Author: Zhang Yaqi
Source: Wall Street Journal
Stablecoin USDT, the 'anchor' of the crypto world, is quietly disrupting traditional finance.
More and more banks are beginning to enter the stablecoin market. According to Bloomberg, Société Générale, Germany's Oddo BHF, Britain's Revolut, and even the Hong Kong Monetary Authority have all begun to lay out plans in the stablecoin market, hoping to grab a share of this field.
Previously, Tether Holdings Ltd., the world's largest stablecoin issuer, projected a net profit of over $10 billion in 2024. 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 Kinexys at JPMorgan's Digital Assets 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 participate. In Europe, financial institutions are actively exploring the issuance of stablecoins. Société Générale's subsidiary Forge has already introduced euro-backed stablecoins to retail investors.
Meanwhile, companies like Oddo BHF SCA are also developing a euro-denominated version, while London-based Revolut is considering issuing its own version of stablecoins.
One of the driving factors of this trend is the policy clarity brought by the European regulation of crypto assets (MICA). Additionally, Tether's decision to halt the issuance of 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 stablecoins and are discussing partnerships or white-label technology licensing with about 10 banks for 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 tokenized network for banks to issue stablecoins in October and plans to pilot with BBVA in 2025. Visa’s cryptocurrency head 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 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 payments, with hopes to introduce stablecoins 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 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, expecting that stablecoins issued by banks will accelerate in development and become mainstream within 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 convert to stablecoins, banks' liquidity coverage ratios could 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. American law professor Hilary Allen 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 (CBDCs), which may replace bank-issued stablecoins in certain use cases, especially in wholesale payments.
In the face of 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."