Major Global Banks Launch Their Own Stablecoins to Compete with Tether and Circle

In recent days, it was announced that a consortium of 21 international banks --- including Bank of America, Citi, Goldman Sachs, Santander, BBVA --- have joined forces to create a company that will issue a stablecoin starting next year. This marks the third initiative of its kind that has emerged recently and represents a shift in the approach that traditional financial institutions have taken towards stablecoins.{#p-1789054933927-50147}

Two months prior, a consortium of 140 companies (including Visa, Mastercard, and Google) had presented their own initiative, Open USD, while in Europe, a group of 37 entities is advancing with a similar project called Qivalis. Thus, a new generation of competitors from traditional banking is beginning to emerge in the stablecoin market, which is currently dominated by Tether (USDT) and Circle (USDC).{#p-1789058966674-90764}

The director of the Center for Alternative Finance at UCA, Ignacio Carballo, explained to Ámbito that the entry of major banks into this sector of the crypto market is a result of the maturation of international regulations on the subject, highlighting the Genius Law in the US and the Mica Law in the European Union. "This encourages the major players to do something they have been planning and analyzing for a long time," he stated.{#p-1789060469292-64532}

Similarly, the representative of Cardano in Argentina, Lucas Macchiavelli, pointed out to this media outlet that these recent announcements show that "the big players have already made their move." In this sense, he stated that the crypto ecosystem "forced an evolution within the financial market by necessity, as a sort of revolution, something that was unthinkable just a few years ago."{#p-1789060761823-77814}

The expert affirmed that the ecosystem "influenced with the crypto values of traceability and a technology that works 24/7 without borders." However, he also acknowledged that "much of the innovation that was expected from the crypto ecosystem has not yet been validated," as is the case with decentralization. "We have been able to impact the traditional system, but it is not a traditional system that is so different," he added.{#p-1789061091589-1548}

The Opportunity for Banks

Earlier this year, major banks operating in the US opposed the approval of the Clarity Law in Congress, arguing that the benefits offered by exchanges to stablecoin holders were far superior to those that the traditional financial system could provide. This could pose a risk to financial intermediation, as if American customers exchanged their dollars for stablecoins, banks would lose the capacity to grant loans.{#p-1789061543771-11176}

"Banks may still be concerned about the risks that stablecoins present in general, especially those issued by entities with much lighter regulatory burdens," suggested Martin Chorzempa, an economist at the Peterson Institute of International Economics (PIIE) to Ámbito, one of the American think tanks that pointed out this risk.{#p-1789061948796-62239}

However, it was pointed out that traditional financial institutions "see an even greater risk in not participating if these (stablecoins) become popular". For example, USDT handles a daily volume of $57 billion. No other cryptocurrency, not even Bitcoin --- with $32 billion ---, has those numbers. Meanwhile, USDC has a volume of $16 billion, placing it in third place.{#p-1789062094334-74689}

Despite the existence of dozens of stablecoins, the bulk of the market is dominated by only two: USDT and USDC.{#p-1789128040837-68202}

Chorzempa noted that one of the attractions for banks is that "whoever issues the stablecoin earns the interest on the assets backing it," such as U.S. Treasury bonds. "Most stablecoins do not pay directly to holders, so issuers can keep a good portion (of that interest)."{#p-1789062400277-9686}

He added that "if customers start demanding the use of stablecoins in transactions, banks can still make money with them instead of losing deposits altogether and handing this 'float' over to Circle or Tether."{#p-1789062612312-23694}

Rafael de Ambrosi, CEO of Twin, a platform that provides blockchain infrastructure to companies, explained to Ámbito that "banks are adapting and moving towards where capital is moving." In this sense, he pointed out that while this capital movement "directly impacts their lending capacity," launching their own stablecoin "is the way to keep the money, but make it programmable on blockchain".{#p-1789128382981-56296}

Carballo reached a similar conclusion: "A stablecoin is backed by a dollar, and that dollar is placed in the U.S. Treasury, earning a return on that reserve. It is a bit of the natural evolution."{#p-1789062557140-9147}

Risks and Competition

The UCA economist commented that the use of stablecoins "is much more efficient in exotic corridors", because in "very evolved corridors," the movement of money "is almost immediate". He highlighted that banks can compete with Circle and Tether "mainly at the institutional and corporate level," although he doubted it would happen at the retail level. "I also don't think it will be an immediate replacement," he commented.{#p-1789062832657-88888}

The economist stated that banks have some advantages, such as, for example, "the distribution and trust they already have", and they "can generate cross-incentive models because they offer a lot of other services."{#p-1789063010439-71220}

Similarly, Ambrosi pointed out to this medium that in trading, exchanges, and DeFi, Tether and Circle "already have a large portion of the market and users are accustomed to trading with them."{#p-1789128089151-31726}

And he stated that the area where banks have a huge opportunity is another: "Wholesale payments, settlement of tokenized assets, and institutional transactions, businesses where the client needs robust compliance, governance, and a counterparty with which they already have a banking relationship of years."{#p-1789128128118-25368}

Carballo maintained that a stablecoin with banking scale "is not equivalent to a private entity printing dollars," so it should not impact global liquidity, "but it can change the quality and stability of funds." However, there is indeed the possibility of it impacting through "indirect channels".{#p-1789063157049-53596}

He explained: "They will facilitate payments and that can increase the speed of circulation. If money moves faster, in theory, it could put pressure on prices, unless there is a corresponding supply."{#p-1789063343647-78721}

For his part, Chorzempa pointed out to this medium that "if stablecoins really take off, there is a risk, especially for banks outside of the USA, that their deposits will be withdrawn and directed to the largest issuers of those assets."

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