Not All Stablecoins Are Created Equal: Why Synthetic Dollars Deserve a Category of Their Own

By Andrei Grachev, Founding Partner at Falcon Finance

As regulators rush to define digital money, a new class of stablecoins is emerging with different mechanics, different risks, and no clear rules.

Stablecoins now move more money on-chain than ever before — over $250 billion globally. But while policymakers focus on regulating the familiar names, a new category of stablecoins is quietly rewriting the rules — and no one’s watching closely enough.

The GENIUS Act brought much-needed clarity to fiat-backed stablecoins like USDC and USDT. These tokens, backed one-to-one by dollars in bank accounts, now operate within clear regulatory lanes. But beyond those boundaries lies a newer class of digital dollars that work very differently and come with their own risks. These are synthetic stablecoins, and they need their own category.

Unlike fiat-backed coins, synthetic stablecoins don’t rely on actual dollars sitting in reserve. Instead, they hold their value using systems built from code — such as crypto-backed loans, algorithmic controls, or hedging strategies. If fiat-backed stablecoins are digital IOUs, synthetic dollars are economic machines — coded systems that try to hold the dollar through strategy, not custody. They behave differently, especially under pressure.

As of mid-2025, more than $260 billion worth of stablecoins are circulating globally, with projections pointing to $3.7 trillion by 2030. Earlier this year, rising adoption of USDe, GHO, and crvUSD signaled that synthetic stablecoins are no longer niche experiments. They’ve become foundational. These tokens are now used at scale, appearing in protocol treasuries, lending platforms, and DAO budgets. While they all aim to track the dollar, the mechanisms vary. USDe uses market-neutral trading strategies. crvUSD relies on smart contract-based lending. GHO is backed by overcollateralized crypto loans and governed by the Aave community. sDAI generates savings yield while holding close to a dollar peg.

These differences are not minor design tweaks. They represent fundamentally different financial systems. When markets come under pressure, each responds in its own way. If trading volumes fall sharply, USDe could lose its peg. If Ethereum gas fees spike, crvUSD’s automatic liquidation system might slow down. These aren’t bugs. They’re core design risks — and they deserve the same scrutiny we apply to traditional financial infrastructure.

So why do these tokens matter? Because they unlock features fiat-backed coins can't offer. Developers use them to build tools for lending and saving without needing access to banks. Protocols rely on them to generate yield and reduce dependency on centralized services. Synthetic stablecoins can be minted and used directly onchain, making them better suited for open, global financial systems.

If you’re using DeFi, there’s a good chance synthetic dollars are quietly working under the hood — powering your yield, backing your collateral, and keeping liquidity flowing. But if they fail, the whole stack shakes.

That same flexibility makes them harder to regulate. The GENIUS Act gives regulators a clear path for overseeing fiat-backed coins. Synthetic stablecoins don’t fit that mold. This is a regulatory blind spot we can’t afford to ignore. Oversight must be grounded in how these tokens actually function: how collateral behaves in different market conditions, how price feeds are maintained, and how governance decisions are made. Treating them like USDC just because they aim to track the same dollar misses what makes them distinct — and potentially risky.

We’ve already seen the dangers of overlooking those differences. Terra’s UST tried to hold its peg with incentives that couldn’t last. When it collapsed, it wiped out billions. But not all synthetic stablecoins follow that model. Some are thoughtfully collateralized, hedged, and monitored in real time by the protocols that depend on them.

What they need now is visibility. Better data. Public stress testing. Transparent audits. The goal isn’t to block innovation but to better understand these systems before they scale further.

Stablecoins today are more than just digital cash. Each design reflects a different way of thinking about how money should work. If we want these systems to grow responsibly, we need to regulate them for what they are — not just for what they’re called.

The real risk isn’t what we regulate. It’s what we overlook. We can’t build the future of finance on assumptions. We need deeper transparency into how these systems are built, how they hold their value, and how they’re stress tested before they scale further. 

That starts with clearer standards for disclosures, collateralization, and failure modes—not just governance. 

It’s time to stop relying on labels and start asking tougher questions about what actually keeps these systems stable.