CBDC vs Stablecoin: What's the Difference and Why It Matters in 2025

CBDC vs Stablecoin: What's the Difference and Why It Matters in 2025

CBDC vs stablecoin: what are the differences, and why do they matter? If you’re interested in US digital currency, you might have heard both of these terms before and assumed they were the same. After all, both options are linked to the concept of programmable money. 

They’re also both linked to ongoing innovations in the Fintech space. But a stablecoin and CBDC aren’t the same thing. 

With billions of dollars moving through stable digital currency platforms and central banks testing their own digital money, knowing the differences between the two is becoming more important. Here’s everything you should know. 

A Decade of Digital Currency: From Experiments to Adoption

Ten years ago, digital currencies were still mostly experimental. Tether (USDT), launched in 2014, was considered the first official “stablecoin” – designed to reduce crypto’s volatility by pegging a token to the US dollar. The initiative was a great success. 

Traders finally had a way to move quickly between digital assets without riding the emotional rollercoaster of price swings. Interest in stable digital currency increased, and new blockchain project developers started to get involved.

By 2018, USD Coin (USDC) entered the market with a different pitch: more transparency and tighter compliance. Today, in 2025, USDC has grown into a $56 billion asset. Together, these stablecoins are part of a sector now worth over $220 billion, with USD-denominated tokens making up nearly 100% of the global stablecoin market 

Meanwhile, global governments have begun catching up. China led the charge, launching pilots of the digital yuan that now span over two dozen cities. Europe responded with its digital euro initiative. In Brazil, the Drex is gaining traction. 

Stablecoin vs CBDC: What Are Stablecoins?

Stablecoins are a type of digital currency designed to do something many crypto assets can’t: stay steady. Instead of relative volatility in other cryptocurrencies like Bitcoin, stablecoins are tied to real-world assets like the U.S. dollar or euro. That connection gives users a sense of predictability, whether they’re moving money across borders or parking funds in a decentralized finance (DeFi) platform.

There are a few types of stablecoins out there:

• Fiat-backed stablecoins: The most common. These are backed 1:1 by reserves of actual currency, like USDT and USDC.

• Crypto-collateralized stablecoins: These use other crypto as backing. DAI, for instance, is pegged to the dollar but backed by Ethereum-based tokens.

• Algorithmic stablecoins: Less common after 2022’s Terra collapse, these use code, not collateral, to keep their price in line.

Stablecoins now power a wide range of financial activity. Traders use them to escape volatility without exiting the crypto market. People send them across borders with lower fees than banks. And they serve as the foundation for many DeFi apps.

As of this writing, stablecoins pegged to the US Dollar have increased by 28% year-over-year since 2024, with total transfer volumes hitting $27.6 trillion in 2024 (more than Visa and Mastercard transactions combined). 

Central Bank Digital Coins: What Are CBDCs?

CBDCs (Central Bank Digital Coins), are another form of stable digital currency, created, issued, and regulated by the central bank of a specific nation. Again, these assets differ from standard cryptocurrencies, which are usually volatile and highly decentralized. 

Typically, CBDCs come in two forms: retail CBDCs which can be used by the general public, and wholesale CBDCs, designed for financial institutions.

The goal of these tokens is to act as an extension of sovereign fiat money, enhancing payment efficiency, promoting financial inclusion, and maintaining monetary management. 

For instance, the digital yuan in China has been piloted in multiple cities, aiming to streamline transactions and reduce reliance on cash. In Europe, the digital euro project is another great example, focusing on providing a secure and efficient digital payment solution for the Eurozone.​

CBDCs aren’t cryptocurrencies, they don’t have to be based on a blockchain or distributed ledger. But they do provide an alternative to physical cash. 

Where Stablecoins and CBDCs Overlap

Stablecoins and CBDCs are different, but they still share a few characteristics. Both:

• Act as digital representations of value: CBDCs and stablecoins are both digital currencies that support electronic transactions without the need for physical cash.

• Provide stability: Both try to maintain stability by pegging coins and assets to specific assets, like the US dollar (stablecoins) or official national currencies (CBDCs)

• Offer efficiency: Both offer users a faster and more efficient alternative to traditional processing, potentially reducing transaction costs and settlement times.

• Ensure inclusivity: By giving users convenient digital payment options, both CBDCs and stablecoins make the financial system more accessible to the masses.

They also both introduce the opportunity for programmable money, where transactions can be governed by things like smart contracts. 

CBDC vs Stablecoin: Differences to Know

Stablecoins and CBDCs might live in the same world (digital currency), but they’re built for different reasons. The first is backed by a central bank and designed to support national policy; the other is typically created by a private company. That core difference shapes everything, from how the assets are managed to what they mean for privacy, regulation, and everyday use.

Issuer and Governance

Probably the biggest difference between CBDCs and stablecoins is who gets to be “in charge” of the currency. CBDCs are directly issued by central banks in a specific nation. They’re an official currency, just like your paper notes and coins. They’re also backed by the government, which gives them more credibility than some alternative digital currencies. 

Stablecoins are typically run by private organizations or companies. They might be pegged to well-known fiat currencies, like the US Dollar, but that doesn’t automatically make them “legal tender”. They can be trustworthy – but it depends on what’s backing them, and how transparent the issuer is. 

Privacy and Anonymity

Privacy is often a big concern for anyone investing in digital assets. It’s also one of the main areas where CBDCs and stablecoins differ. With CBDCs, the level of privacy you get depends on how the system is designed. Groups like the Bank of Canada are experimenting with offering users different levels of anonymity, based on how they’re using their coins.

Other banks want to make these coins as traceable as possible, so governments can monitor transactions constantly and fight fraud. 

Stablecoins typically run on public blockchains. While those transactions are transparent, they’re also pseudonymous; wallets are visible, but identities aren’t. That said, many stablecoin platforms now require identity verification (KYC), especially when used through centralized apps and exchanges.

Impact on Monetary Policy

CBDCs are a new tool for central banks. Because they’re programmable, governments could, in theory, distribute stimulus payments directly or set expiration dates on certain funds to encourage spending. They could also monitor economic activity in near-real time, allowing for quicker, more targeted responses.

Stablecoins don’t give central banks that kind of influence. They can complicate monetary policy by operating outside of traditional banking systems. If too many people move their money into stablecoins, it could make it harder for governments to control inflation, manage interest rates, or even track the flow of funds.

What Problems Do Stablecoins Still Face?

Many experts consider stablecoins to be one of the most popular assets in cryptocurrency. But there are still issues with these coins. Regulatory scrutiny is growing. 

In the US, the Securities and Exchange Commission (SEC) has said some reserve-backed stablecoins aren’t securities, which has led to a few concerns. Elsewhere, MiCA has specific rules around fiat-backed stablecoins – requiring them to be backed by a liquid reserve. 

Stablecoins might not always be as “stable” as they seem. The collapse of TerraUSD in 2022 demonstrated how risky algorithmic stablecoins could be. The problem highlighted the importance of proper risk management and collateralization for digital assets. 

Market volatility can create challenges. Stablecoins are designed to maintain 1:1 peg with their fiat currencies, but some major events can lead to depegging, causing losses. 

Additionally, transparency is still an issue. Users and regulators want clear information about reserve holdings to ensure that stablecoins are fully backed. Without this transparency, trust in these digital assets fades away. 

CBDCs: Promises and Concerns

It’s easy to see why central banks are interested in CBDCs. When they’re implemented and managed properly, Central Bank Digital Currencies have a lot of benefits. They could make payments faster, cheaper, and more inclusively. You’ll be able to send money anywhere, instantly, without steep transfer fees, bank delays, or unnecessary middlemen. 

People in underbanked economies with limited access to traditional finance could finally have a new opportunity. Plus, CBDCs give governments sharper tools to manage the economy. With programmable features, central banks could send targeted relief during downturns or track spending trends in real time. That kind of precision could make monetary policy more responsive and data-driven than ever before.

However, because CBDCs are issued by governments, they come with surveillance capabilities. If not designed carefully, they could allow unprecedented visibility into how individuals spend their money. Privacy advocates worry this could lead to overreach, where spending is tracked, restricted, or even weaponized.

There’s also concern about disruption. If people start holding CBDCs instead of keeping money in banks, that could limit how much banks can lend, affecting credit markets.

EU vs. US: Different Paths Toward Digital Currency

Another thing to keep in mind in the CBDC vs Stablecoins debate is that different jurisdictions manage digital assets in their own ways. The European Union and the United States are reading from different playbooks.

The EU is moving forward. The European Central Bank has made the digital euro a priority, rolling out structured pilots and public consultations. The new Markets in Crypto-Assets (MICA) regulations have some great guidelines to follow about stablecoins. 

Europe is trying to create a digital payment option that’s fast, safe, and designed to work seamlessly across all eurozone countries. Officials see it as a way to reinforce European financial independence, especially as tech giants and foreign currencies expand their influence.

Across the Atlantic, the US is still more experimental. The US dollar was one of the first currencies to back a stablecoin, but CBDCs are less popular. While the idea of a CBDC in America isn’t off the table, political skepticism and privacy concerns have slowed momentum. Some lawmakers worry that a U.S. digital currency could give the federal government too much power over citizens’ financial lives. Others are focused on regulating stablecoins first before diving into CBDCs.

Part of this divergence comes down to priorities. The EU is focused on innovation and sovereignty. The U.S., by contrast, is prioritizing caution and politics.

Are We Headed Toward Coexistence?

So, will it be CBDCs or stablecoins? In reality, we’re likely heading toward a financial future where both coexist, each playing a distinct role.

CBDCs may become the digital backbone of national economies, offering governments more control over monetary policy and expanding financial access. Stablecoins, on the other hand, are likely to thrive in the private sector, especially in global trade, decentralized finance, and as digital equivalents of fiat currencies in everyday transactions.

Understanding the difference between CBDC and cryptocurrency or how CBDCs and stablecoins compare, is becoming more important. These technologies are being deployed, regulated, and used at scale. And for investors, fintech builders, and users of platforms like Flipster, understanding the basics can offer a major competitive edge. 

The era of digital currency isn’t just “on the horizon”; it’s already here. 

Disclaimer: This material is for information purposes only and does not constitute financial advice. Flipster makes no recommendations or guarantees in respect of any digital asset, product, or service. Trading digital assets and digital asset derivatives comes with a significant risk of loss due to its high price volatility, and is not suitable for all investors. Please refer to our Terms.