Written by: Zhang Yaqi, Wall Street Insights
The stablecoin USDT, the 'anchor' of the crypto world, is quietly disrupting the traditional financial industry.
An increasing number of banks are starting to enter the stablecoin market. According to Bloomberg, banks such as Societe Generale, Germany's Oddo BHF, the UK's Revolut, and even the Hong Kong Monetary Authority are all beginning to lay out plans for the stablecoin market, hoping to get a piece of the pie.
Previously, Tether Holdings Ltd., the world's largest stablecoin issuer, estimated that net profits in 2024 would exceed $10 billion. CEO Paolo Ardoino stated in an interview that the company has invested more than half of its net profits this year.
Naveen Mallela, Co-Head of Kinexys at JPMorgan's Digital Assets Division, stated that stablecoin issuance by banks is expected to accelerate and become a mainstream product in the next three years. With the improvement of policy frameworks and technological advancements, stablecoins are likely to become an important component of future financial markets.
Financial institutions are actively exploring the issuance of stablecoins.
Faced with such an enticing 'cake', banks cannot sit idly by. In Europe, financial institutions are actively exploring the issuance of stablecoins. Societe Generale's subsidiary Forge has already launched euro-backed stablecoins to retail investors.
At the same time, firms like Oddo BHF SCA are also developing euro-denominated versions, while London-based Revolut is considering issuing its own stablecoin version.
One of the driving factors behind this trend is the policy clarity brought by the European crypto assets market regulation (MICA). Additionally, Tether's decision to halt 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 discussions with several banks about using their stablecoin and are in talks with about 10 banks for partnerships or white-label technology licensing, allowing these banks to 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 if it will happen quickly, but it will happen.
Not only in Europe, but Visa is also actively promoting the development of stablecoins globally. In October, Visa launched a tokenization network for banks to issue stablecoins and plans to pilot with BBVA in 2025. Visa's cryptocurrency chief, Cuy Sheffield, 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 a Hong Kong dollar stablecoin, set to launch in 2025. Standard Chartered's Global Head of Digital Assets, Rene Michau, said this initiative will further strengthen the role of blockchain in the payment sector, and the bank hopes to launch a stablecoin in 2025.
Risks and Challenges of Stablecoin Issuance
Compared to the deposit tokens that large banks like JPMorgan are exploring, stablecoins have a broader application prospect.
Deposit tokens generally 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 stablecoin issuance by banks to accelerate and become mainstream in the next three years.
However, there are risks associated with issuing stablecoins.
Research from the European Central Bank shows that if a large number of retail deposits are converted to stablecoins, banks' liquidity coverage ratios may be affected.
Additionally, U.S. regulators need to clarify the acceptable reserve types for banks issuing stablecoins, as well as whether stablecoin deposits are insured. Hilary Allen, a law professor at 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 could replace bank-issued stablecoins in certain use cases, especially in wholesale payments.
Faced with such a complex situation, Libre Capital CEO Avtar Sehra stated:
Every bank is exploring some form of commercial bank digital currency, but in the end, they may prefer to use consortium coins.