Banks and Stablecoins: a first step towards bridging traditional finance and the crypto world: By Carlo R.W. De Meijer

Finextra

a day ago

Stablecoins are attracting considerable attention by traditional financial institutions. Regulatory shifts are paving the way for banks to engage with stablecoins. These are rapidly evolving from a niche vertical in the cryptocurrency ecosystem into a foundational element of the global financial system. Stablecoins are increasingly becoming a preferred choice in modern finance, building a bridge between the traditional financial world and the crypto sector. Their evolution is shaping the future of global finance.
In this blog we describe what stablecoins are, explore the current state of the stablecoin landscape, focus on key regulatory developments, the adoption by traditional financial institution, the various real-world use cases, the potential and challenges and the various solutions to these challenges.
What are stablecoins?
Stablecoins are blockchain-based digital tokens designed to maintain a stable value, typically pegged one-to-one to traditional fiat currencies, predominantly the U.S. dollar and the euro, or high-quality liquid assets like commodities such as gold, silver or oil. Stablecoins are designed primarily to function as a stable medium of exchange. While their mechanisms may vary, they all aim to combine the trust and stability of fiat currencies (most commonly the US Dollar) associated with traditional banking infrastructure with the efficiency of blockchain-based transfers, thereby avoiding the volatility inherent in traditional cryptocurrencies like Bitcoin or Ethereum. This makes stablecoins suitable for commercial transactions, international remittances, and storing value digitally.
How stablecoins work?
The vast majority of stablecoins are fiat-backed. This means that for every digital token issued, an equivalent amount of fiat currency (or highly liquid, low-risk assets like cash equivalents and short-term government bonds) is held in reserves by the issuer. This 1:1 backing is crucial for maintaining their peg to the underlying fiat currency. Regular attestations and audits are essential to ensure the transparency and integrity of these reserves, building trust among users. These tokens will be listed on various crypto exchanges.
Present state: stablecoin market capitalization
The current market capitalization of stablecoins was worth around $255 billion early June 2025 according to CoinMarketCap. This record high is driven by a wave of adoption from major global banks. With this market capitalization size and a growing presence in cross-border payments, corporate treasury operations, and emerging market finance, stablecoins are fast becoming a relevant tool in global finance. The market itself has been projected to grow to $2 trillion in the next three years.
The growth in stablecoin use is clear when looking at the actual transaction volumes. Over the past year 2024, transaction volumes involving stablecoins rose significantly from $521 billion to $710 billion monthly. A significant milestone occurred in 2024 when the total amount of money transferred using stablecoins reached $27.6 trillion—surpassing the combined total transaction volumes processed by Visa and Mastercard that same year. This trend underscores their growing importance in global commerce and remittances. This however is still a small share of the global M2 money supply, approximately 1%.
Dominant stablecoins: USDT and USDC
The stablecoin market is dominated by USD-backed variants. The two largest stablecoins out there right now are Tether (USDT: $155 billion) and the USD Coin from Circle (USDC: $62 billion). Together they account over 90% of total stablecoin market capitalization. They have gained traction in both crypto and traditional finance circles due to their ability to combine the stability of fiat currencies with the benefits of blockchain technology. This is however not much in the $36 trillion US Treasury market, but the growth has certainly focused US Treasury's attention.
Regulatory clarity: remove fragmentation
The regulatory environment for stablecoins in 2025 has evolved dramatically from the fragmented approach of the early 2020s. The dramatic shift towards stablecoins by large institutions follows recent moves by regulatory bodies in the European Union (EU) and the United States (US) to create clear frameworks for stablecoins that define capital requirements, reserve management, and operational standards. These regulations may foster innovation while protecting consumers and maintaining financial stability. These moves may contribute to the further development of consistent and reliable regulations worldwide for blockchain and crypto-related technologies.
EU regulation: MICA
The European Union (EU) is at the forefront of stablecoin regulation, having introduced Markets in Crypto-Assets (MiCA) regulation for cryptocurrencies including stablecoins. This regulatory framework is designed to protect investors, promote fair and efficient markets, and foster innovation in the crypto space. The MiCA regulation that came into effect in mid-2024, sets clear rules for stablecoins, significantly reducing regulatory uncertainty. Issuers operating in the EU should adhere to specific financial standards. They must hold full reserves, meet transparency requirements, and be authorized by financial regulators. MiCA does not cover central bank digital currencies (CBDCs), but it allows regulated financial institutions (e.g. banks) to issue or support stablecoins, including acting as custodians or liquidity providers. Banks in the EU now have a legal framework to engage with stablecoins in a compliant way.
US regulation: GENIUS Act and the STABLE Act
US Congress has recently passed the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act, establishing a regulatory framework for stablecoins issuance by banks, aiming to bring stablecoin in the US financial system and creating standards for stablecoin oversight. This should be seen as a step towards creating a more stable and secure environment for their use.
They focus on reserve requirements, licensing models and systemic risk considerations. This Act would require stablecoin issuers to hold one-to-one reserves, publish regular audits, and follow clear rules to protect users. Reserves backing stablecoins must be segregated from other corporate assets to reduce risk exposure. Monthly verification of reserves will become standard practice, giving users confidence in the stability of these digital assets. The GENIUS Act allows stablecoin issuers to operate under either federal or qualified state supervision, depending on their size and structure. Together with the STABLE Act that sets rules for the overall crypto market, they are are expected to provide the legal certainty needed for more banks and businesses to participate in the stablecoin market.
Banking adoption of stablecoins: gather momentum
A notable trend is the increasing involvement of major banks and fintech companies in the stablecoin market. This shift follows years of cautious observation and regulatory scepticism. But improved regular clarity has triggered a growing number of banks now experimenting with stablecoins, recognizing their value for improving operational efficiency, driven by a combination of fiat-like price stability with the speed, efficiency, and programmability of blockchain technology.
Bank stablecoin initiatives: some examples
This year a growing number of traditional financial institutions and fintechs in both the US, EU and Asia are joining existing financial services giants like Standard Chartered, PayPal, Revolut, and Stripe in adopting stablecoins. These companies are increasingly seeing their potential and have started different stablecoin initiatives, seeking to capitalize on the rapidly growing use of these coins. To give some insight here follows a number of examples of banks entering or planning to enter the stablecoin market,
US banks
Triggered by the pro-crypto Trump administration and the passing of the Genius Act, a growing number of US banks and fintechs are entering or planning to enter the stablecoin market. Including names like JPMorgan, US Bancorp, Bank of America, BNY Mellon and Paypal. Stripe, a leading fintech company, recently acquisitioned Bridge, a stablecoin orchestration platform. This initiative positions Stripe to enhance its payment processing capabilities, particularly in cross-border transactions. Similar moves are expected from competitors like Goldman Sachs and HSBC
EU Banks
Also banks in the EU have started to enter the stablecoin market including names like Societe Generale, Deutsche Bank and Banco Santander. The French Bank Societe Generale announced its plans to issue a publicly tradable stablecoin pegged to the US dollar named USD CoinVertible (USDCV) via its digital asset unit, SG-FORGE. This follows the launch of its euro-based stablecoin EUR CoinVertible in 2023. Both stablecoins are classified as electronic money tokens and will be arranged according to MiCA, EU's crypto regulation.
Deutsche Bank is also exploring the use of stablecoins and tokenized deposits, evaluating stablecoin options. Bloomberg reports that Deutsche Bank is actively researching how these technologies could be used within its services. Other banks, such as Banco Santander and Credit Lyonnais are also exploring stablecoins. Banco Santander has early-stage plans to launch its own euro- or dollar-denominated stablecoin or offering access to an existing one. Santander's Openbank unit has applied for MiCA licenses in Europe.
Asian Banks
Asia is leading the world in real-world stablecoin adoption, aimed to make stablecoins a foundational layer of Asia's evolving payments infrastructure. Stablecoins are now a strategic lever for financial institutions in countries like Singapore (Standard Chartered's Hong Kong branch), South Korea and Hong Kong (Ant Group), institutions are moving quickly—not just to explore stablecoins, but to scale them.
But also in countries like Japan where the three largest banks (MUFG, SMBC, and Mizuho) joined a pilot platform called 'Project Pax' to use stablecoins for cross-border payments. In Australia ANZ Bank launched an AUD-pegged stablecoin and executed the first public blockchain transaction by an Australian bank, now expanding use cases including real-time pension payments.
These examples illustrate that stablecoins are gradually becoming part of mainstream financial infrastructure, not just for crypto-native firms, but for some of the world's largest banks
Stablecoin use cases
While the bulk of stablecoin use is currently still within the crypto capital markets and not for everyday payments, this is fundamentally changing. Growing regulatory clarity is expected to unlock broader use cases. These may include cross-border payments and foreign exchange transactions, crypto trading in DeFi, on-chain settlement as well as cash, liquidity and collateral management. Stablecoins are increasingly seen as practical tools to broad institutional use for everyday financial transactions.
Cross border payments
Financial institutions are considering using stablecoins to improve its payment systems. Cross-border transactions through traditional banking systems can be slow and expensive due to high fees and currency conversion costs. Stablecoins may fundamentally transform how money moves across borders, addressing long-standing pain points in traditional payment systems, delivering reduced costs, speeding up settlements, and increasing financial inclusion. Stablecoins offer the potential to make international transfers faster and more cost-effective compared to some traditional correspondent banking methods. When supported by appropriate infrastructure (such as wallets and custody providers), these funds can be received and accessed by the counterparty almost immediately.
Decentralized Finance (DeFi)
Another major use case where stablecoins are already thriving is decentralized finance (DeFi). They serve as the foundational currency for DeFi applications, enabling lending, borrowing, swapping, yield farming, and more - all without centralized intermediaries. Their programmable nature allows for automated transactions that traditional banking systems cannot match in efficiency or cost. Stablecoins are becoming the essential bridge connecting traditional finance with cryptocurrency ecosystems through DeFi protocols. Banks can use them to automate financial processes like collateralized lending, borrowing, derivatives trading, and even tokenization. This programmability allows banks to participate in blockchain-based financial markets while streamlining operations like asset management and market making.
'Programmable Treasury'
A third use case of stablecoins is as a means of payment. Governments generally want citizens to transact in their local currencies, and stablecoins challenge that sovereignty. Stablecoins are increasingly being integrated into payment platforms, enhancing the efficiency of transactions. Stablecoins are making it possible for businesses to automate payments based on real-world conditions. This is known as 'programmable treasury'.
More Accessible Loan Products
Stablecoins could also unlock new lending and borrowing mechanisms within traditional banking by leveraging the transparency and programmability of blockchain technology. This could create more accessible loan products, collateralized by stablecoins themselves, opening up new markets and customer segments currently underserved by traditional lending practices.
Attract capital and increase available liquidity
Financial institutions could also offer reserve management services for assets backing stablecoins. This involves managing significant deposits and ensuring issuers meet regulatory obligations for transparency and liquidity. By welcoming stablecoin issuers as depositors, offering competitive and secure deposit solutions, providing them with secure, low-risk returns, banks can unlock new liquidity pools and expand their capital base and increase the amount of available liquidity, expanding their base of long-term, dependable clients.
Onderkant formulier
What may stablecoins bring for traditional banks?
Financial industry executives cited slow transaction speeds and high fees in traditional banking systems as driving factors for stablecoin adoption. Stablecoins offer unique advantages by combining the stability of assets like fiat currencies with the benefits of blockchain technology. Using stablecoins may bring a number of important advantages including price stability, speed and efficiency, lower costs, global accessibility and programmability, making them attractive to international businesses and supply chains.
Unlike cryptocurrencies like BTC and ETH, their value remains relatively steady because they are tied to the value of more stable assets. This makes stablecoins a safer choice for risk-averse traders and investors who want to explore crypto markets without exposing themselves to drastic price fluctuations. Next to that stablecoins enable near-instant settlement of cross-border transactions. By eliminating intermediaries like correspondent banking, they enable domestic and cross-border payments to settle in a fraction of the time and at a fraction of the cost of traditional systems, while offering 24/7 services. Transaction costs may also dramatically decrease. By lowering the transaction costs often associated with traditional banking intermediaries, stablecoins also make financial services more affordable and accessible to a wider audience.
Challenges
Despite the enthusiasm and their advantages for traditional financial institutions, stablecoins face a number of challenges related to regulatory compliance, interoperability issues and liquidity risks..
Regulatory fragmentation: unclarity and risks
Notwithstanding regulation in the EU and upcoming regulations in the US, stablecoins currently still operate under a patchwork of regulations worldwide, leading to unclarity around compliance, especially concerning reserve requirements and licensing. Notably, recent data from Chainalysis reveals that stablecoins are increasingly favoured in illicit activities such as money laundering and sanctions evasion. This underscores the global implications of stablecoin integration and the need for coordinated regulatory approaches.
Lack of interoperability
Financial institutions also face operational and credit risks inherent in digital currency management. The real challenge will be in the interoperability between stablecoins and existing financial systems. The existence of stablecoins across multiple blockchain networks (e.g., Ethereum, Solana, Polygon) introduces challenges in transaction settlements, requiring interoperability solutions. For businesses to fully adopt stablecoin payments, suppliers must be equipped to receive them, necessitating updates to wallets, regulatory clarity, and accounting systems
Other risks
And here is the liquidity risk. Stablecoins' influence extends beyond yields. The BIS notes that $40 billion in 2024 Treasury purchases by stablecoins outpaced many foreign investors, illustrating their role as de facto market participants. However, their reserve compositions often lack transparency, leaving investors vulnerable to sudden de-pegging events. Managing these risks requires robust compliance frameworks, security measures, and strict adherence to regulatory requirements, complicating their widespread adoption by traditionally cautious banks.
Innitiatives by banks
Consortium-backed stablecoin
A group of big US banks, including JPMorgan Chase, Bank of America, Wells Fargo, Citigroup and PNC, met a few weeks ago in a working group to discuss the prospect of offering stablecoins in a collaborative effort. This initiative to develop a consortium-backed stablecoin aims to streamline routine financial transactions, improve transaction speeds whilst managing competition from encroaching crypto firms and counter the growing influence of crypto-native firms and fintech competitors. The potential introduction of a consortium-backed stablecoin by major banks could significantly impact the competitive landscape for community banks and credit unions.
Offering familiar, secure interfaces
For corporates, accessing stablecoins still involves a lot of manual steps and unfamiliar tools like wallets. Banks can fill this gap by offering familiar, secure interfaces that integrate stablecoin functionality into their existing online banking and treasury services. This include amongst others: helping clients move between fiat currency and stablecoins (and vice versa), or between different stablecoins, holding stablecoins securely on behalf of their clients, streamlining KYC/AML, source-of-funds checks, and transaction screening for blockchain-based payments and guiding clients on how and when to use stablecoins for payments, treasury management or regional risk hedging.
Support from blockchain infrastructure providers
Companies like Circle at the forefront of transformation
Companies like Circle, the global issuer of USDC are at the forefront of this transformation, offering banks cross-chain clearing and other innovative solutions that could reshape the financial landscape. Increased involvement from the traditional financial industry is further supported by the advent of blockchain infrastructure providers like Zero Hash and Fireblocks, which are offering technology geared towards traditional financial institutions looking to integrate stablecoin capabilities. Stripe, which acquired stablecoin orchestration platform Bridge in February 2025, has added payment capabilities for the company's USDB stablecoin, which generates yield through backing by BlackRock money market funds. Earlier this month, Stripe announced it is rolling out Stablecoin accounts in 101 countries.
Matera and Circle join forces: building bridges in payments
In a move to accelerate the adoption of stablecoins as a mainstream payment method, Matera, a leading technology provider for the financial system, announced a commercial partnership with Circle, through its regulated dollar-backed stablecoin USDC. This alliance marks the integration between a real-time banking infrastructure and a fully-reserved, transparent stablecoin, at the forefront of interoperability between local currency balances and digital dollars. This partnership unlocks their use in everyday near-instant payments - secure, fast, and accessible - directly from banking and fintech platforms powered by Matera's real-time ledger, Digital Twin. The collaboration between Matera and Circle advances the concept of a 'stablecoin-ready banking platform' building bridges between traditional and digital money.
Criticism: BIS and Lagarde
Notwithstanding the growing embrace of stablecoins by traditional financial institutions criticism has come recently from the BIS and ECB president Lagarde.
BIS report
A new report from the Bank for International Settlements (BIS) has cast doubt on the long-term role of stablecoins in the global financial system. The authors acknowledged that stablecoins have some benefits, including programmability, pseudonymity, and ease of use. Their structure also offers faster and cheaper transactions, particularly for cross-border payments. But the BIS concluded that these advantages are outweighed by risks, especially when compared to money issued by central banks and regulated financial institutions, arguing that they fall short of three essential criteria for functioning as true money: singleness, elasticity, and integrity. These are the core traits the BIS says are necessary for any instrument that hopes to support a modern monetary system.
ECB president Lagarde
In a recent statement ECB president Lagarde told stablecoins are privately issued and pose in particular risks to monetary policy and financial stability. Stablecoins must therefore 'be governed by sound rules, especially when operating internationally'. According to Lagarde the underlying problem is precisely the lack of uniform rules. This fragmented approach prevents a global level playing field and can open the door to new risks and systemic vulnerabilities. 'We must therefore remain alert to developments in other jurisdictions and support globally aligned regulations for stablecoins.' Lagarde. She therefore plaids for a Dital Euro.
Forward looking: Market future and Expectations
As we move through 2025, the stablecoin landscape continues to evolve rapidly. Upcoming regulation is expected in other regions worldwide including the UK, Asia (Hong Kong, Singapore and South Korea) Australia and Japan. As stablecoins continue gaining traction globally, the financial industry anticipates further adoption, spurred by increasing regulatory clarity and growing consumer trust.
In 2025, stablecoins are increasingly being integrated into the financial services infrastructure, a first step bridging the gap between traditional finance and the cryptocurrency world thereby enhancing business banking services. Banks that respond early can shape how this technology fits within their client offerings.
As banks and fintech companies intensify their involvement, the stablecoin market stands on the threshold of significant transformation. The momentum behind stablecoins suggests they will play a significant role in reshaping the future of global financial system. The next step will be the worldwide introduction of Digital Euro's and Digital dollars.