Envious of Tether's tens of billions in profits, the banking industry is rushing to issue stablecoins

Stablecoin USDT, the "anchor" of the crypto world, is quietly disrupting the traditional financial industry.

More and more banks are beginning 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 started to lay out plans in the stablecoin market, hoping to get a share of this lucrative pie.

Previously, Tether Holdings Ltd., the world's largest stablecoin issuer, projected that net profit in 2024 will exceed $10 billion. 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 JP Morgan's digital asset division Kinexys, stated that stablecoins issued by banks are expected to accelerate 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 act. In Europe, financial institutions are actively exploring the issuance of stablecoins. Société Générale's subsidiary Forge has already launched a euro-backed stablecoin for retail investors.

At the same time, 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 European crypto asset 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 talks with several banks about using their stablecoin 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 definitely 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. Cuy Sheffield, Visa's cryptocurrency chief, 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, with plans to launch in 2025. Rene Michau, global head of digital assets at Standard Chartered, stated that this initiative will further enhance 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 deposit tokens being explored by large banks like JP Morgan, stablecoins have broader application prospects.

Deposit tokens can typically only be transferred between customers of the same bank, while stablecoins can be purchased and used by anyone with a cryptocurrency wallet. JP Morgan believes that stablecoins and deposit tokens are not mutually exclusive and expects that bank-issued stablecoins will accelerate development and become mainstream in the next three years.

However, there are also risks associated with issuing stablecoins.

Research from the European Central Bank indicates that if a large amount of retail deposits is converted into stablecoins, the liquidity coverage ratio of banks may be affected.

Additionally, U.S. regulators need to clarify the acceptable types of reserves for banks issuing stablecoins and whether stablecoin deposits are insured. Hilary Allen, a law professor at an American university, warns that if banks issue both uninsured stablecoins and insured deposits, it may 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, particularly in wholesale payments.

In the face of such a complex situation, Avtar Sehra, CEO of Libre Capital, stated:

“Every bank is exploring some form of commercial bank digital currency, but ultimately they may prefer to use a consortium coin.”

Risk Warning and Disclaimer

The market has risks, and investment should be cautious. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investing based on this is at your own risk