Stablecoins: Crypto's Killer App Until Banks Crash the Party
Banks may be disruptors, but are they willing to sacrifice payment revenue?
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The stablecoin market is on fire with the expected passage of the GENIUS Act, and FT Partners has released a fantastic new report with company profiles of the leading companies driving the stablecoin revolution.
As if to show how hot the market for stablecoin companies is, last night, stablecoin issuer Circle announced its IPO with a $5.4 bn valuation with a NYSE listing and ticker symbol CRCL.
Circle is the “white knight” of the stablecoin industry, as it has declared from its founding that it would intentionally follow US laws and guidance, unlike Tether, the world leader. Circle is so hot that it rejected a $5bn cash offer from Ripple to buy it outright.
Another big acquisition was Stripe buying Bridge for $1.1 bn, and the combination of the two allows Bridge to programmatically issue stablecoin-linked Visa cards in multiple countries through a single API integration. Stripe is now stablecoin-ready.
These are just two of many market developments that show Meta, Visa, Mastercard, Standard Chartered, BBVA, and others all diving into the market.
The “killer app?”
So are stablecoins crypto’s “killer app?” Yes, because while most people will never own Bitcoin or Doge coin, they may buy or use stablecoins if it saves them money on cross-border transfers. I put myself in this category!
Stablecoins offer the instant digital payments that dollar users have longed for, and that’s a good thing for all citizens, like me, who are tired of paying $50 to banks to make a SWIFT transfer.
This report passed my stablecoin hype test because it has an entire page dedicated to de-pegging! Reports without references to de-pegging FAIL the test!
Paypal is already using stablecoins for just this use case with its stablecoin PYUSD, which is run through its Xoom subsidiary and issued by Paxos. What’s not to like when they advertise: “When you use PYUSD to send money around the world, you get $0 Xoom transaction fees.”
Wait for banks to crash the party
Expect big changes in the stablecoin market. Incumbents may have an initial advantage, but it will not last.
When US banks become involved, and Bank of America has already announced that it will create a stablecoin, an incumbent’s advantage will likely melt away.
Whose stablecoin solicits greater trust: Bank of America’s or Circle's? Stablecoin providers face an uphill battle to establish trust with the public, a problem that household name banks won’t have.
While stablecoin fans tout their $6.6 trillion transaction volume for the past year, according to Visa, only 10% of this was in the real economy. Stablecoins have no goodwill built up with the non-crypto buying public, which is why banks still have an advantage.
Stablecoins have a long way to go; this is a marathon, not a sprint, and the market leaders of today have little defense against banks entering the market.
That’s why some of the over twenty named companies profiled in this report will become household names, but more will not.
👉Stablecoin challenges:
🔹 Stablecoins offer a tremendous value proposition for cross-border payments, but for larger-scale movement of money across borders (e.g., treasury management for global corporations), there are some drawbacks, including regulatory scrutiny and inconsistency, in addition to relatively limited access to local banking rails and central banks in many cases.
🔹 Stablecoin regulations and restrictions vary across jurisdictions, which can pose challenges to stablecoin issuers and other ecosystem players. For instance, the EU’s Markets in Crypto Assets (MiCA) law requires e-money licenses for stablecoin issuers and custodians and implements stricter requirements around reserves and transparency.
🔹 The Basel Committee on Banking Regulations’ framework treats stablecoins on public blockchains similarly to any other cryptocurrency, assigning them a 1,250% risk weight (compared to 400% for private equity holdings), which ultimately requires financial institutions to hold capital reserves equal to 100% of the stablecoin exposure.
🔹 Non-crypto payments players are not standing idly by while they are disrupted. The proliferation of real-time payment networks globally holds promise for faster and more efficient cross-border payments as those networks continue to interconnect.
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