Jealous of Tether’s tens of billions of profits, the banking industry is rushing to issue stablecoins

Author: Zhang Yaqi

Source: Wall Street Insights

The stable currency USDT, the "diffuser" in the crypto world, is quietly subverting the traditional financial industry.

More and more banks are getting involved in the stablecoin market. According to Bloomberg, France’s Société Générale, Germany’s Oddo BHF, Britain’s Revolut, and even the Hong Kong Monetary Authority have begun to make plans for the stablecoin market, hoping to get a share of the pie in this field.

Previously, Tether Holdings Ltd., the world's largest stablecoin issuer, predicted that net profit would exceed 10 billion in 2024. Dollar CEO Paolo Ardoino said in an interview that the company has invested more than half of its net profits this year.

Naveen Mallela, global co-head of Kinexys, JPMorgan Chase’s digital asset department, said that stablecoins issued by banks are expected to accelerate development and become mainstream products in the next three years. As the policy framework improves and technology advances, stablecoins are expected to become an important part of the future financial market.

Financial institutions are actively exploring the issuance of stablecoins

Faced with such an attractive "cake", banks cannot sit still. In Europe, financial institutions are actively exploring the issuance of stablecoins. Forge, a subsidiary of Societe Generale, has launched a euro-backed stablecoin to retail investors.

Meanwhile, companies such as Oddo BHF SCA are also developing a euro-denominated version, while London-based Revolut is considering issuing its own version of the stablecoin.

One of the drivers of this trend is the policy clarity brought by the European Market Regulation in Crypto-Assets (MICA). Additionally, Tether’s decision to cease issuance of its EURt stablecoin provides market opportunities for other banks.

SG-Forge CEO Jean-Marc Stenger said in an interview that they are negotiating with a number of banks to use their stablecoins, and are 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 lot of work and I’m not sure if it will happen anytime soon, but it will happen.”

Not only in Europe, 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 it in partnership with BBVA in 2025. Cuy Sheffield, Visa’s head of cryptocurrency, revealed that banks from Hong Kong, Singapore and Brazil have shown strong interest in stablecoins, and Visa is cooperating with many banks around the world.

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, scheduled to go online in 2025. Rene Michau, global head of digital assets at Standard Chartered Bank, said that this move will further strengthen the role of blockchain in the payment field, and the bank hopes to launch a stable currency in 2025.

Risks and Challenges of Stablecoin Issuance

Stablecoins have broader application prospects than the deposit tokens being explored by large banks such as JPMorgan Chase.

Deposit tokens can typically only be transferred between customers of the same bank, whereas stablecoins can be purchased and used by anyone with a crypto wallet. JPMorgan Chase believes that stablecoins and deposit tokens are not mutually exclusive, and expects bank-issued stablecoins to accelerate and become mainstream in the next three years.

However, issuing stablecoins also carries risks.

Research from the European Central Bank shows that if a large number of retail deposits are converted into stablecoins, banks’ liquidity coverage ratios may be affected.

Additionally, U.S. regulators will need to clarify the types of reserves acceptable for banks issuing stablecoins and whether stablecoin deposits are protected by insurance. Hilary Allen, a law professor at American University, warned that if banks issue uninsured stablecoins and insured deposits at the same time, it may cause consumer confusion and may trigger panic in times of crisis.

Currently, many central banks are testing or launching central bank digital currencies (CBDC), which could replace bank-issued stablecoins in certain use cases, particularly in the wholesale payments space.

Faced with such a complicated 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 Unioncoin."