Author: Zhang Yaqi
Source: Wall Street Watch
Stablecoin USDT, the 'anchor' of the crypto world, is quietly disrupting traditional finance.
An increasing number of banks are starting to enter the stablecoin market. According to Bloomberg, banks such as Société Générale, Germany's Oddo BHF, the UK's Revolut, and even the Hong Kong Monetary Authority have begun to layout in the stablecoin market, hoping to get a piece of the pie in this field.
Previously, the world's largest stablecoin issuer Tether Holdings Ltd. projected that its net profit in 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 at JPMorgan's Digital Assets division Kinexys, stated that stablecoins issued by banks are expected to accelerate and become mainstream products in the next three years. With the improvement of policy frameworks and technological advancements, 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 are eager to act. In Europe, financial institutions are actively exploring the issuance of stablecoins. Société Générale'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 stablecoin version.
One of the driving factors behind this trend is the policy clarity brought by the regulation of the European crypto asset market (MICA). In addition, Tether's decision to stop issuing its EURt stablecoin has provided market opportunities for other banks.
SG-Forge CEO Jean-Marc Stenger stated in an interview that they are in discussions with several banks about using their stablecoin and are discussing cooperation or white-label technology licensing with about 10 banks to allow 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 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 tokenization network for banks to issue stablecoins in October 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 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, planning to go live in 2025. Standard Chartered's Global Head of Digital Assets Rene Michau stated that this initiative will further strengthen the role of blockchain in the payments sector, and the bank hopes to launch a stablecoin in 2025.
Risks and challenges of stablecoin issuance
Compared to deposit tokens being explored by large banks like JPMorgan, stablecoins have a broader application prospect.
Deposit tokens can typically 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 stablecoins issued by banks to accelerate 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 are converted into stablecoins, banks' liquidity coverage ratios may be affected.
In addition, U.S. regulators need to clarify the acceptable reserve types for banks issuing stablecoins and whether stablecoin deposits are insured. Hilary Allen, a law professor at a U.S. university, warned that if banks simultaneously issue 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 (CBDCs), which may replace bank-issued stablecoins in certain use cases, especially in the wholesale payments sector.
Faced with such a complex situation, Libre Capital CEO Avtar Sehra said:
"Every bank is exploring some form of commercial bank digital currency, but ultimately they may prefer to use a consortium coin."
