Author: Zhang Yaqi
Source: Wall Street Watch
Stablecoin USDT, the 'anchor' of the crypto world, is quietly disrupting the traditional financial industry.
An increasing number of banks are entering the stablecoin market. According to Bloomberg, Société Générale, Germany's Oddo BHF, the UK’s Revolut, and even the Hong Kong Monetary Authority are all starting to lay out their plans in the stablecoin market, hoping to get a piece of the pie.
Previously, Tether Holdings Ltd., the world's largest stablecoin issuer, projected that its net profit for 2024 would exceed $10 billion. CEO Paolo Ardoino stated in an interview that the company has invested more than half of its net profit this year.
Naveen Mallela, Co-Head of Global Kinexys at JPMorgan's Digital Assets Division, stated that stablecoins issued by banks are expected to accelerate development and become mainstream products within the next three years. With improvements in policy frameworks and advances in technology, stablecoins are expected to become an important part of future financial markets.
Financial institutions are actively exploring the issuance of stablecoins
Faced with such an enticing 'cake', banks can't sit still. In Europe, financial institutions are actively exploring the issuance of stablecoins. Societe Generale's subsidiary Forge has already launched euro-backed stablecoins for retail investors.
Meanwhile, Oddo BHF SCA is also developing a euro-denominated version, while London-based Revolut is considering issuing its own version of a stablecoin.
One of the driving factors behind this trend is the policy clarity brought by the European regulation on crypto assets (MICA). In addition, Tether's decision to suspend the issuance of its EURt stablecoin has provided market opportunities for other banks.
Jean-Marc Stenger, CEO of SG-Forge, stated in an interview that they are in talks with several banks about using their stablecoin and are discussing partnerships or white-label technology licenses with about 10 banks so that these banks can issue their own stablecoins:
"Do I think other banks will issue their own stablecoins? The answer is yes. It’s a heavy lift, and I'm not sure it will happen quickly, but it will happen."
Not only in Europe, but Visa is also actively promoting the development of stablecoins globally. Visa launched a tokenized network for banks to issue stablecoins in October and plans to pilot with BBVA in 2025. Cuy Sheffield, Visa's cryptocurrency chief, revealed that banks from Hong Kong, Singapore, and Brazil have shown strong interest in stablecoins, and Visa is collaborating with multiple banks worldwide.
Standard Chartered Bank is also actively participating and has been selected by the Hong Kong Monetary Authority as one of the first issuers of Hong Kong dollar stablecoins, planning to launch in 2025. Standard Chartered's Global Head of Digital Assets, Rene Michau, stated that this initiative will further enhance the role of blockchain in the payment sector, and the bank hopes to launch a stablecoin by 2025.
Risks and challenges of stablecoin issuance
Compared to deposit tokens that large banks like JPMorgan are exploring, stablecoins have a broader application prospect.
Deposit tokens typically can only be transferred between customers of the same bank, while stablecoins can be purchased and used by anyone with a crypto wallet. JPMorgan believes that stablecoins and deposit tokens are not mutually exclusive and expects bank-issued stablecoins to accelerate development and become mainstream in the next three years.
However, there are also risks associated with issuing stablecoins.
Research from the European Central Bank shows that if a large amount of retail deposits is converted into stablecoins, the liquidity coverage ratio of banks could be affected.
In addition, U.S. regulators need to clarify the acceptable types of reserves for banks issuing stablecoins and whether stablecoin deposits are insured. Hilary Allen, a law professor at an American university, warned that if banks issue both uninsured stablecoins and insured deposits, it could confuse consumers and potentially trigger panic during a crisis.
Currently, many central banks are testing or launching Central Bank Digital Currencies (CBDC), which may replace bank-issued stablecoins in certain use cases, particularly in wholesale payments.
In the face of such a complex situation, Avtar Sehra, CEO of Libre Capital, stated:
"Every bank is exploring some form of commercial bank digital currency, but ultimately they may prefer to use a consortium coin."