Stablecoins and financial inclusion: benefits, use cases and risks

Historically, central banks and governments have been hostile towards non-fiat forms of money due to their unregulated nature, ability to cause runaway inflation and enabling the financing of illegal activities (Seligman, 2022; Hendrickson & Luther, 2017). Private cryptocurrencies, such as Bitcoin (BTC), Solana (SOL), Cardano (ADA), XRP (Ripple) and Dogecoin (DOGE), are examples of non-fiat money.

In an effort to make private cryptocurrencies more appealing to governments and central banks, private firms have developed a type of private cryptocurrency that is pegged to the value of a stable fiat currency, less volatile, can be regulated and can respond to changing legal and regulatory requirements, to increase its appeal to governments and central banks (Fiedler & Ante, 2023; Arner, Auer, & Frost, 2020). This type of private cryptocurrency is known as “stablecoins”.

A stablecoin is a digital finance innovation that acts as a digital payment instrument, just like bitcoin, central bank digital currency (CBDC) and Fintech apps (Catalini, de Gortari, & Shah, 2022; Ozili, 2024a). A stablecoin is a type of blockchain-based cryptocurrency whose value is pegged to the value of a fiat currency (e.g. the US Dollar) or a stable traditional commodity (e.g. gold) in the ratio of 1:1 (Ma, Zeng, & Zhang, 2025; Fiedler & Ante, 2023). Examples of stablecoins in the real world include USDT, USDC, Libra and Binance Coin.

Recently, the launch of the GENIUS Act in the United States in July 2025 has put stablecoins at the centre of global financial innovation discourse (Krause, 2025). The GENIUS Act is the first comprehensive federal framework for stablecoins. It requires stablecoins to be backed 1:1 by high-quality assets and ensures that the issuer maintains liquid reserves, complies with anti-money laundering and/or know-your-customer (AML/KYC) regulations and clarifies that stablecoins cannot be issued as securities but only as payment instruments (Krause, 2025). In the United States, stablecoins are used mostly for depositing and withdrawing money from volatile crypto assets (Krause, 2025).

Outside the United States, foreign-denominated stablecoins are increasingly used by the youth population to facilitate cross-border payments in developing countries even though there is no formal recognition of stablecoins as legal tender by the central bank in developing countries (Ho, Darbha, Gorelkina, & García, 2022). Stablecoins also act as a store of value due to high inflation and rapid currency depreciation in poor developing countries (Catalini et al., 2022).

In the cryptocurrency literature, scholars consider stablecoins to be digital tokens that are pegged to another asset, usually the US dollar (Mita, Ito, Ohsawa, & Tanaka, 2019; Fiedler & Ante, 2023; Jin, Li, & Xue, 2023; Dionysopoulos, Marra, & Urquhart, 2024). Other scholars argue that stablecoins are a type of crypto asset because holding a stablecoin is deemed to be equivalent to holding the underlying commodity or fiat currency to which it is pegged (Ante, Fiedler, & Strehle, 2021). Meanwhile, in the financial innovation literature, stablecoins are considered to be financial instruments that improve payment efficiency and increase the number of payment instruments in the digital finance ecosystem (Ahmed, Clouse, Natalucci, Rebucci, & Sun, 2025; Ferreira, 2021). However, there are concerns that stablecoins may give rise to currency substitution risk by displacing public money issued by central banks and pose risks to monetary sovereignty (Abraham, 2024; Lipton, Sardon, Schär, & Schüpbach, 2020; Armstrong, 2025; Arner et al., 2020). Despite the growing adoption of stablecoins and the growing interest in stablecoins research by scholars, there is limited research on the role of stablecoins in increasing the level of financial inclusion.

The purpose of this study is to explore the role of stablecoins in increasing the level of financial inclusion. Understanding the role of stablecoins in increasing the level of financial inclusion is important because an important use case of stablecoins for financial inclusion is enabling digital payments without relying on the traditional financial system (Catalini et al., 2022).

This study contributes to the extant literature in several ways. This study contributes to the literature by exploring an additional digital finance innovation that can assist in increasing the level of financial inclusion in countries. The study focuses on stablecoins as potential digital finance instruments that can increase access to payments for underserved populations. The study also contributes to the cryptocurrency literature that examines the potential use case of cryptocurrency innovation in society. This study is among the first to explore how a specific type of private cryptocurrency – stablecoin – can broaden financial inclusion.

The remaining section of the study is arranged as follows. Section 2 presents the methodology guiding the conceptual discourse analysis approach. Section 3 presents the main discussion of the article. It discusses the theoretical and conceptual foundations of financial inclusion, digital finance and stablecoins. It also presents the literature review and the regulatory debates on stablecoins. It also presents a comparison between stablecoins and CBDCs. It further offers insights into how financial inclusion is achieved using USDT/USDC, as well as the risks of using stablecoins to increase financial inclusion. Section 4 presents the conclusion of the study.

The methodology used to explore the potential role of stablecoins for financial inclusion in this study is the conceptual discourse analysis method (CDAM). The CDAM method is the analytical framework that guides the collection, organization and interpretation of prior evidence to answer the research question on the role of stablecoins for financial inclusion. CDAM involves reviewing existing “stablecoin studies” and “financial inclusion studies” to identify a potential relationship between stablecoins and financial inclusion and using that insight to draw implications for policy and practice. The CDAM is used as the basis for selecting the literature that supports the assertions and predictions in the study. A mixture of foundational financial inclusion studies and the recent literature on digital finance, financial inclusion and stablecoins was analysed.

The CDAM method strengthens the study's conceptual analytical contribution by (1) identifying the salient features of stablecoins, (2) identifying the dimensions of financial inclusion, (3) bringing together the related features of stablecoins and dimensions of financial inclusion and (4) establishing a relationship between them. This approach allows the conceptual analytical contribution of the study to stand out.

There are numerous theories of financial inclusion. However, for the purpose of this study, I will focus only on the financial inclusion theories that support the emergence of stablecoins as an innovation to increase the level of financial inclusion. The first theory is the “digital agency theory of financial inclusion” proposed in Ozili (2024a). The theory focuses on the relationship between a financial inclusion principal (i.e. the entity that wants a financial inclusion outcome) and the digital agent (i.e. the entity that is contracted to develop new digital technology, or use existing digital technology, to achieve a financial inclusion outcome). The theory posits that the financial inclusion principal will employ the services of a digital agent who will use appropriate digital technologies to achieve the financial inclusion outcome specified by the financial inclusion principal under a contractual agreement that motivates the digital agent to act in the best interest of the financial inclusion principal and such contract will include incentives and monitoring arrangements to ensure that the specified financial outcome is achieved (Ozili, 2024a). The relevance of the theory for the emergence of stablecoins is that governments and financial institutions can enter a contractual agreement with stablecoin issuers and service providers to make stablecoin platforms accessible to underserved populations to facilitate remittances and cross-border payments under certain terms and conditions that are mutually beneficial to the contracting parties.

The second theory is the “vulnerable group theory of financial inclusion” developed in Ozili (2024b). It argues that vulnerable groups in the population – such as the poor, women, youth and elderly – face systemic exclusion from formal financial services. Their vulnerability often makes them a less attractive customer segment to banks (Ozili, 2024b). As a result, banks may not serve them. The theory therefore advocates for targeted, inclusive policies designed to bring these vulnerable groups into the financial system to give them access to essential financial services and increase their participation in the economy (Ozili, 2020). The theory supports the growth of stablecoins because if policymakers create an enabling licencing environment that encourages the emergence of new digital finance innovation (e.g. stablecoins), it can lead to the emergence of stablecoin providers who can extend stablecoin-based financial services to vulnerable people living in remote, underserved and hard-to-reach communities.

The development of stablecoins is supported by three broad theories: the theory of finance and growth, Schumpeter's theory of innovation and the digital agent theory of financial inclusion. The theory of finance and growth, developed by Ross Levine, states that financial sector developments will give rise to innovative financing instruments that allocate financial resources efficiently, mobilize savings, manage risk and facilitate transactions among economic agents to stimulate investment and production of goods and services, which increases economic output and stimulates economic growth (Levine, 2005). Under this theory, stablecoins are innovative financing instruments that facilitate efficient payment, competition and innovation in financial services, thereby contributing to economic growth. Another theory supporting the emergence of stablecoins is the Schumpeter’s theory of innovation which states that economic development is driven by entrepreneurs who introduce disruptive innovations – such as new products, methods, markets or organizations – through a process known as creative destruction (Schumpeter & Swedberg, 2021), and these disruptive innovations give rise to better outputs, higher profit to entrepreneurs, economic progress, cyclical booms and improvement in living standards (Schumpeter & Swedberg, 2021). Under this theory, the emergence of stablecoins can be seen as a disruptive payment innovation that contributes to the creative destruction process by transforming digital payments and financial services without relying on traditional financial intermediaries. The third theory supporting the emergence of stablecoins is the digital agency theory of financial inclusion, which considers stablecoins to be a type of digital payment innovation which a digital agent can use to achieve the financial inclusion outcome specified by the financial inclusion principle (Ozili, 2024a).

The earliest framework to emerge in modern financial inclusion discourse is the “dimensions of financial inclusion” framework. The framework was popularised by World Bank economists, alongside Beck and De La Torre (2007) and Sarma and Pais (2011), who showed that there are three dimensions of financial inclusion, namely, the accessibility dimension of financial inclusion, the usage dimension of financial inclusion and the quality of financial service delivery dimension of financial inclusion.

The accessibility dimension of financial inclusion refers to the availability and ease of access to financial access points in areas where people live (Pesqué-Cela et al., 2021). This includes the availability of automated teller machines (ATMs), bank branches and mobile money or fintech apps. The usage dimension of financial inclusion refers to factors enabling widespread use of financial services among the population, such as the type of account, transaction amounts, outstanding account balance, remittances, frequency of cashless transactions, etc. (Cámara & Tuesta, 2014; Espinosa-Vega et al., 2020; Pesqué-Cela et al., 2021). The quality of financial service delivery dimension of financial inclusion refers to the delivery of useful and safe financial services to users in an ethical, responsible and sustainable way (Espinosa-Vega et al., 2020). This includes the strength of consumer protection, awareness and understanding of financial products, financial behaviour, dispute resolution, cost of usage, etc.

The dimensions of financial inclusion framework is a useful framework for explaining financial inclusion because it demonstrates that financial inclusion should not stop at granting access to financial services. It should go beyond financial access. It should consider whether people are using financial services and whether it is being delivered to them in an ethical and responsible way (Allen, Demirguc-Kunt, Klapper, & Peria, 2016).

However, a major limitation of the “dimensions of financial inclusion” framework is that it pays too much attention to unbanked and banked adults. It does not pay attention to the preferences or challenges encountered by financial service providers in serving those who need formal financial services.

I rely on the digital finance and mobile money literature to develop a digital finance conceptual model as shown in Figure 1. Existing studies such as Gomber, Koch, and Siering (2017) describe the nature of digital finance. They show that digital finance encompasses new financial products, financial businesses and finance-related software, which are delivered by FinTech companies and innovative financial service providers. Ozili (2018) also shows that digital finance is financial services delivered through mobile phones, personal computers, the internet or cards linked to a reliable digital payment system and emphasises that the main benefits which digital finance offers are greater financial inclusion, expansion of financial services to non-financial sectors and an increase in economic activities. Philippon (2016) shows that a major reason for the emergence of digital finance innovation is because financial services are expensive and digital finance providers want to use financial technology to make financial services accessible and affordable for individuals and businesses who need them for payments, financing or investment. Existing studies such as Ahmad, Green, and Jiang (2020), Philippon (2016) and Amoah, Korle, and Asiama (2020) also show that the digital finance evolution has led to digital payment innovations which are a major driver of financial inclusion in many developed countries and developing countries and they exist in various forms such as mobile money, fintech, crowdfunding, etc.

The consensus among these studies is that digital finance innovations are multi-dimensional and are broadly divided into three broad categories namely (1) digital finance innovation that facilitate digital payments (Gomber et al., 2017; Ozili, 2018), (2) digital finance innovation that assist in raising financing (Butticè & Vismara, 2022) and (3) digital finance innovation that enable investing (Lin, Peng, & Wu, 2022). Digital finance innovations that facilitate digital payments include payment innovations, such as stablecoins, fintech, CBDC, QR code and bitcoin that improve access to financial services using the internet and a digital device. Digital finance innovations that enable investment include mutual funds apps, stock trading app and bond trading apps. Digital finance innovations that assist in raising financing include crowdfunding products, green finance platforms and online loan apps.

A stablecoin is a private cryptocurrency that is built on a distributed ledger and is designed to avoid the high volatility that is associated with native crypto assets such as Ethereum and Bitcoin (Ma et al., 2025). Stablecoin is not decentralized. It is centralised, meaning that stablecoin is operated by the private companies that issue the stablecoin (Ma et al., 2025). A stablecoin is often backed by conventional reserves such as liquid financial assets, government securities or US treasury bonds in the ratio 1:1. Available data ^[1] show that the value of the two largest stablecoin in the world (USDT and USDC) tripled to US$260 billion in 2023 while trading volume increased by 90% reaching US$23 trillion in 2024. The region with the highest volume of stablecoin activity in 2025 is Asia followed by North America while the highest demand for stablecoin is in emerging markets and the high demand is driven by the prevalence of high inflation, economic hardship and economic instability in some emerging market countries. Also, a recent research report ^[2] from Standard Chartered Bank states that two-third of the US$280bn current stablecoin supply globally are held in savings by individuals in emerging markets.

The USDT, also known as the Tether stablecoin, was launched in 2014 as a blockchain-enabled platform to democratise access to traditional currencies. According to information available on the USDT official website ^[3], USDT is designed to facilitate the use of fiat currencies in a digital environment in the form of digital tokens while avoiding the high volatility associated with native cryptocurrencies or digital currencies (Fernández, Fernández, & Alonso, 2024). USDT operates through digital tokens built on several leading blockchains which act as transport protocols to ensure that when users send USDT tokens, the tokens will reach the intended beneficiary. The USDT tokens are simply digital assets that move across a blockchain but are pegged to the US dollar on a 1-to-1 basis. Therefore, users must ensure that the USDT token they want to send to someone is being sent using the correct transport protocols and to the right destination address. Every USDT token is 100% backed by reserves, such as traditional currency, cash equivalents, other liquid assets and receivables from loans made by Tether to third parties (Fernández et al., 2024). USDT can also be backed by several currencies and commodities, such as the US dollar (USD), Mexican peso (MXN), offshore Chinese yuan and Gold, and their equivalent stablecoin tokens would be known as USD₮, MXN₮, CNH₮ and XAU₮, respectively. USDT stablecoin can be used by individuals and businesses, but more frequent usage has been observed among businesses and corporations that use USDT to easily access and use fiat currencies on blockchains.

USDC, also known as USD Coin, is a cryptocurrency stablecoin issued by Circle. It was launched in 2018. According to information available on Circle's official USDC website, USDC is a cryptocurrency that is stable because it is pegged to the United States dollar and it benefits from the speed and security of blockchain technology. USDC is backed 100% by highly liquid cash and cash-equivalent assets and is redeemable 1:1 for US dollars (Fiedler & Ante, 2023). The majority of the USDC reserve is invested in the Circle Reserve Fund (USDXX) which is an SEC-registered government money market fund. Just like USDT, USDC operates through digital tokens, which are built on several leading blockchains that act as transport protocols to ensure that when users send USDC tokens, the tokens will reach the intended beneficiary or destination address.

Holders of USDC tokens can easily convert their fiat USD into USDC tokens by depositing a specific amount of fiat USD into their Circle USDC account. After the deposit is made, Circle will issue the equivalent amount of USDC to the holder. The process of issuing new USDC is known as “minting” because new digital dollars are created from fiat USD and are put into circulation (Fiedler & Ante, 2023). Conversely, holders of USDC tokens can easily convert their USDC tokens back to fiat USD by depositing USDC tokens into their Circle Mint account and requesting to receive fiat USD. The process of redeeming or converting USDC back to fiat USD is known as “burning” because this process takes USDC out of circulation.

Several studies examine stablecoin developments. For instance, Ante et al. (2021) view stablecoin as a digital currency that is pegged to non-volatile assets and can serve as an alternative to fiat currency. Mita et al. (2019) consider stablecoin to be a cryptocurrency with price stabilization mechanisms to match the price of another currency with lower volatility. Fiedler and Ante (2023) explore the history of stablecoins and suggest a taxonomy for classifying stablecoins. They suggest that stablecoin may be classified as a (1) traditional asset-backed stablecoin, (2) crypto-collateralized stablecoin and (3) algorithmic stablecoin. Dionysopoulos et al. (2024) show that the biggest driver of stablecoin growth is stablecoin profitability, which is the ability of its promoters to invest stablecoin reserves in financial instruments by adopting sound reserve management strategies that respond effectively to changing market conditions.

In a survey article, Ante, Fiedler, Willruth, and Steinmetz (2023) review the state of the empirical literature on stablecoins. They reviewed 22 peer-reviewed articles and found that existing research studies on stablecoins focus more on (1) the stability or volatility of different stablecoins, (2) the interrelationship between stablecoins, other crypto assets and markets and (3) the relationship between stablecoins and macroeconomic factors. Jin et al. (2023) undertake a survey of Ethereum platform traders to determine whether people prefer to use stablecoins over the US dollar. They find that 60% of the respondents prefer stablecoins over US dollar, and this preference is partly explained by psychological factors such as preference for new technology and preference for political liberty which stablecoin brings. Empirical studies such as Ante et al. (2021) analyse the returns of cryptocurrencies during 565 stablecoin issuance events for seven different stablecoins between April 2019 and March 2020. They undertake an event study analysis and observe market downturns in the week before stablecoin issuance and positive abnormal returns in twenty-four hours around the stablecoin issuance. Their results suggest that stablecoin issuance improves price discovery and market efficiency of cryptocurrencies.

Other studies examine the factors influencing the stability of stablecoins. For example, d'Avernas et al. (2022) show that stablecoins are stable because it is pegged to a traditional currency, and the stablecoin peg is vulnerable to large demand shocks; however, backing stablecoins with reserve collateral can stabilize the stablecoin platform even though the reserve collateral is costly for the platform’s equity (token) holders. Duan and Urquhart (2023) examine the stability of the five largest stablecoins in terms of market capitalization. The five largest stablecoins include USDT, USDC, Binance USD, DAI and PAX Dollar. They conduct a fractional time series analysis using hourly data of each of the five stablecoins. They find strong evidence of instability in stablecoins; however, the deviations from the $1 mark are gradually corrected at different speeds for all stablecoins except for DAI, while Binance USD is the most stable stablecoin with the fastest correction speed. Thanh, Hong, Pham, Cong, and Anh (2023) analyse the interconnection of the stability of prominent stablecoins including Tether (USDT), USD Coin (USDC), Paxos Standard (PAX), TrueUSD (TUSD) and DAI within a 2-year period from November 2019 to November 2021. They find that (1) market price fluctuations vary across stablecoins, (2) the instability in USDT and USDC significantly influences the instability of other stablecoins, (3) and the increase (decrease) in USDT market prices significantly decreases (increases) the market prices of the other stablecoins. Hoang and Baur (2024) develop a framework to test the absolute and relative stability of stablecoins. They find evidence that bitcoin is the cause of the slight price variations in stablecoins.

Some studies examine the economic and financial implications of stablecoins. Mita et al. (2019) show that stablecoins are stable and their stability is backed by the quality and size of the underlying reserve. Catalini et al. (2022) challenge the stability argument by arguing that, while stablecoins are stable or less volatile, they can reduce the reliance on traditional financial intermediaries, but the reduced dependence may not be acceptable to regulators. Eichengreen, Nguyen, and Viswanath-Natraj (2025) argue that relying on stablecoin issuers introduces devaluation risk in local currencies similar to the devaluation risk observed in traditional currencies under pegged exchange rate regimes. They test their argument using data. They construct market-based measures of stablecoin devaluation risk using spot and futures prices for Tether. They find an average devaluation probability of 60 basis points annually, rising to over 200 basis points during the 2022 Terra-Luna crash. Ma et al. (2025) explore concentrated arbitrage in stablecoins. They find that the largest stablecoin issuer, Tether/USDT, only allows 6 agents in an average month to redeem stablecoins for cash USD. This observation suggests the presence of arbitrage concentration by the issuer, and such arbitrage concentration reflects a trade-off: efficient arbitrage can improve stablecoin price stability in secondary markets, but it can also amplify run risks by reducing investors’ price impact from selling stablecoins. The implication of their finding is that stablecoin may promote price stability, but it may have the unintended consequence of increasing stablecoin run risks. Liao and Caramichael (2022) acknowledge the tremendous growth of stablecoin use cases in recent years and explore the potential impact of stablecoin on the banking system. They argue that the impact of stablecoin adoption on traditional banking and credit provision will depend on the sources of inflow and the composition of stablecoin reserves. They further recommend that a two-tiered banking system can support stablecoin issuance and maintain traditional forms of credit creation. In contrast, a one-tiered banking system approach for stablecoins or digital currencies can lead to disintermediation of traditional banking even though it may provide the most stable peg to fiat currencies.

Regarding stablecoin risks, Arner et al. (2020) explore the risks and potential regulation of stablecoins with a special focus on Facebook's “Libra” stablecoin. They argue that stablecoins are risky, but a fit-for-purpose regulatory approach to stablecoins would be appropriate to regulate stablecoins by embedding legal and regulatory requirements into the stablecoin platform to make them acceptable and compliant with existing regulations and legal requirements. Reepu, Kumar, Taneja, and Ozen (2025) acknowledge that stablecoins are risky. They identify some challenges affecting stablecoins. The challenges include regulatory uncertainty, collateralization issues, risks associated with algorithmic instability and concerns about limited transparency that could contribute to fraudulent activities. Lee, Chiu, and Hsieh (2025) identify and analyse key events or factors contributing to de-pegging risks in different stablecoins. They develop predictive models using three machine learning algorithms – logistic regression, random forest and XGBoost – to predict stablecoin de-pegging events. The stablecoins examined were USDT, USDC, BUSD and DAI from January 1, 2022, to December 31, 2023. They find that the significant fluctuations in native cryptocurrencies (such as BTC and ETH) influence stablecoin de-pegging.

The common regulatory response to stablecoin adoption is to view stablecoin as either deposits or a payment instrument and ensure it is regulated under existing regulatory and supervisory frameworks. Ostercamp (2022) points out that regulators in the US treat stablecoins as deposits, while regulators in the UK treat stablecoins as a means of payment or a payment instrument. In the United States, Krause (2025) shows that the US launched the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act to introduce a structured regulatory framework for stablecoins and address key concerns relating to oversight, reserve backing and compliance. Krause (2025) evaluates the GENIUS Act and argues that while the GENIUS Act is a step toward regulatory modernization, its effectiveness will depend on implementation, adaptability and international coordination.

Castren and Russo (2025) argue in favour of regulating stablecoins, pointing out that stablecoin issuers are susceptible to runs just like banks, and without adequate regulation, stablecoin issuers will have incentives to hold disproportionate amounts of high-yielding but illiquid assets in their reserve portfolios. The value of such reserve assets may be overly volatile and can induce investors to suddenly redeem their stablecoins. Castren and Russo (2025) argue that, to mitigate the risk of runs, the reserve–asset portfolios should be overcollateralized, and that stablecoin issuers should provide sufficient disclosure to holders about their composition. Arner et al. (2020) hold a different view, arguing that a more appropriate regulatory response to stablecoins is to embed supervisory requirements into stablecoin systems. However, Ostercamp (2022) argues that it may be difficult to apply existing financial regulation and supervisory frameworks to stablecoins due to the unique technological characteristics of stablecoins. Carapella (2025) considers the possibility of stablecoin self-regulation but highlights a major risk that makes self-regulation difficult, which is the lack of commitment to honour redemption promises by both stablecoin issuers and banks, and this risk is a source of fragility. Looking into the future, Arner et al. (2020) argue that although stablecoins can be regulated, it remains unknown whether central bank digital currencies (CBDCs) and other digital financial innovations can provide more effective solutions to fulfil the functions that stablecoins are meant to address.

CBDC is a fiat digital currency or digital cash issued by the central bank of a country (Ozili, 2023). CBDC and stablecoin are similar in that they are both digital currencies, and the value of CBDC and stablecoin is stable compared to native cryptocurrencies. CBDC is pegged 1:1 with physical cash, while stablecoin is also pegged 1:1 with the US dollar or with the local currency (Fiedler & Ante, 2023; Ozili, 2023). However, where CBDC differs from stablecoin is that CBDC is issued by a central bank and is a liability of the issuing central bank (Ozili, 2023), while stablecoin is issued by corporations and other private entities (Fiedler & Ante, 2023). Other differences lie in the issuer, the reserve requirement and the objective for issuing a CBDC or stablecoin. For instance, CBDC is a government-issued, risk-free legal tender, while a stablecoin is a privately issued digital asset, which is backed by reserves or algorithms (Fiedler & Ante, 2023; Ozili, 2023). CBDC is designed to support monetary policy, maintain monetary sovereignty, improve financial stability and support the digital economy of a country, while a stablecoin prioritises flexibility and payment efficiency for private individuals and firms (Fiedler & Ante, 2023; Ozili, 2023). Table 1 below shows the differences between stablecoins and CBDCs.

Stablecoins have some characteristics or features that enable financial inclusion at a faster rate compared to CBDCs and other alternatives. Stablecoins, such as USDT/USDC, have low KYC requirements, which enable faster onboarding and instant payments, thereby making stablecoins easier to access and use. Stablecoin payments also do not require mandatory legal ID. This makes stablecoins a preferred payment tool for cross-border financial transactions. Other features are summarised in the model in Figure 2.

Stablecoins give people access to bank account alternatives (Girasa, 2022). Stablecoins can attract unbanked adults who do not want to deal directly with banks but would prefer other account alternatives. An unbanked adult with a smartphone and internet access can use the stablecoin stored in a digital wallet to save money, store value, send payments, and participate in digital markets without needing to rely on traditional bank accounts which have transaction charges that may be burdensome to newly banked adults (Girasa, 2022).

In addition to providing an alternative to bank accounts, stablecoins can enhance financial inclusion through their potential to offer lower transaction costs on digital payments (Mita et al., 2019), and the fees may be significantly lower than the fees charged by traditional banks and other financial intermediaries (Deshpande, 2025). Stablecoins may also have very low fees for small-value transfers, which makes them attractive to unbanked adults and to those who prefer to use non-bank financial products and services.

Stablecoins can increase financial inclusion by bypassing the unnecessary financial intermediaries involved in domestic and cross-border transactions. Stablecoins can execute low-cost domestic and cross-border payments without the need for international money transfer operators, like Visa and Mastercard, because ownership of stablecoins is registered instantaneously in the digital ledger, and digital value is transferred directly to the beneficiaries who are also registered on the digital ledger, thereby allowing for faster transactions (Nestor, 2025).

The entry of stablecoins into the digital payment ecosystem can increase innovation and competition with existing banks and fintech payment service providers (Catalini et al., 2022). Stablecoin innovations can also increase competition to serve underserved adults living in areas where it is costly or not profitable for banks to serve customers. Such competition may translate to lower fees, zero fees and more variety of financial products and services in order to attract more unbanked adults, increase financial inclusion and gain market share (Urbiola, Pacheco, & Lozano, 2021; Catalini et al., 2022).

Stablecoins can increase financial inclusion by offering worldwide access to financial assets which are traditionally out of reach for people in remote locations. Stablecoins allow people, everywhere, to hold, transfer and transact in stablecoins that are backed by US dollars, gold or other reserve instruments (Catalini et al., 2022). These financial assets are usually out of reach for unbanked adults in remote locations in developing countries and emerging markets. Therefore, worldwide access to currency-backed or asset-backed stablecoins can promote financial inclusion and wealth-building by giving unbanked adults the choice to transact with a foreign currency-backed stablecoin or a local currency-backed stablecoin.

Underserved populations with access to an internet-connected device can access stablecoins from anywhere and use them to save money, preserve their wealth and redeem their savings on a 1:1 basis with a safer foreign currency or local currency, even if they do not have a bank account. The stablecoin holder's savings will be stored on a cryptographically immutable blockchain (Wen, Li, Lau, & Zhang, 2025). These savings can be accessed anytime, without the limitations of traditional banking hours. This ensures ease of access to savings and guarantees the safety of people's savings and assets.

USDC promotes financial inclusion for businesses by (1) enabling 24/7 real-time movement of money, (2) enabling low-cost payments around the world with settlement occurring in seconds, not minutes, (3) enabling businesses to offer payment connectivity and dollar-backed financial services to more people in more places, and (4) ensuring access to USDC from any location without relying on traditional banks.

USDC payment data from Circle's Q3 2025 quarterly earnings report shows that USDC is available in 185 countries, and the total value of USDC in circulation reached $73.7 billion in the 3rd quarter of 2025 and grew by 108% compared to the 3rd quarter of 2024. At least 29 financial institutions enrolled in the Circle Payments Network to facilitate USDC transactions globally, while another 55 additional companies are going through eligibility reviews in Q3 2025.

USDT (Tether) also promotes financial inclusion by leveraging blockchain technology to offer accessible and low-cost financial services to unbanked and underbanked populations. It allows people without a bank account to access USDT tokens by registering on the USDT distributed ledger and purchasing USDT tokens. It protects unbanked populations from currency volatility by providing an alternative store of value during high inflation and economic instability. It empowers small businesses to access low-cost digital financial services across borders due to USDT's global reach and interoperability with multiple blockchain networks (like Ethereum and Solana).

Tether's corporate annual report data shows that there are more than 500 million USDT users globally, implying that USDT is expanding access to financial services for millions of people globally. The USDT stablecoin is backed by a gold reserve of $12.9 billion, a Bitcoin reserve of $9.9 billion and an excess reserve of $6.8 billion. These reserves help to maintain the USDT's 1:1 parity with the USD. In Q3 2025, there were over $17 billion in newly issued USDT in Q3 2025 which brings the total circulating USDT supply to over $174 billion. The total reserves for Tether/USDT tokens in circulation amounted to $181,223,149,214, while the value of the assets composing the reserves exceeded the value of the liabilities of the company issuing USDT by $6,777,784,711.

Additional USDT and USDC transaction data obtained from Etherscan for December 2025 is reported in Table 2. It shows that there is an increasing supply of USDT and USDC stablecoins valued at billions of US dollars, while the number of USDT and USDC holders is growing. This growth is expected to double in the next 5 years, as more people in emerging markets and developing countries increase their demand for stablecoins to preserve their savings and wealth. The non-existent or low KYC requirements to access USDT and USDC have made them very attractive in African countries where large segments of the population are unbanked and prefer to use payment services that cannot be controlled by the government. Among the 10 million holders of USDT, a significant number of USDT holders are outside the US and rely on USDT to send and receive remittances or to receive payment for wages, thereby promoting cross-border financial inclusion.

Despite the potential of stablecoins to increase financial inclusion, stablecoins are still risky for financial inclusion. A major risk of stablecoins emanates from the fact that the utility of stablecoins as a digital payment instrument may diminish if the value of stablecoins fluctuates when the underlying assets lose their value or when users lose confidence in the ability of stablecoins to cash out or facilitate exchange (Abraham, 2024). Such events, when they occur, would make stablecoins unattractive for financial inclusion.

Another risk has to do with the risk of currency substitution (Arner et al., 2020). As stablecoins become widely used as a means of payment in a country, banked adults in the country may abandon their local fiat currency and prefer to hold large amounts of stablecoins (Lipton et al., 2020). This is likely to occur if the local currency has lost its value due to high inflation and economic instability (Catalini et al., 2022). Such currency substitution is detrimental to financial inclusion because banked adults may begin to hold stablecoins as a store of value instead of using them as a means of payment, thereby leading to scarcity of stablecoins and the de-pegging of stablecoins from the value of their underlying assets.

Third, there is the risk that stablecoins can also be used for illicit financing purposes, such as money laundering and terrorist financing, due to their partial anonymity, relatively low transaction costs and ease of cross-border payments (Armstrong, 2025). This implies that stablecoins can undermine financial integrity if there are no safeguards in place to prevent stablecoins from aiding illicit financing.

Fourth, lack of regulatory certainty and clarity is also a challenge. Lack of regulatory certainty and clarity can discourage the use of stablecoins to promote financial inclusion (Arner et al., 2020). As of today, many financial regulators in emerging market and developing countries have not approved or permitted licensed financial service providers to issue or use stablecoins to serve unbanked adults and banked adults simply because financial regulators do not fully understand the risks and implications of stablecoins for systemic risk and financial stability (Adachi, Cominetta, Kaufmann, & van der Kraaij, 2020). As a result, there is little regulatory support for the use of stablecoins to serve customers in many developing countries, and this is a setback for financial inclusion.

Fifth, stablecoins are also affected by technological barriers. Access to stablecoin payment services, just like access to native cryptocurrencies and central bank digital currency, is largely dependent on affordable access to mobile phones, a reliable internet connection, digital literacy and financial literacy (Kulkarni, Schintler, Koizumi, Olds, & Stough, 2019; Richards, 2021). Without these, underserved populations would find it difficult to access and use stablecoin-based digital financial services to broaden financial inclusion.

Sixth, stablecoin holders and banked adults who use stablecoin-based digital financial services have very little consumer protection because stablecoins are safeguarded by the reserves of the private companies that issued the stablecoin (Fiedler & Ante, 2023). However, these companies can go bankrupt, and the stablecoin holders would be treated as unsecured creditors since they do not have the same protections as traditional bank depositors (Castren & Russo, 2025).

This study explored the role of stablecoins in increasing the level of financial inclusion and the risks associated with using stablecoins to broaden financial inclusion. It argued that stablecoins have the potential to increase innovation and competition and offer affordable access to financial services for unbanked adults who are presently not being served by traditional banks. It was further argued that stablecoins can increase the level of financial inclusion by bypassing financial intermediaries involved in domestic and cross-border digital payment transactions. This will allow banked adults to enjoy faster and cheaper transactions. Despite the potential of stablecoins to broaden financial inclusion, stablecoins pose some risks which are detrimental to financial inclusion. The risks include the following: the risk that stablecoins may lose their value if the underlying assets lose their value; the risk of currency substitution; the risk that stablecoins may be used for illicit financing purposes such as money laundering, proliferation financing and terrorist financing; the lack of regulatory certainty and clarity about stablecoins; the risk that digital technological barriers can limit the benefits of stablecoins for financial inclusion, and the lack of consumer protection for stablecoin holders.

The policy implication is that there is a need to fully harness the benefits of stablecoins for financial inclusion while mitigating the associated risks. One way in which policymakers can harness the benefits of stablecoins for financial inclusion is for policymakers to turn stablecoins into a force for good in the financial system by integrating stablecoins into traditional financial infrastructure and allowing regulated financial institutions to use stablecoins to enhance payment efficiency and to broaden financial inclusion for underserved adults. It is also recommended that governments should create clear regulatory frameworks guiding the use of stablecoins to meet the financial needs of unbanked populations. Such a framework should also encourage the use of stablecoins for cross-border payments in a regulated manner. This will balance innovation with the need to broaden financial inclusion while preserving digital assets that are fully backed by high-quality assets. However, safeguards should be in place to protect banked adults from risks associated with using stablecoins to conduct basic financial transactions and to receive remittances.

The limitations of the study are that it did not use empirical data to evaluate the effect of stablecoins on financial inclusion. Such analysis would be possible when stablecoin usage data become available. Another limitation of the study is that the study did not focus on a country-specific stablecoin. Rather, it explored stablecoins broadly and their potential effect on financial inclusion.

Future research can use available data to empirically examine the effect of stablecoin transaction volume on the level of digital financial inclusion. Future studies can also explore whether stablecoin adoption will crowd out CBDC adoption to increase the level of financial inclusion.