Financial Times: Banks and fintech firms join the “stablecoin gold rush”

Some of the world’s largest banks and fintech firms are racing to launch their own stablecoins, aiming to capture a cross-border payments market they expect to be redrawn by cryptocurrencies.

Last month, Bank of America Corp. said it was willing to issue its own cryptocurrency, joining established payment providers such as Standard Chartered, PayPal, Revolut and Stripe in targeting a business dominated by cryptocurrency groups Tether and Circle.

Their enthusiasm stems from growing acceptance among global regulators that stablecoins, designed to maintain a value of $1 per coin, could become a more popular part of the financial system.

Six years ago, regulators were hostile to Meta’s Libra stablecoin, and U.S. President Donald Trump’s enthusiasm for cryptocurrencies has further fueled the shift.

“This is a story about people selling shovels in the stablecoin gold rush,” said Simon Taylor, co-founder of fintech consultancy 11:FS, who likened it to FOMO, or fear of missing out.

“The other thing driving this is real trading volume,” he said. “Founders want a piece of the action because they know they’ll get stablecoin regulation, so it all comes together.”

While stablecoins are often used to transfer money between different cryptocurrencies, they are becoming increasingly popular in emerging markets as an alternative to local bank payments, particularly in commodities, agriculture and shipping.

They are a form of private digital cash that acts as a de facto reserve for sovereign currencies (overwhelmingly the U.S. dollar), and using digital currencies for payments gives companies and consumers instant access to hard currency outside the banking system at low cost.

There are about $210 billion in stablecoins issued globally, with El Salvador’s Tether issuing about $142 billion and U.S.-based Circle issuing $57 billion, branded as USDT and USDC, respectively.

Elon Musk’s SpaceX uses them to repatriate funds from the sale of Starlink satellites in Argentina and Nigeria, while ScaleAI offers its large overseas contractor workforce the option of being paid in digital tokens.

Data from Visa shows that transaction volume climbed to $710 billion last month, compared with $521 billion a year earlier, while the number of unique stablecoin addresses has grown to 35 million over the same period, a 50% increase.

As regulations are introduced, big banks are becoming more confident about entering the industry. U.S. politicians are debating bills in Congress to set stablecoin standards, giving banks, companies and ordinary consumers more confidence to use these tokens.

"If they make stablecoins legal, we will get into this business," Bank of America CEO Brian Moynihan said last month at the Economic Club of Washington in comments about the Trump administration's plans.

The European Union introduced regulations at the beginning of this year requiring stablecoin operators in the bloc to comply. The UK financial regulator plans to consult the market this year.

Standard Chartered Bank said last month that it would lead a joint venture to launch a token backed by the Hong Kong dollar under Hong Kong's upcoming new stablecoin regulations.

Underscoring the momentum, U.S. Stripe Group acquired stablecoin platform Bridge for $1.1 billion last month, its largest acquisition to date.

“Stablecoins and more modern chains are really interesting for payments use cases, and that’s where our business is,” said co-founder and president John Collison. The $91.5 billion fintech processed $1.4 trillion in payments last year.

PayPal, which already has a dollar-pegged stablecoin, PYUSD, plans to roll out the payment option more broadly in 2025, and expects it to be particularly accepted by U.S. businesses when paying overseas suppliers.

“Okay. I give up. Klarna and I are going to embrace crypto! And more… The last major fintech in the world to embrace crypto. Someone has to be the last. This is also some kind of milestone,” Sebastian Siemiatkowski, CEO of buy now, pay later lender Klarna, wrote on the X social media platform last month.

Even so, new entrants face an uphill battle. Visa data shows PayPal has done just $163 million in transactions this month, while Tether has done just over $131 billion.

Visa said about 122 million transactions were conducted globally using stablecoins last month. However, the credit card provider’s own network sees an average of 829 million transactions per day.

Martin Mignot, partner at Index Ventures and a Bridge backer, said stablecoins are “attractive” in markets that lack “good infrastructure or liquidity and have a lot of currency risk.” But he added that the use case for stablecoins in Western markets is “not as obvious.”

Analysts also warned that the market is unlikely to be able to sustain dozens of stablecoins as users begin to scrutinize the quality of companies issuing stablecoins.

11:FS’s Taylor noted that stablecoins are not cash, just cash substitutes, and reflect the credit risk of the issuing company, as well as its ability to manage the operational risks of operating a stablecoin.

“Essentially, the brand of the stablecoin tells you who the issuer is,” he said. “So because the issuer is that organization, your credit risk is X or Y. That’s different than the dollar.”