Banks across the United States and Europe are ramping up efforts to issue stablecoins, fueled by evolving regulatory clarity and market demand.

The introduction of the EU’s Markets in Crypto-Assets Regulation (MiCA) and growing global interest in blockchain-based payment solutions have prompted traditional financial institutions to compete with established crypto firms like Tether Holdings.

European Banks Enter Stablecoin Market

A number of European banks have started to implement their own stablecoins to capture their share of a market that is said to earn billions of dollars in profit every year. The France-based Societe Generale – Forge (SG-Forge) has now opened its Euro-backed stablecoin for retail investors. In the same vein, the Frankfurt based Oddo BHF SCA and the London based Revolut are also looking to launch Euro stablecoins, while AllUnity, another issuer backed by Deutsche Bank’s asset management arm DWS, intends to launch its Euro stablecoin in 2025.

According to Jean-Marc Stenger, the CEO of SG-Forge, more banks will adopt bank-issued stablecoins; he simply said, “Yes”. SG-Forge is currently in discussions with about ten banks as potential partners or users of SG-Forge stablecoin issuing technology.

Similarly, Visa Inc., the global payments technology company, is also working with banks such as BBVA to create a stablecoin solution using blockchain. Cuy Sheffield, the head of crypto at Visa, stated that the company is currently in talks with institutions in Hong Kong, Singapore and Brazil.

US Banks Await Regulatory Green Light

In the United States, banks are keen on the legislation changes that can permit them to offer stablecoins. As the regulatory environment is being discussed, some banks such as JPMorgan Chase has already started testing payment systems that are based on blockchain. While JPMorgan has used its deposit token, JPM Coin in internal transfers, it does not possess the same open connectivity that is characteristic of stablecoins that can be accessed with any crypto wallet.

Naveen Mallela, co-head of JP Morgan’s digital assets division Kinexys, said that they are anticipated to gain more market acceptance in the next three years. He pointed out that stablecoins and tokenized deposits could both work side by side as different payment methods.

However, there are still certain issues that can be considered as problematic for US banks. There is ambiguity on which types of reserves are allowed to back stablecoins and if the deposits would be eligible for federal insurance. These problems should not be overlooked because, as the experts point out, they may lead to some confusion in periods of financial turmoil.

MiCA Brings Stablecoin Regulatory Clarity in Europe

The regulation of MiCA is a major milestone for stablecoin issuers in Europe as it will come into force on the 30th of December 2024. MiCA ensures that stablecoin providers have proper licenses to offer their services in the EU and also sets down some guidelines on reserve management and investor protection.

1/ 🧵 MiCA is here! Starting Dec 30, 2024, the EU’s groundbreaking crypto regulation takes effect.

What does this mean for crypto providers, stablecoins like $USDT and $USDC, and investors?

Let’s break it down 👇 pic.twitter.com/dgMG5DVC0D

— Fefe Demeny (@FefeDemeny) December 28, 2024

Circle’s USDC stablecoin has already been approved under MiCA and can now be used more extensively across the region. However, Tether Holdings, the market leader, has not mentioned plans for obtaining a license for the Euro pegged stablecoin. Experts claim that this could open up possibilities for banks as well as rivals to step in the niche.

Meanwhile, the European Central Bank has expressed concerns about the potential impact of stablecoins on traditional banking. A recent ECB study found that converting retail deposits into stablecoins could weaken a bank’s liquidity coverage ratio.

Central Banks and Consortium Coins

While commercial banks move to issue stablecoins, central banks are actively developing central bank digital currencies (CBDCs). These government-backed digital currencies could eventually compete with or replace bank-issued stablecoins in wholesale payment systems.

Avtar Sehra, CEO of Libre Capital, noted, “Everyone is exploring some form of commercial bank digital currency. But many may prefer consortium coins.” Several banks are reportedly considering forming alliances to create shared blockchain-based tokens for broader interoperability and efficiency.

Concurrently, Ripple’s RLUSD stablecoin which debuted on December 16, 2024 quickly gained traction in the global crypto market. Moreover, the RLUSD was recently listed on Independent Reserve, a licensed crypto exchange in Singapore.

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Kelvin Munene Murithi

Kelvin is a distinguished writer with expertise in crypto and finance, holding a Bachelor’s degree in Actuarial Science. Known for his incisive analysis and insightful content, he possesses a strong command of English and excels in conducting thorough research and delivering timely cryptocurrency market updates.

Disclaimer: The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.