<p>Cryptocurrency assets differ from traditional financial assets in that they are not linked to specific, tangible assets or entities, which inevitably results in significant price volatility. One possible solution that emerged to address the volatility of cryptocurrencies is the introduction of collateralized stablecoins, which are linked to tangible assets. Stablecoins present an unprecedented opportunity to enhance the efficiency and competitiveness of traditional financial systems and broaden financial inclusion for those currently unbanked. However, stablecoins also pose regulatory concerns and challenges that await addressing. This study contributes to the current understanding of stablecoins in the following ways. First, a thorough survey on the latest establishment of stablecoins’ regulatory framework is discussed. Second, adopting a GARCH-EVT-Copula approach and three asset allocation strategies, we demonstrated that the overall volatility of a cryptocurrency portfolio would be reduced when pairing Bitcoin with selected collateralized stablecoins, revealing the potential diversification benefit of including stablecoins in cryptocurrency asset allocations. Third, a comprehensive discussion on policy implications is provided. The analysis presented is subject to further technological developments which, at this juncture, can only be speculative, including central banks’ issuance of their own digital currencies and the applicability of quantum computing advances.</p>