Author: Zhang Yaqi
Source: Wall Street Journal
The stablecoin USDT, known as the "anchor" of the crypto world, is quietly disrupting the traditional financial industry.
More and more banks are starting to enter the stablecoin market. According to Bloomberg, 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, Tether Holdings Ltd., the world's largest stablecoin issuer, expected a net profit of over 10 billion dollars in 2024. CEO Paolo Ardoino stated in an interview that the company has already invested more than half of its net profit this year.
Naveen Mallela, Co-Head of Kinexys at JPMorgan's Digital Asset Division, stated that stablecoins issued by banks are expected to accelerate in development and become mainstream products within the next three years. With the improvement of policy frameworks and technological advancements, stablecoins are expected 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 are eager to get involved. In Europe, financial institutions are actively exploring the issuance of stablecoins. The subsidiary of Société Générale has already launched euro-backed stablecoins for retail investors.
Meanwhile, companies like Oddo BHF SCA are 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 market regulation for crypto assets (MiCA). Additionally, 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 talks with several banks about using their stablecoin and discussing cooperation or white-label technology licensing 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 tokenization network for banks to issue stablecoins in October and plans to conduct a pilot with BBVA in 2025. Cuy Sheffield, Visa's cryptocurrency head, revealed that banks from Hong Kong, Singapore, and Brazil have shown strong interest in stablecoins, and Visa is collaborating with several banks worldwide.
Standard Chartered is also actively participating and has been chosen by the Hong Kong Monetary Authority as one of the first issuers of a Hong Kong dollar stablecoin, planning to launch it in 2025. Rene Michau, Global Head of Digital Assets at Standard Chartered, 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.
The 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 are typically transferable only among 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 in development and become mainstream within the next three years.
However, issuing stablecoins also carries risks.
Research from the European Central Bank shows that if a large amount of retail deposits convert to stablecoins, the liquidity coverage ratio of banks could be affected.
Additionally, 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 an American university, warned that if banks issue both uninsured stablecoins and insured deposits, it could confuse consumers and potentially trigger panic during crises.
Currently, many central banks are testing or launching central bank digital currencies (CBDCs), which could replace bank-issued stablecoins in certain use cases, especially in wholesale payment areas.
Faced with such a complex situation, Libre Capital CEO Avtar Sehra stated:
"Every bank is exploring some form of commercial bank digital currency, but ultimately they may prefer to use consortium coins."