect chains. In particular, Decentralized Verifier Networks (DVNs) by LayerZero allow custom configuration and operation of cross-chain infrastructure.

DVNs enable issuers to select multiple independent verifiers—including their own—to validate cross-chain transactions instead of relying on a single operator. This approach significantly reduces the risk of system failure. Ondo Finance's stablecoin demonstrates this in practice: for cross-chain transfers, they have a verification group comprising Ondo Finance, Axelar, Polyhedera, and LayerZero Labs to jointly authorize chain-to-chain movements. This DVN structure eliminates single points of failure, provides institutional-grade security for transfers, and offers flexibility by letting issuers modify or expand their verifier network over time.

Such flexibility is strategically important for enterprises and governments — they may prefer an interoperability solution where they can exert some oversight or include trusted entities in the validation process.

Source: Security Stack (DVNs) | LayerZero

4.3 Monitoring: Tracking the Activities and Assets

Stablecoin issuers face significant challenges in monitoring user activities and tracking liquidity across multiple blockchains to prevent illicit behavior. The distribution of stablecoins across various chains complicates liquidity tracking and asset freezing, with current solutions primarily supporting only a limited number of networks. This multi-chain environment presents technical hurdles for effective blacklisting and asset management.

To address these challenges, companies like Chainalysis have developed customizable solutions that enable stablecoin issuers to monitor secondary market activity. These tools are crucial, given that stablecoins now account for approximately 50% of all value transacted on blockchainnetworks in North America. The monitoring solutions provide enhanced oversight of the stablecoin ecosystem beyond direct counterparties, allowing issuers to identify and mitigate potential risks. The importance of such monitoring tools is underscored by recent data showing that stablecoins comprised 63% of all illicit transactions in 2024, a significant increase from previous years.

Source: Tether Enhances Compliance Measures with Chainalysis Ecosystem Monitoring Solution

For businesses operating in the stablecoin space, these monitoring tools have become essential for not just regulatory compliance, but also for book keeping. For example, LayerZero OFT Frax Assets operate independently from the Frax Protocol, meaning they are not protocol liabilities and don't appear on the Frax Facts balance sheet. These assets are only redeemable through Layer Zero's "lockbox" contract and are settled by LayerZero's DVNs, which operate separately from Frax Protocol entities. This structure is comparable to holding USDC tokens on networks not supported by Circle, where the tokens aren't Circle's liability and can only be redeemed through bridge contracts.

Frax has taken a very conservative approach unlike other OFT issuers. However, Frax Protocol is planning to collaborate with LayerZero to enhance certain OFT Frax Assets on selected networks, implementing direct oversight similar to the Frax Ferry system. When this occurs, these specific OFT Frax Assets will be included in the relevant balance sheets and recognized as protocol liabilities, backed by the protocol's assets.

5. Case Study: How Stablecoins are Supported by LayerZero

Currently, LayerZero has been the protocol that most stablecoin issuers use for cross-chain strategy. Its Omnichain Fungible Token (OFT) standard is supporting a significant portion of the market. Out of the top 20 stablecoins, 50% utilize LayerZero, and in terms of market capitalization, 70% of the total stablecoin value is powered by LayerZero OFTs.

The benefits LayerZero provide are clear. The use of LayerZero infrastructure by stablecoin issuers can be described in two steps: through the adoption of the OFT standard and through customization of the security stack.

The OFT standard offers stablecoin issuers to just use the default configured standard or implement issuer-owned security. Issuers can configure their security setup by choosing their own verifiers, including the option to operate their own DVN, as demonstrated by Tether running their own DVN.

Once the OFT standard is implemented, it enables seamless deployment across LayerZero's 120+ supported blockchains, and unified supply management, all of which contribute to enhanced scalability and operational efficiency for stablecoin issuers.

Let’s explore how each stablecoin issuers used LayerZero.

Source: Stablecoins Circulating - DefiLlama*Excluded HONEY since it is on a single chain

5.1 OFT the Stablecoin and Select Chains

The OFT standard enables stablecoins to operate across multiple blockchains through a burn-and-mint mechanism. When users initiate a transfer, tokens are burned on the source chain and minted on the destination chain, eliminating the need for traditional bridges or wrapped assets.

This approach offers several key advantages. First, OFT addresses the problem of liquidity fragmentation by unifying stablecoin supply across multiple chains. For example, USDT0 locks USDT on Ethereum and mints an equal amount on target chains, ensuring all tokens remain fully backed while allowing for efficient cross-chain transfers.

Security is another crucial benefit of the OFT standard. It incorporates multiple layers of protection, using various DVNs that provide different security measures including zk based messages. PYUSD demonstrates this custom security architecture, with each transfer secured by DVNs including Paxos, Google Cloud, and LayerZero Labs, providing enterprise-grade protection for transactions of any size.

The standard also offers significant cost advantages. Traditional cross-chain bridges often involve multiple fees, including bridge fees, liquidity provider fees, and gas fees. The OFT standard's direct minting and burning mechanism significantly reduces these costs.

Source: The Inevitable Future of Stablecoins | LayerZero

Lots of major stablecoins have adopted the OFT standard. For example, Ethena's USDe stablecoin adopted OFT and rapidly expanded to over 10 networks., allowing it to be integrated with DeFi protocols in each networks. The goal for these projects is clear: a stablecoin shouldn't be confined to one ecosystem when users operate on many. Some of the other notable stablecoins that have adopted LayerZero's OFT standard, are like below:

1. Wyoming Stablecoin (WYST): Wyoming has recently unveiled its state-issued stablecoin called WYST (Wyoming Stable Token), set to launch in July 2025. This marks a significant milestone as it is potentially the first fiat-backed and fully reserved stablecoin issued by a US public entity. LayerZero Labs has been selected as the token issuance partner for WYST, adding another notable use case for their OFT) standard.

2. Tether (USDT0): Tether partnered with LayerZero to launch USDT0, a multichain version of its USDT stablecoin aimed at enhancing cross-chain liquidity. USDT0 uses a locking and minting system where USDT is locked on Ethereum, and an equivalent amount of USDT0 is minted on target chains such as Ink, MegaETH, Arbitrum, and Berachain.

3. PayPal (PYUSD): PayPal's PYUSD stablecoin integrated LayerZero's OFT standard to enhance cross-chain capabilities and interoperability across multiple blockchains.

4. Ondo Finance (USDY): USDY, a yield-bearing stablecoin from Ondo Finance backed by tokenized U.S. Treasuries and bank deposits, leverages the OFT standard for cross-chain functionality.

5.2 Run Your DVN, Own the Security

Security stack of LayerZero is composed of two components: configurable contract, and DVNs. Configurable contract allows how the message verification should work for each token issuers or protocols. These contracts come pre-packaged with the necessary interfaces for managing the Security Stack, as well as the ability to opt-in to a configured default. This means there's no immediate need for complex setups or configurations post-deployment, nor are the issuers forced at any point to accept defaults.

DVNs check messages using their own verification schemas to determine message integrity. These DVNs can be selected from supported sets, with 43 currently available. If a token issuer cannot find suitable DVNs, they can use DVN Adapter to opt into third-party networks - such as native asset bridges, middle-chains, and other verification methods. Alternatively, token issuers can run their own DVN. Here are some examples of custom DVNs:

1. Tether (USDT0): Tether introduced USDT0, a multichain version of USDT leveraging LayerZero's OFT standard. They run their own USDT0 DVN, along with LayerZero Labs DVN.

2. Ondo Finance (USDY): USDY, a yield-bearing stablecoin, and other assets issued by Ondo Finance leverages the OFT standard for cross-chain functionality. It runs its own Ondo Finance DVN along with Axlear DVN, Polyhedera DVN, and LayerZero Labs DVN.

3. Paypal (PYUSD): Each transfer is secured by decentralized verifier networks (DVNs) including Paxos, Google Cloud, and LayerZero Labs, providing enterprise-grade protection for transactions of any size.

Running the stablecoin issuers’ own DVN provides token issuers to control over their cross-chain infrastructure. When protocols establish their own DVN, they can implement custom verification schemas tailored to their specific security requirements and risk profiles. This approach enables projects to move beyond generic security models and implement verification mechanisms aligned with their governance structures and token economics. For instance, a protocol might implement specialized verification logic that incorporates insights from their unique on-chain activity patterns, creating a security layer specifically optimized for their use case.

Source: Security Stack (DVNs) | LayerZero

Also, the security can be secured by the token issuer’s governance token. LayerZero Labs, in collaboration with Eigen Labs, has introduced the CryptoEconomic DVN Framework, aiming to enhance the security of cross-chain messaging through economic incentives. This framework allows DVN to enhance their reliability by staking assets such as ZRO, ETH, and EIGEN tokens. In this system, staked tokens serve as collateral, ensuring verifiers act honestly; any malicious behavior or downtime can result in the slashing of these staked assets, thereby providing a measurable security assurance for applications relying on these DVNs.

For projects like Ondo Finance and Frax Finance, this framework offers the opportunity to incorporate their governance tokens into the restaking process. By doing so, they can enhance the security and economic alignment of their cross-chain operations.

Source: The CryptoEconomic DVN Framework | LayerZero

6. Looking Ahead - Asia is Late and Needs to Think Bolder with Interoperability

Traditionally, Asia has been slower to adopt new technology. They are mostly cautious about changes, but they tend to accelerate adoption once they observe clear benefits by following successful examples. For example, Grab became Southeast Asia's largest ride-hailing application, surpassing Uber. Though it launched after Uber, Grab's localized approach led to its dominance in the market before Uber acquired it.

Grab's key advantage was its deep understanding of local payment preferences. While Uber maintained a standardized global approach, Grab accommodated local payment methods, making its services more accessible and user-friendly for Southeast Asian consumers. This localization went beyond payments, including tailored transportation options and a strong focus on building relationships with local communities.

Asian stablecoins now stand at a crucial moment. Asian countries recognize that stablecoins are inevitable and their benefits are clear. With issuers seeking to enter the Asian market and regulations taking shape alongside technological foundations, stablecoin adoption is poised to accelerate.

However, Asian stablecoins must do more than focus on issuance. Stablecoins need to be used on-chain, and each blockchain ecosystem requires its own custom strategy, similar to a local business. To achieve this, interoperability isn't just optional, it's essential.

For fiat, stablecoins were inevitable, and for stablecoins, interoperability is inevitable.

Disclaimer

The following article was written with the partnership with LayerZero Labs. This article is intended for general information purposes only and does not constitute legal, business, investment, or tax advice. It should not be used as a basis for making any investment decisions or relied upon for accounting, legal, or tax guidance. References to specific assets or securities are for illustrative purposes only and do not represent recommendations or endorsements. The opinions expressed in this article are those of the author and do not necessarily reflect the views of any affiliated institutions, organizations, or individuals. The opinions reflected herein are subject to change without being updated.