Last week, the announcement by some of the leading American banks, including Bank of America, regarding their intention to introduce their own stablecoin sparked widespread debate. This initiative takes place in a landscape where electronic payment providers such as Revolut and PayPal (with its PYUSD) are already developing similar solutions, aiming to compete in a market currently dominated by Tether and Circle.
The growing interest in stablecoins is partly due to a more favorable attitude from regulatory authorities, marking a shift from the recent past when projects like Meta’s Libra were blocked and solutions like JPM Coin failed to achieve significant adoption. Initially conceived as tools to facilitate cryptocurrency trading, stablecoins are now increasingly playing a crucial role in international payments, particularly in transactions involving commodities.
To understand this evolution, it is essential to analyze how stablecoins work and the context in which they are developing.
THE DIFFERETN TYPES OF STABLECOINS
Stablecoins are digital tokens created through smart contracts and can be hosted on two types of blockchains:
1. Permissioned blockchain: These are closed infrastructures accessible only with prior authorization from a system administrator, stripping them of the decentralization typical of blockchain technology. A notable example is JPM Coin, which allows the issuance of digital dollars only to the bank’s clients, restricting its use within its internal ecosystem. In this model, the stablecoin is effectively controlled by a regulated entity, eliminating the need for complex smart contracts.
2. Permissionless blockchain: These represent the most widespread and commonly used category. Their key feature is the ability to maintain parity with a fiat currency through different mechanisms:
– Fiat-collateralized: The stablecoin’s value is backed by reserves held in traditional assets, such as Tether (USDT) and Circle (USDC).
– Collateralized with financial assets, commodities, or cryptocurrencies: Some stablecoins are supported by a diversified basket of assets to maintain stability.
– Algorithmic stablecoins: Their parity is based on automated minting and burning mechanisms. However, the Terra/Luna case demonstrated the fragility of this model, which today survives in hybrid forms integrated with reserve assets.
FUTURE PROSPECTS AND THE ROLE OF REGULATION
The adoption of stablecoins by U.S. banks will largely depend on regulatory decisions across different countries. However, some key factors could determine the success of these new initiatives:
– Greater control and oversight: The limited use of smart contracts makes a stablecoin more easily regulated, increasing trust among financial institutions and governments.
– Parity guaranteed by transparent fiat deposits: The most robust solutions ensure that stablecoins are backed by demonstrable reserves and tokenized on public blockchains, guaranteeing convertibility with cryptocurrencies or other digital assets.
– Diversification of reserves: In addition to holding cash, reserve backing can include financial instruments such as government bonds. For instance, Tether holds a significant portion of its reserves in U.S. Treasury Bills, directly contributing to public debt financing. The potential entry of new issuing banks could expand this funding source, possibly even with longer-term securities.
The sector’s evolution will therefore be shaped by the interaction between technological innovation, regulation, and the strategies adopted by financial operators. The increasing interest from banks suggests that the stablecoin market is poised for profound transformation, with significant implications for the global financial system.
Disclaimer: This article expresses the personal opinions of the contributors of Custodia Wealth Management who wrote it. It does not constitute investment advice, personalized consulting, or an invitation to perform transactions on financial instruments.
