Are stablecoins a threat to banks?
Explore how stablecoins are disrupting traditional banking, presenting both challenges and opportunities in the evolving financial landscape.
Stablecoins are reshaping the financial landscape by offering faster, cheaper, and more transparent alternatives to traditional banking services. These digital assets, pegged to stable assets like the US dollar, are disrupting areas such as cross-border payments, transaction settlements, and funding. Here's a quick breakdown:
- What are Stablecoins? Digital currencies with stable value, often tied to fiat currencies or commodities.
- Why They Matter: They enable instant, low-cost transactions and are gaining traction in areas like remittances, crypto trading, and decentralized finance (DeFi).
- Impact on Banks: Stablecoins challenge banks by reducing reliance on traditional deposits, cutting into revenue from cross-border payments, and forcing banks to rethink their services.
- Adoption Trends: By 2025, stablecoin transactions surpassed $27 trillion annually, with market capitalization projected to reach $2 trillion by 2028.
- Opportunities for Banks: Some banks are issuing their own stablecoins, exploring tokenized deposits, and forming partnerships to integrate this technology.
Stablecoins are not just a passing trend - they're fundamentally altering how money moves. Banks that adapt quickly could thrive, while those that don't risk losing relevance in a rapidly evolving financial ecosystem.
How Stablecoins Challenge Banks
Stablecoins have surged in popularity, and their rise is pushing banks to rethink their long-held roles in the financial system. By offering faster, cheaper alternatives, stablecoins are reshaping how businesses and consumers handle transactions, putting traditional banking models under intense scrutiny.
Banking Functions Under Pressure
Banks have historically acted as the backbone for payments, settlements, and funding. Stablecoins, however, are disrupting all three.
When it comes to payment processing, banks typically charge fees to cover their infrastructure and regulatory costs. Stablecoins sidestep these fees by leveraging blockchain technology, where transaction costs often range from just a few pennies to a couple of dollars.
Settlement services are also feeling the heat. Banks have long benefited from delays in processing transactions, using customer funds during the interim. Stablecoins eliminate this delay, offering near-instant settlements - transactions that clear in minutes instead of days.
The impact extends to funding as well. When consumers and businesses hold stablecoins instead of traditional deposits, banks lose access to those funds, which they typically use for lending and investments. Stablecoin circulation has doubled in the last 18 months, and the disruption is accelerating. The numbers are staggering: stablecoins now facilitate over $30 billion in daily transactions, contributing to an annual transaction volume exceeding $27 trillion.
These shifts are not limited to domestic banking. The effects are even more pronounced in the realm of international payments.
Cross-Border Payments Made Easier
International money transfers have been a lucrative area for banks, but stablecoins are rewriting the rules by offering faster, cheaper, and more transparent alternatives.
For instance, transferring $200 from the United States to Colombia through traditional banking channels can cost over $12 and take several days. In contrast, a stablecoin transaction for the same amount typically costs less than $0.01 and settles almost instantly. Some e-commerce platforms have reported a 65% drop in payment costs after adopting stablecoins. These savings are possible because stablecoins remove the need for multiple intermediaries, which often add fees and delays to cross-border transactions.
Transparency is another advantage. Every stablecoin transaction is recorded on a public blockchain, making them traceable and auditable. This level of visibility often surpasses what traditional banking systems can provide. Adoption of stablecoins for cross-border payments is growing rapidly. For example, in October 2024, Stripe enabled merchants to accept Circle's USDC stablecoin, with merchants from over 70 countries using the service within the first 24 hours. Unlike banks, which operate only during business hours, stablecoins function 24/7, allowing transactions to be processed even on weekends and holidays.
These benefits are not just theoretical. They are actively reducing the role of traditional banks in global financial operations.
Less Dependence on Banks
Perhaps the most fundamental shift brought by stablecoins is the reduced reliance on traditional banks. For everyday use, stablecoins provide a streamlined payment system that is faster, simpler, and designed for the digital age. Instead of needing a bank account, credit checks, or lengthy approvals, users only need internet access and a digital wallet.
Additionally, programmable stablecoins automate processes like payouts, removing the need for manual approvals. Businesses are increasingly using stablecoins for treasury management, holding and transferring value globally without needing multiple bank accounts or complex correspondent banking arrangements.
Stablecoins also break down geographic barriers. Unlike banks, which are tied to national regulations and physical branches, stablecoins enable borderless financial transactions. For example, businesses can accept payments from international customers without dealing with the complications of traditional banking procedures.
This shift is already happening. Stablecoins currently account for 3% of the $200 trillion in global cross-border payments. As more people and businesses experience the benefits of stablecoins, traditional banks are under growing pressure to adapt and prove their relevance in an increasingly digital financial world.
Stablecoins: Benefits and Risks for Banks
Stablecoins are shaking up the banking world, presenting both challenges and opportunities. Banks need to consider both sides to fully understand how this technology might reshape the financial landscape.
Benefits of Stablecoins
For banks ready to embrace stablecoins, the potential for new revenue streams is enormous. Services like transaction fees, tokenization, stablecoin issuance, and integration with decentralized finance (DeFi) represent areas of growth that weren’t part of traditional banking models.
One standout feature of stablecoins is the use of smart contracts, which automate tasks that previously required manual intervention. In 2023, JPMorgan introduced programmable payment capabilities to its JPM Coin, enabling automated small-scale payments. Siemens, for example, uses these programmable payments to streamline internal treasury transfers based on pre-set conditions.
This isn’t an isolated case. Citi, in partnership with Maersk, leverages smart contracts and tokenized deposits to automate bank guarantee payments for canal transits. These examples highlight how stablecoins can simplify internal cash management and speed up organizational fund transfers.
Stablecoins also unlock financial services for those without traditional bank accounts, broadening access to banking. They reduce transaction costs and improve efficiency, allowing banks to offer 24/7 operations, lower foreign transaction fees, and seamless cross-border payments.
"Because stablecoins are really just a form of deposit account, we think these developments likely represent more incremental opportunity rather than risk for the payment networks", says James Faucette, head of Morgan Stanley's U.S. Fintech and Payments Research Team.
But while the benefits are substantial, stablecoins also bring a host of new risks for banks.
Risks Banks Face
Despite the upside, stablecoins introduce significant challenges. Banks face exposure to new types of credit, liquidity, operational, and reputational risks. Unlike traditional payment systems, stablecoins depend on blockchain networks and third-party issuers, which adds complexity and potential points of failure.
Regulation remains one of the biggest hurdles. The stablecoin market has grown rapidly, from $159 billion in 2024 to over $255 billion this year. Banks must navigate these regulatory uncertainties while ensuring compliance.
Another critical issue is deposit flight. If customers choose to store their funds in stablecoins rather than traditional bank accounts, banks lose access to deposits they rely on for lending and investments. A sudden rush to withdraw stablecoins could create significant instability.
The revenue model for stablecoin issuers - earning interest on reserves - gets shaky in low-interest-rate environments. This could push banks to explore alternative revenue sources or risk operating at a loss.
Adopting stablecoins also demands substantial infrastructure upgrades and employee training. Fraud risks are heightened because stablecoin transactions are immediate and irreversible, unlike traditional bank transfers.
Criminal activities remain a concern. Chainalysis estimates $12.4 billion in cryptocurrency-related fraud globally in 2024. Banks must also guard against risks like money laundering, sanctions evasion, and fraud when dealing with stablecoins.
Another challenge lies in monetary policy. Widespread stablecoin adoption could unintentionally lead to "dollarization", reducing the effectiveness of a country’s monetary policies.
Stablecoin Pros and Cons Comparison
| Advantages for Banks | Risks for Banks |
|---|---|
| New Revenue Opportunities: Transaction fees, tokenization, stablecoin issuance, DeFi integration | Regulatory Challenges: Uncertainty in a $255 billion market |
| Process Automation: Smart contracts streamline payments and treasury operations | Deposit Flight: Loss of deposits to stablecoins |
| Lower Costs: Reduced transaction fees | Infrastructure Needs: Costly upgrades and training |
| 24/7 Services: Operations beyond traditional banking hours | Fraud Risks: Irreversible transactions and $12.4 billion in fraud |
| Access Expansion: Banking without traditional accounts | Revenue Model Risks: Low interest rates threaten profitability |
| Faster Settlements: Improved operational efficiency | Operational Complexity: Blockchain dependencies create new vulnerabilities |
| Global Access: Borderless payments with minimal foreign exchange fees | Criminal Activity: Concerns over money laundering and sanctions evasion |
The stakes are high on both sides. Analysts at Bernstein Research predict global stablecoin circulation could reach nearly $2.8 trillion by 2028, while Standard Chartered estimates the total supply could hit $2 trillion in the same timeframe. This growth represents immense potential but also proportionate risks for banks that fail to adapt.
"True scaling of stablecoins will require a shift in the prevailing paradigm that requires most transactions to settle in local currency. If and when the majority of customers choose to retain their funds in stablecoins, this could have far-reaching consequences for the demand for underlying reserves and implications for the deposit funding and revenue models of financial institutions", warns McKinsey.
Banks must carefully navigate these opportunities and risks. Those that strike the right balance could position themselves as leaders in a rapidly evolving financial ecosystem.
How banks respond to stablecoins
Banks aren’t just watching from the sidelines as stablecoins reshape the financial world. They’re diving in, testing the waters, forming partnerships, and building new systems to stay relevant.
How banks are adapting
Banks are finding creative ways to integrate stablecoin technology into their operations. Take JPMorgan Chase, for example. They’ve rolled out their own stablecoin, JPM Coin, which processes over $1 billion in transactions daily. Meanwhile, big players like Citibank, Goldman Sachs, and UBS are experimenting with tokenized deposits through the Canton Network, a blockchain-based platform that helps institutions share development costs.
In some regions, partnerships are speeding up this shift. Japan’s top three banks - MUFG, SMBC, and Mizuho - have teamed up for “Project Pax,” a venture combining SWIFT messaging with blockchain to streamline cross-border payments. Similarly, BNY Mellon has deepened its partnership with Circle, enabling clients to transfer funds directly for the creation and redemption of USDC.
A few banks are even considering issuing their own stablecoins. Standard Chartered’s Hong Kong branch, for instance, has partnered with Animoca Brands and HKT to apply for a license to issue a Hong Kong dollar-backed stablecoin under the Hong Kong Monetary Authority.
Central banks are also getting involved, creating opportunities for collaboration. In Singapore, DBS, HSBC, and Standard Chartered are part of Project Guardian, which explores tokenized cash for cross-border trades in partnership with the Monetary Authority of Singapore. On a broader scale, central banks in China, Hong Kong SAR, Thailand, and the UAE are working together on Project mBridge, which uses tokenized central bank money for cross-border settlements.
"We are entering a period of escape velocity in terms of everyone recognizing this is a new and upgraded payments technology... There's real businesses and real use cases happening. It's not some sort of crypto fad and the adoption is real."
In the U.S., there’s even talk of banks collaborating on joint stablecoin issuance - a move that could mark a major step forward in the development of digital assets. But as banks explore these new opportunities, they also face a growing list of regulatory challenges.
Navigating regulatory challenges
Stablecoins bring with them a host of compliance hurdles, particularly around anti-money laundering (AML) and sanctions risks.
To stay compliant, banks must implement thorough Know Your Customer (KYC) and due diligence processes. This includes verifying the identities of all stablecoin users and confirming wallet ownership. The FATF Travel Rule adds another layer of complexity, requiring banks to collect and share information about the originators and beneficiaries of stablecoin transfers. This calls for advanced tracking systems capable of monitoring blockchain transactions.
Banks also need to decide which stablecoins to support, usually favoring those that are fully reserved and regulated. Conducting background checks on stablecoin issuers is essential to ensure they meet regulatory standards and maintain sufficient reserves.
Another key consideration is consumer protection. Banks are required to clearly disclose the risks of stablecoins, including the fact that they aren’t FDIC-insured like traditional deposits.
To manage these challenges, many banks are hiring compliance officers with expertise in crypto, legal teams familiar with digital asset regulations, and specialists to track evolving regulatory guidance. Internal audits are being conducted to ensure all crypto-related compliance measures are up to standard.
On the tech side, banks are investing in tools to trace illicit blockchain activity, automated systems for sanctions checks, and robust identity verification platforms. These upgrades are essential for monitoring transactions and staying ahead of regulatory requirements. However, the complexity of these compliance measures could put banks that delay adoption at a disadvantage.
The risk of falling behind
Banks that are slow to embrace stablecoin technology risk losing significant market share. By Q1 2025, stablecoins are projected to account for 3% of the $200 trillion global cross-border payments market. That’s a massive slice of the pie.
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Future of Stablecoins and Banks
As banks adapt to the fast-paced evolution of stablecoin technology, the future of finance will likely be shaped by how these traditional institutions collaborate - or compete - with this emerging innovation. With stablecoin circulation doubling to $250 billion in just 18 months and projections suggesting it could hit $2 trillion by 2028, the stakes are higher than ever.
Working Together or Competing?
The road ahead might see a hybrid model emerge. Banks could leverage their regulatory expertise and established infrastructure, while stablecoins bring speed and transparency to the table. This collaboration is already unfolding, as major banks explore ways to integrate stablecoins into their services rather than replace them outright.
But competition is unavoidable, especially in areas like cross-border payments. Stablecoins have already captured 3% of the $200 trillion global remittance market. Unlike traditional wire transfers - which can take days and rack up multiple fees - stablecoins offer near-instant transactions. However, not all banking use cases are equally vulnerable. While banks hold the upper hand in services like checking accounts, mortgages, and personal loans, stablecoins are carving out niches in international remittances, crypto trading, and programmable payments.
Key Factors Shaping the Future
The interplay between banks and stablecoins will largely depend on regulatory developments, technological progress, and shifts in consumer behavior.
Regulatory clarity is proving to be a pivotal factor. For example, the EU's MiCA regulations have driven initiatives like Société Générale's restructuring of its EUR CoinVertible (EURCV) stablecoin to meet compliance standards and secure an e-money license. In the U.S., the proposed Genius Act aims to tighten oversight by requiring stablecoin issuers to maintain one-to-one reserves, explicitly allowing U.S. Treasury debt as backing assets.
Demand for instant global payments and advancements in blockchain infrastructure are also fueling stablecoin adoption. Over the past four years, stablecoin transaction volume has skyrocketed, reaching $27 trillion annually. This growth reflects how businesses are using stablecoins to tackle real-world problems. For instance, Stripe's 2025 announcement of stablecoin accounts in 101 countries signaled that the technology is ready to go mainstream.
Institutional involvement is another driver. Experiments like the Canton Network's tokenized deposits - featuring heavyweights such as Citibank, Goldman Sachs, and UBS - highlight how major financial players are exploring stablecoin applications. These initiatives show that stablecoins are not just disrupting the market; they are also pushing banks to evolve and integrate these advancements to stay competitive.
Mainstream Adoption Possibilities
The path to mainstream adoption of stablecoins is becoming clearer, but it requires a significant shift in how people perceive and use money. While stablecoins are growing rapidly, achieving widespread use will depend on changing consumer habits - specifically, encouraging people to hold and transact in stablecoins rather than immediately converting them back to traditional currencies.
Cross-border payments and remittances are likely to be the gateway for broader adoption. Traditional systems are often slow, expensive, and opaque, making stablecoins an attractive alternative, especially in emerging markets where access to traditional banking is limited.
The biggest challenge to scaling stablecoins isn't technical - it's behavioral. For stablecoins to truly take off, consumers and businesses need to feel comfortable using them as a primary means of transaction, not just as a temporary bridge to fiat currencies.
Treasury Secretary Scott Bessent has predicted that stablecoin demand could drive up to $2 trillion in U.S. Treasury debt demand in the coming years, signaling the growing inevitability of widespread adoption. This shift could reshape the financial landscape. For example, if just 10% of core deposits - which account for about 70% of U.S. commercial banks' funding - moved into stablecoins, banks' average funding costs would increase by 24 basis points. A full $2 trillion shift into stablecoins could result in a net loss of $1.932 trillion in bank deposits.
Despite these prospects, stablecoins still face hurdles like consumer protection concerns, regulatory challenges, and technical complexities. Banks that position themselves as intermediaries - offering services like conversion, custody, and compliance - may find themselves best equipped to thrive as stablecoins continue to grow.
The real question isn't whether stablecoins will go mainstream, but how quickly - and which institutions will be prepared to lead the charge when they do.
Conclusion
The connection between stablecoins and traditional banks is not a simple tale of disruption versus resistance. Instead, it represents an evolving relationship that's redefining the financial world. The rapid growth of the stablecoin market has forced financial institutions to rethink how they handle digital payments.
The challenges for banks are substantial. Stablecoins threaten to draw away low-cost deposits, potentially increasing banks' funding costs and reducing their ability to lend. Additionally, stablecoins are making significant inroads into cross-border payments - an area that has traditionally been a lucrative space for banks - by offering faster, cheaper, and more transparent solutions.
However, for banks willing to adapt, there are opportunities to embrace this shift. Some institutions are already finding ways to integrate stablecoins into their operations rather than compete against them. Take JPMorgan, for instance. With its JPM Coin, the bank has demonstrated how stablecoin technology can enhance payment processing and boost efficiency.
"A regulatory framework for stablecoins is good news for banks, as they can now safely launch stablecoin products to create value for their customers through more efficient transactions. Over the last decade we have enabled banks around the world to take advantage of decentralized finance. As U.S. regulations now open up this market to stateside banks, we are ready to use our in‐depth expertise to support US banks as they look to launch stablecoin products and services." - Christopher Ortiz, Region Manager North America, APAC and UK, GFT
The global financial sector is already moving toward this collaborative future. Nearly half (49%) of financial institutions worldwide are actively using stablecoins, with an additional 41% either in pilot stages or planning their adoption. This growing acceptance signals a major shift in banking's future. Chris Harmse, Co-Founder and Chief Business Officer of BVNK, captures this momentum:
"We are entering a period of escape velocity in terms of everyone recognising this is a new and upgraded payments technology... There's real businesses and real use cases happening. It's not some sort of crypto fad and the adoption is real." - Chris Harmse, Co-Founder and Chief Business Officer, BVNK
To stay competitive, banks must act now. This means building the right infrastructure, recruiting blockchain-savvy talent, creating seamless on-ramp and off-ramp services, and working closely with regulators. The ability to innovate will determine which institutions thrive in this new era.
Stablecoins are proving their value with lower transaction costs and superior performance compared to traditional systems. For banks, integrating this technology isn't just a smart move - it's a necessity. The real question isn't whether stablecoins will transform banking, but whether banks will choose to lead or follow in this transformation.
FAQs
How do stablecoins affect banks' revenue models, especially in cross-border payments?
Stablecoins are transforming the way banks earn revenue from cross-border payments. They provide lower fees, quicker transactions, and almost instant settlements, making them an appealing choice for both individuals and businesses. This shift reduces dependence on traditional banking systems for international money transfers.
Because of this, banks are feeling the strain on their fee income and profit margins. Stablecoins sidestep many of the steep costs and delays tied to conventional payment networks, posing a direct challenge to banks' long-standing control over global financial transactions.
How can banks address the risks posed by stablecoins, such as deposit outflows and regulatory challenges?
To address the challenges tied to stablecoins, banks need to stay ahead of the curve. Strengthening regulatory compliance programs is key - this ensures alignment with changing laws and helps minimize legal risks. Another smart move? Diversifying reserve assets. This can cushion the blow of financial instability caused by sudden deposit outflows.
Banks should also have solid contingency plans in place to handle unexpected shifts in deposits. By maintaining open communication with regulators and keeping a close eye on policy updates, they can adapt their strategies as needed, protecting both their operations and their reputation.
How could partnerships between banks and stablecoins influence the future of global financial transactions, and what role might central banks play?
Partnerships between banks and stablecoins could reshape the way global financial transactions are handled. By cutting down on traditional banking intermediaries, these collaborations promise faster and more affordable cross-border payments, making financial services more accessible to people around the world.
Central banks might also step in to steer this transformation by introducing and regulating central bank digital currencies (CBDCs). These digital currencies could complement stablecoins, helping to safeguard financial stability, uphold monetary sovereignty, and drive innovation. The combined efforts of banks, stablecoins, and CBDCs could pave the way for a global financial system that’s more efficient, secure, and accessible to everyone.