Stablecoins and traditional banks are converging through a complex dance of collaboration and rivalry. Since 2023, this relationship has crystallized into a hybrid model where banks custody reserves, issue tokenized deposits, and partner with stablecoin networks even as they fear deposit drain and regulatory arbitrage.
The $250 billion stablecoin market now processes more transaction volume than Visa and Mastercard combined, with JPMorgan moving $2 billion daily through its JPM Coin and Circle's USDC growing 100% year-over-year. Yet this growth triggers existential questions: Will stablecoins hollow out banking, or will banks absorb blockchain efficiency into their infrastructure?
Evidence from 2023-2025 suggests neither pure partnership nor outright competition, but rather a regulated coexistence shaped by central bank preferences, technological interoperability, and geopolitical currency competition.
The inflection point arrived with regulatory clarity. Europe's MiCA framework took full effect in June 2024, distinguishing tokenized bank deposits from public stablecoins and requiring 100% reserves. The U.S. GENIUS Act passed in July 2025, establishing federal oversight while banks lobbied to prevent yield-bearing stablecoins from draining deposits.
Meanwhile, Singapore's Payment Services Act created a sandbox for regulated issuers, and Hong Kong launched licensing programs attracting Standard Chartered and others. These frameworks reveal a consensus: stablecoins work best when integrated into the two-tier monetary system, settling in central bank reserves while banks provide credit intermediation and deposit insurance. The question is no longer whether banks and stablecoins will coexist, but how deeply their infrastructures will merge.
What stablecoins are and why they matter now
Stablecoins are blockchain-based tokens pegged 1:1 to fiat currencies, primarily the U.S. dollar. Tether (USDT) dominates with $140 billion market capitalization and 62% market share, while Circle's USDC reached $61 billion after doubling in 2024. Unlike cryptocurrencies, stablecoins maintain price stability through reserve backing - Tether holds $113 billion in U.S.
Treasury bills (making it the 18th largest sovereign holder), while Circle partners with BlackRock for asset management and BNY Mellon for custody. The market crossed $200 billion in December 2024 for the first time, adding $40 billion following the November 2024 U.S. election as regulatory optimism surged.
Banks care because stablecoins process $27.6 trillion in annual transaction volume, exceeding Visa's $15.7 trillion and Mastercard's $9.8 trillion combined. This represents a fundamental shift in payment infrastructure. Cross-border transactions settle in 3-5 seconds on networks like XRP Ledger versus 1-5 days through correspondent banking, with fees dropping from 2-6% to under 1%.
Over 90 million global wallets now hold stablecoins, up 15% year-over-year, and institutional adoption accelerated as BlackRock launched its BUIDL tokenized treasury fund, which reached $2.5 billion in assets within a year.
Stablecoins threaten core banking revenues. Standard Chartered projects $1 trillion may exit emerging market banks by 2028 as savers shift to stablecoins offering yield and dollar stability. The U.S. Treasury warned that interest-bearing stablecoins could drain $6.6 trillion in deposits, forcing banks to rely on expensive wholesale funding.
Citigroup executives worry openly that tokenized money could disrupt 40% of the bank's bottom line derived from transaction services. Yet banks also see opportunity: JPMorgan's Kinexys platform processed $1.5 trillion cumulatively since 2020, Citi Token Services went live commercially in October 2024, and Société Générale became the first bank to issue a MiCA-compliant stablecoin in July 2024.
The impact extends beyond payments to banking models themselves. Stablecoins require 100% reserve backing, eliminating fractional-reserve lending that generates bank profits. If banks issue stablecoins, they cannot lend against those deposits. If they don't, non-bank competitors capture payment flows.
McKinsey describes this as a dilemma: "Financial institutions face a choice - if they don't issue stablecoins, they lose deposits; if they do, 100% reserve requirements undermine fractional-reserve lending." This structural tension explains why banks pursue dual strategies: tokenized deposits for institutional clients (maintaining bank status and lending capacity) and partnerships with stablecoin issuers for custody and infrastructure services.
Banks confront the stablecoin paradox
Major banks adopted stablecoins with caution from 2023-2025, balancing innovation against deposit flight and regulatory uncertainty. JPMorgan rebranded its Onyx platform to Kinexys in November 2024, signaling maturation from pilot to production infrastructure. The bank's JPM Coin now processes $2 billion daily with payments transactions growing tenfold year-over-year.
In September 2024, Siemens issued €100,000 in tokenized commercial paper settled via JPM Coin, demonstrating real-world integration. JPMorgan plans Q1 2025 launch of on-chain foreign exchange settlement starting with USD-EUR pairs, expanding 24/7 multicurrency clearing capabilities.
Citigroup moved Citi Token Services from pilot to commercial operation in October 2024, starting with Mars Incorporated as first client for multimillion-dollar cross-border liquidity management. The platform operates between Singapore, New York, and the UK on private permissioned blockchain, enabling 24/7 payments when traditional markets close. During Chinese New Year 2024, one client moved funds between Singapore and the U.S. when local banks were shuttered - impossible under correspondent banking.
CEO Jane Fraser confirmed in July 2024 earnings that Citi is "looking at the issuance of a Citi stablecoin," positioning tokenized cash as the "killer app for liquidity." A 2024 Citi survey found 65% of respondents plan to use non-CBDC options like tokenized deposits and stablecoins for digital securities settlements by 2026, down from 52% preferring CBDCs in 2023.
BNY Mellon positioned itself as infrastructure provider rather than issuer. The bank became primary custodian for Circle's USDC reserves in March 2022 when circulation stood at $52 billion, expanding that relationship after the March 2023 Silicon Valley Bank collapse when Circle had $3.3 billion trapped at the failed institution. In July 2025, BNY Mellon announced custody for Ripple's RLUSD stablecoin, and in September 2024 received SEC non-objection to its digital asset custody structure. By October 2025, BNY was exploring tokenized deposit pilots for blockchain-based payments while managing $55.8 trillion in global assets under custody.
Euroclear advanced digital bond issuance through its D-FMI platform built on R3's Corda blockchain. In October 2023, the World Bank issued a €100 million digitally native note, followed by Turkey's İşbank with a $100 million digital bond in July 2025. The infrastructure links conventional settlement systems with distributed ledger technology while remaining CSDR compliant. In February 2025, Euroclear partnered with Digital Asset on the Canton Global Collateral Network, focusing on tokenized collateral mobility. Pilot programs in June-July 2024 tokenized UK gilts and Eurobonds with 27 market participants across a market worth £2.4 trillion in gilts and €12.97 trillion in Eurobond issuance.
Deposit drain concerns dominate executive discussions. Standard Chartered's April 2025 report projected emerging markets face acute risk as two-thirds of existing stablecoin supply already functions as savings in EM accounts. Countries like Egypt, Pakistan, Colombia, Bangladesh, and Sri Lanka could see rapid capital outflows if yield-bearing stablecoins proliferate. Ronit Ghose, a Citi executive, compared the threat to the late 1970s crisis when money market funds grew from $4 billion in 1975 to $235 billion by 1982, draining $32 billion from banks in 1981-1982 as depositors sought higher returns than regulated bank rates offered.
The U.S. banking industry lobbied intensively against the GENIUS Act's perceived loopholes, arguing that while the Act prohibits stablecoin issuers from paying interest directly, exchanges or affiliates could offer yield on third-party stablecoins, effectively circumventing the restriction. The American Bankers Association and Bank Policy Institute warned this could trigger deposit flight comparable to the 1980s money market crisis. Bank of England Governor Andrew Bailey proposed caps of £10,000-£20,000 for individuals and £10 million for businesses to limit systemic risk, though crypto advocates criticized these as "bad for UK savers" and difficult to enforce.
Yet banks also identified opportunities in 24/7 operations, cost reduction, and new revenue streams from infrastructure services. HSBC expanded its Tokenized Deposit Service from Hong Kong and Singapore to UK and Luxembourg in September 2024, completing the first cross-border USD-denominated transaction. Standard Chartered announced a Hong Kong dollar stablecoin joint venture with Animoca Brands and HKT in February 2025, participating in the HKMA sandbox as one of the first licensed issuers. Bank of America, while not issuing stablecoins, filed hundreds of blockchain patents and acknowledged in August 2025 that tokenization would transform infrastructure over the next 5-15 years.
The AML and KYC challenge compounds institutional reluctance. In 2024, $51.3 billion in cryptocurrencies facilitated illicit activities, with stablecoins comprising 63% of all illicit crypto transactions - over $40.9 billion linked to suspicious addresses. Chainalysis documented that 5% of all stablecoin transactions ($649 billion) involved suspicious addresses, while Tether and Circle froze $1.3 billion in 2024 (double the prior three years combined) to comply with sanctions. Banks fear liability exposure: when one company received ETH linked to sanctioned Tornado Cash mixer, Gemini froze $100,000 for a month with only partial recovery after six months. Traditional correspondent banking provides multiple KYC checkpoints; stablecoins bypass these intermediaries, reducing visibility into transaction chains and increasing sanctions compliance risks.
Why stablecoin issuers need traditional banks
Circle's strategy exemplifies stablecoin dependence on banking infrastructure. Beyond BNY Mellon custody, Circle partners with BlackRock as primary asset manager for cash reserves and Cross River Bank for minting and redemption services added after the SVB crisis.
CEO Jeremy Allaire positioned Circle as "bridge between traditional finance and blockchain," pursuing a Federal Reserve bank charter while filing for NYSE IPO in 2024-2025. The company emphasizes that "full-reserve banking, built on digital currency technology, can lead to not just a radically more efficient, but also a safer, more resilient financial system."
Circle's reserve composition demonstrates banking interdependence. Monthly attestations by Grant Thornton show 61% in cash or cash equivalents with the remainder in U.S. Treasury bonds, all custodied through banking partners. When SVB collapsed with $3.3 billion of Circle's reserves, USDC depegged to $0.87 before Circle transferred remaining SVB cash to BNY Mellon and received Federal Reserve emergency support through the Bank Term Funding Program. The episode proved that stablecoins cannot survive major banking crises without central bank intervention, undermining claims of independence from traditional finance.
PayPal USD launched in August 2023 through Paxos Trust Company under New York State Department of Financial Services regulation, with Standard Chartered announced as banking partner in December 2024 for cash management, trading, and custody. Paxos Head of Strategy Walter Hessert explained the strategic logic: "When PayPal moves into the space and launches a stablecoin, they're saying to other payments companies, and to their tens of millions of merchants around the world, that stablecoin is a real product. It's now a trusted product backed by PayPal, fully regulated by NYDFS, issued by Paxos." The collaboration provides institutional legitimacy PayPal could not achieve independently while giving Paxos access to 100 million users.
Tether's banking relationships remain more opaque despite being the largest stablecoin. Howard Lutnick confirmed in January 2024 that Cantor Fitzgerald serves as custodian for Tether's reserves, which include $113 billion in U.S. Treasury bills (75.86% of reserves), $3.5 billion in gold, and $2.8 billion in Bitcoin. Tether generated $13 billion profit in 2024, primarily from Treasury interest, exceeding BlackRock's earnings. However, U.S. banks remain "wary of processing Tether's transactions" due to regulatory uncertainty and past CFTC fines, forcing reliance on offshore banking relationships. BDO provides quarterly attestations (not full audits), and Tether announced plans for real-time reserve reporting via blockchain-based APIs by end of 2025.
Stablecoin issuers need banks for three critical functions. First, reserves and custody require institutional-grade partners with insurance, regulatory oversight, and segregated accounts with bankruptcy protection. Second, on/off ramps for converting fiat to stablecoins (minting) and back (redemption) require traditional banking infrastructure - ACH, SWIFT, Fedwire access. Third, regulatory compliance demands AML/KYC infrastructure, oversight from banking regulators, and integration with payment systems. As Paxos stated in its banking whitepaper: "Today, most regulated stablecoins are backed 1:1 by high-quality liquid assets such as Treasury bills and cash held at insured banks. Rather than draining deposits, stablecoins can actually deepen relationships with current clients."
Société Générale's approach demonstrates how banks can issue stablecoins directly. The bank launched EURCV in April 2023 on Ethereum through subsidiary SG-FORGE, achieving MiCA compliance in July 2024 as one of the first euro stablecoins under the new framework. SG-FORGE holds Electronic Money Institution and Investment Firm licenses, with 100% cash backing held at Société Générale in bankruptcy-remote structures. In June 2025, SG-FORGE launched USDCV with BNY Mellon as reserve custodian, expanding to Solana, Stellar, and planned XRP Ledger deployment. Daily public disclosure of collateral composition and third-party audits by HACKEN provide transparency.
The relationship between stablecoin issuers and banks evolved from arm's-length transactions to strategic partnerships. Circle signed a global banking agreement with Standard Chartered making the G-SIB an advisory bank to the Circle Payments Network, contributing to network design, compliance frameworks, and operational standards. In August 2025, Circle integrated with Finastra's Global PAYplus platform serving 8,000 customers including 45 of the world's top 50 banks, processing over $5 trillion daily in cross-border transactions. Jeremy Allaire framed this as "enabling financial institutions to test and launch innovative payment models that combine blockchain technology with the scale and trust of the existing banking system."
Regulatory frameworks converge on core principles
Europe's MiCA regulation entered force in June 2023 with stablecoin provisions applicable from June 30, 2024. The framework distinguishes Asset-Referenced Tokens (pegged to multiple currencies or assets) from E-Money Tokens (single official currency) and tokenized deposits (which remain under banking law, not MiCA).
Key requirements include 100% backing at all times, at least 30% of EMT reserves in bank deposits with concentration limits, redemption at par without fees, and prohibition on interest payments (Article 50). The European Banking Authority clarified in December 2024 that tokenized deposits involve continuous contractual relationships with destruction and creation of claims settled in central bank money, while EMTs transfer as bearer instruments on secondary markets.
MiCA enforcement accelerated in early 2025 when ESMA issued guidance requiring exchanges to delist non-compliant stablecoins by Q1 2025. Major platforms including Coinbase and Crypto.com removed Tether for EU customers, leaving Circle's USDC, EURC, Société Générale's EURCV, and a handful of others as compliant options. The regulation includes a transitional grandfathering period until July 1, 2026, but immediate compliance pressured issuers to adapt rapidly. ECB President Christine Lagarde called in September 2025 for stringent equivalence requirements for foreign stablecoins, concerned that USD stablecoin dominance (approximately 90% of the market) could "dollarize" the euro area and weaken ECB monetary control.
The U.S. GENIUS Act signed in July 2025 established a federal framework for stablecoin issuers after the Financial Stability Oversight Council warned in December 2024 that stablecoins were "acutely vulnerable to runs absent appropriate risk management standards." The Act allows both banks and state-chartered trust companies to issue stablecoins with federal oversight, prohibits direct interest payments to prevent deposit drain, and requires AML/KYC compliance. Federal Reserve Governor Christopher Waller's February 2025 speech "Reflections on a Maturing Stablecoin Market" acknowledged the market had doubled to $250 billion with forecasts reaching $400 billion by end-2025 and $2 trillion by 2028.
Waller identified domestic regulatory fragmentation (state-by-state conflicts) and international divergence (MiCA's 30% bank deposit requirement versus varying U.S. state standards) as major scalability obstacles. He noted stablecoins' clear use cases in cross-border payments ("stablecoin sandwich" of fiat-to-stablecoin-to-fiat), remittances, tokenized asset settlement via delivery versus payment, and wholesale applications. On business models, Waller explained that revenue derives from the spread between reserve returns and zero-interest liabilities, making profitability sensitive to interest rate environments.
Singapore's Payment Services Act framework finalized August 15, 2023, requires Major Payment Institution licenses for single-currency stablecoins exceeding S$5 million in circulation. Issuers must maintain 100% backing in cash, cash equivalents, or 3-month government securities denominated in the peg currency, with redemption at par within five business days. The Monetary Authority of Singapore granted in-principle approvals to StraitsX and Paxos Digital Singapore while prohibiting licensed issuers from providing lending, staking, or dealing in other digital payment tokens. Importantly, MAS allows only single-jurisdiction issuance initially, citing difficulty establishing global regulatory equivalence.
The tension between convergence and containment shapes cross-border dynamics. International standards from the Financial Stability Board's July 2023 recommendations provide a common framework: "same activity, same risk, same regulation" applied technology-neutrally with 100% reserve backing, timely redemption at par, and authorization before operations. The FSB's ten high-level recommendations emphasize authorities must have powers and tools for comprehensive oversight, with cross-border cooperation and recovery/resolution plans required. For single-currency stablecoins, the FSB mandates redemption at par into fiat, explicitly noting algorithmic stablecoins do not meet requirements.
Yet divergence persists on critical details. MiCA prohibits interest on EMTs while the U.S. allows it. MiCA requires 30% minimum in bank deposits; Singapore and U.S. jurisdictions vary. MiCA provides EU-wide passporting but demands strict third-country equivalence; Singapore initially restricts to domestic issuance; the U.S. creates federal-state dual systems. These differences reflect geopolitical positioning: the U.S. views USD stablecoins as "tools of statecraft" to strengthen dollar dominance internationally, while the EU fears stablecoin-driven dollarization could undermine monetary sovereignty and ECB policy transmission.
Central banks globally prefer tokenized deposits over public stablecoins. The Bank for International Settlements argued in April 2023 that tokenized deposits preserve "singleness of money" through central bank settlement, maintaining the two-tier system while adding programmability benefits. Public stablecoins as bearer instruments risk price divergence from par - historical precedent includes 19th century U.S. free banking with discounts up to 20%, while recent depegging events during the FTX and SVB crises demonstrated fragility. The New York Fed argued in February 2022 that tokenized deposits are preferable because they use existing infrastructure without tying up separate reserves unnecessarily.
The ECB's July 2025 blog warned that stablecoins growing from $255 billion in June 2025 toward projected $2 trillion by 2028 could undermine monetary sovereignty, create contagion risks from disorderly collapses, and entrench USD dominance through network effects difficult to reverse. The ECB called for MiCA enforcement, digital euro development to maintain monetary control, and potential promotion of euro stablecoins to counter USD stablecoin growth. This containment strategy contrasts with the U.S. approach of encouraging USD stablecoin proliferation globally as a form of digital dollar diplomacy.
Technical infrastructure bridges blockchain and banking
On-chain settlement operates fundamentally differently from correspondent banking by directly updating balances on distributed ledgers in 3-5 seconds on networks like XRP Ledger versus 1-5 days for traditional wire transfers. Stablecoin transactions achieve atomic settlement where execution is all-or-nothing with no partial settlements, eliminating counterparty risk through delivery-versus-payment mechanisms enforced by smart contracts.
The always-on architecture enables instant cross-border payments at 3 AM on Sunday, impossible with RTGS systems operating only during business hours. Traditional correspondent banking locks up approximately $10 trillion globally in pre-funded Nostro/Vostro accounts; stablecoin settlement can improve capital efficiency by up to 40% and reduce remittance fees up to 80%.
Smart contracts transform money from static value into programmable instructions executing automatically when conditions are met. Conditional payment logic verifies delivery and invoice accuracy before releasing funds automatically, reducing payment processing effort by 84% in construction industry pilots. Automated treasury management optimizes interest by moving funds to highest-yield platforms based on real-time rates, while recurring payments authorize pre-approved contracts to pull payments automatically. Real-world deployments include supply chain finance with robotic reality capture triggering subcontractor payments, automated letters of credit in trade finance, and the UBS tokenized funds pilot using SWIFT messages with Chainlink's Cross-Chain Interoperability Protocol to trigger on-chain fund subscriptions and redemptions.
Cross-border payment mechanics demonstrate the efficiency gap. Traditional correspondent banking chains involve sender's bank, correspondent bank 1, correspondent bank 2, intermediary bank, recipient's bank, and recipient - six-plus intermediaries each adding 2-6% fees over 1-5 business days with limited transparency. The stablecoin "sandwich" model converts local fiat to stablecoin, settles on blockchain in 3-5 seconds, then converts to recipient's local fiat - total settlement under one hour with 0.1-1% fees and real-time on-chain tracking. Ripple's XRP Ledger processes this through its consensus protocol settling every 3-5 seconds with a native decentralized exchange for instant currency conversion and XRP as bridge asset when direct markets lack liquidity.
Chainlink's Cross-Chain Interoperability Protocol provides institutional-grade infrastructure for secure cross-chain communication with three independent Decentralized Oracle Networks verifying every transaction, a separate Risk Management Network monitoring for anomalies, and multi-signature validation requiring agreement from multiple node operators. Chainlink has secured over $14 trillion in on-chain transaction value and launched the Cross-Chain Token standard in January 2025, enabling self-serve token deployment across multiple blockchains in minutes. Aave's GHO stablecoin and Solv Protocol's wrapped Bitcoin adopted this standard, which includes Token Developer Attestation allowing stablecoin issuers to verify burn/lock events before minting on destination chains.
In September 2025, Chainlink announced integration with SWIFT to enable 11,000-plus banks to transact with blockchain systems using ISO 20022 messaging standards. The SWIFT blockchain integration pilot tested by UBS successfully used SWIFT messages with Chainlink to execute tokenized fund subscriptions and redemptions, demonstrating how legacy financial messaging can trigger on-chain operations. ISO 20022 is becoming the universal language connecting traditional finance and blockchain - 80% of global financial transactions will use this standard by end of 2025. Blockchains including XRP Ledger, Stellar, XDC Network, Algorand, Cardano, and Hedera are implementing ISO 20022 compliance to enable direct integration with correspondent banking systems.
ISO 20022 supports detailed transaction metadata including purpose codes, remittance information, and structured addresses compared to limited character fields in legacy SWIFT MT messages. This enhanced data enables automated AML/KYC screening and sanctions checking while providing interoperability so blockchain transactions can be understood by traditional banking systems. XDC Network's Impel API processes cross-border payments with instant settlement using Fluent Finance's US+ stablecoin at $0.00001 transaction fees with full ISO 20022 messaging compliance, demonstrating how the standard bridges worlds.
Traditional SWIFT messaging systems only send payment instructions without moving money, requiring correspondent relationships and RTGS systems for actual settlement over 1-5 business days during business hours. In September 2025, SWIFT announced integration of a blockchain-based shared ledger into its infrastructure through partnership with Consensys, with 30-plus global banks including JPMorgan, HSBC, Bank of America, and Deutsche Bank participating. The new architecture provides real-time 24/7 cross-border payments while maintaining ISO 20022 compatibility and integrating with XRP Ledger, Hedera, and Ethereum Layer 2s like Linea for on-chain settlement.
RTGS systems like Fedwire operate 6:30 AM to 5:00 PM ET with no weekend or holiday access, creating centralized single points of control that blockchain architectures avoid through decentralization across multiple validators. Bank of England's Project Meridian tested in 2024 demonstrated synchronization of DLT asset transfers with RTGS payment settlement using R3 Corda blockchain and a "synchronization operator" coordinating between ledgers for house purchases with HM Land Registry, proving atomic delivery versus payment can integrate tokenized assets with central bank money.
Compliance infrastructure matured significantly in 2024-2025. Chainlink's Automated Compliance Engine launched in 2025 provides unified compliance infrastructure across blockchains by connecting real-world identity sources to on-chain formats through integration with GLEIF verifiable Legal Entity Identifiers (vLEI). The system's policy manager allows customizable rules engines defining KYC requirements, jurisdiction restrictions, and volume limits with real-time enforcement before transaction execution. Continuous screening monitors against sanctions lists, PEP databases, and adverse media, while automated Suspicious Activity Report generation provides complete transaction context and immutable audit trails.
The Chainlink Canonical Identity standard links wallet addresses to real-world legal entities via GLEIF's LEI system with cryptographic proofs of compliance attributes that don't expose raw personal data. Smart contracts check CCID before allowing restricted asset transfers, storing only cryptographic proof of compliance on-chain rather than personal data. GLEIF's verifiable LEI brings official G-20 mandated identification standards to blockchain for the first time, enabling standardized entity identification across all jurisdictions. The Hong Kong Monetary Authority's e-HKD pilot with ANZ and Fidelity International used Chainlink ACE to verify investor identities for tokenized fund purchases, demonstrating privacy-preserving compliance for institutional transactions.
Zero-knowledge proofs enable proving compliance without revealing underlying data - proving KYC completion without disclosing name and address, proving transactions aren't sanctioned without revealing counterparty identities, proving collateral sufficiency without exposing wallet balances. XRP Ledger's roadmap includes Confidential Multi-Purpose Tokens launching Q1 2026 for privacy-preserving collateral management, allowing auditors to verify compliance while transactions remain confidential to support institutional confidential trading requirements.
Blockchain analytics platforms now track over 270 risk indicators including connections to known illicit addresses from darknet markets, ransomware, and hacks; mixing service usage; high-risk jurisdiction exposure; and transaction pattern analysis detecting structuring and rapid movement. Leading compliance solutions from Chainalysis, Elliptic, and TRM Labs provide real-time transaction screening integrated via APIs to automatically flag suspicious wallets before transactions execute. The compliance workflow screens wallet addresses pre-transaction against risk databases, assigns low/medium/high risk classifications, and enforces policies that allow, flag for review, or block transactions based on risk, followed by ongoing monitoring of customer wallets for emerging risks.
Ripple's XRP Ledger developed institutional DeFi features specifically targeting regulated finance. The platform achieved its first $1 billion monthly stablecoin volume in 2024 and ranks in the top 10 chains for Real-World Asset activity. Technical features include 3-5 second settlement finality, 1,500 transactions per second throughput, and $0.00001 transaction fees with 150-plus validators globally providing decentralization. Compliance tooling launched in 2024 includes Credentials linked to Decentralized Identifiers where trusted issuers attest to KYC status and regulatory permissions, and Deep Freeze allowing token issuers to prevent transfers from flagged accounts to comply with sanctions.
The Native Lending Protocol launching Q4 2025 via XLS-65/66 specifications aggregates liquidity into Single-Asset Vaults issuing transferable or non-transferable Vault shares that can be public or gated via Permissioned Domains. The protocol supports fixed-term amortized loans at protocol level (not smart contracts), enables uncollateralized lending with off-chain underwriting, and includes optional on-ledger first-loss capital for depositor protection while automating the entire loan lifecycle from issuance through repayment and reconciliation.
This provides institutions with low-cost capital sourced from global liquidity pools, compliance-first enforcement of KYC/AML requirements via Credentials and Permissioned Domains, automated operations eliminating manual back-office reconciliation, and tamper-proof audit trails.
Where banks and stablecoins collaborate in practice
JPMorgan's Kinexys platform (rebranded from Onyx in November 2024) represents the most mature bank-led blockchain infrastructure with over $1.5 trillion in cumulative transactions since 2020 and $2 billion average daily volume. Payments transactions grew tenfold year-over-year from 2023 to 2024, with daily volumes reaching "multiple billions of dollars on some days" after introducing programmability in May 2024.
Umar Farooq, Co-head of J.P. Morgan Payments, explained the vision: "We aim to move beyond the limitations of legacy technology and realize the promise of a multichain world to foster a more connected ecosystem, break down disparate systems, enable greater interoperability and reduce limitations of today's financial infrastructure."
Siemens issued €100,000 in tokenized commercial paper in September 2024 settled via JPM Coin System on the Kinexys platform, demonstrating real commercial use beyond pilots. The Q1 2025 planned launch of on-chain FX settlement capabilities starting with USD-EUR pairs will enable near real-time multicurrency clearing and settlement automation 24/7. JPMorgan serves clients across five continents including BlackRock, Ant International, and Fidelity International, with use cases spanning cross-border payments, intraday repos (executing the largest repo transactions on any blockchain globally), delivery versus payment settlement, and intragroup liquidity management.
The bank pursued a dual strategy: proprietary Kinexys for institutional clients on private blockchain, and in June 2024 announced JPM Deposit Token (JPMD) proof-of-concept on Coinbase's public Base blockchain as an alternative to stablecoins. CEO Jamie Dimon acknowledged, "We're going to be involved in both JPMorgan deposit coin and stablecoins," recognizing the bank cannot afford to stay on the sidelines despite his personal skepticism ("I don't get the appeal"). The platform experiences three-hour downtime on Saturday afternoons (3-6 PM EST) for connectivity with traditional account systems, highlighting integration challenges that ongoing technical enhancements address.
Ripple's institutional strategy focused on central bank digital currency partnerships with over ten governments including Palau (USD-backed climate-friendly digital currency with Phase One completed), Bhutan (enhancing digital cross-border payments for the only carbon-negative country), Montenegro (evaluating blockchain functionality with the central bank), Georgia (piloting Digital Lari), and Colombia (improving high-value payment system transparency with Banco de la República). Ripple CEO Brad Garlinghouse confirmed additional undisclosed partnerships, positioning the company's CBDC Platform launched May 2023 as top-ranked by both Juniper Research (among 15 CBDC technology providers) and CB Insights for blockchain cross-border payments and CBDCs.
In December 2024, Ripple launched Ripple USD (RLUSD) fully regulated by New York Department of Financial Services and backed 1:1 by U.S. dollar deposits, short-term Treasuries, and cash equivalents. The stablecoin runs on both XRP Ledger and Ethereum with BNY Mellon as primary reserve custodian under the July 2025 partnership announcement. RippleNet serves over 300 financial institutions across 40-plus countries with partnership with Onafriq creating remittance corridors between 27 African countries and UK, Australia, and Gulf regions through 1,300-plus mobile wallet connections. Transaction efficiency shows dramatic advantages: XRP average fees of ~$0.0002 versus Bitcoin's ~$1.09 with real-time settlement and 24/7 operations.
Visa's stablecoin settlement pilot launched September 2023 with Crypto.com using USDC on Ethereum, expanding to merchant acquirers Worldpay and Nuvei and adding Solana blockchain support. The program settled over $225 million in stablecoin volume through March 2025 across participating clients. In January 2025, Visa added two more stablecoins (Paxos Global Dollar USDG and PayPal USD PYUSD), two blockchains (Stellar and Avalanche), and euro-backed EURC support, expanding seven-day-a-week settlement capabilities as the circulating stablecoin supply reached $217 billion with 46% year-over-year growth.
The September 2025 announcement of Visa Direct stablecoin prefunding represented a major evolution, allowing businesses to prefund cross-border payouts with stablecoins that Visa treats as "money in the bank." Chris Newkirk, President of Commercial and Money Movement Solutions at Visa, explained: "Cross-border payments have been stuck in outdated systems for far too long. Visa Direct's new stablecoins integration lays the groundwork for money to move instantly across the world, giving businesses more choice in how they pay."
Benefits include moving money in minutes instead of days, increasing pre-funding frequency without increasing costs, consistent settlement layer reducing local currency volatility, and 24/7 payments when banks are closed. Visa Direct processed 10 billion transactions in 2024, reaching 11 billion endpoints including 3.5 billion bank accounts, 4 billion cards, and 3.5 billion wallets, with limited stablecoin prefunding availability expected by April 2026.
Mastercard announced its Multi-Stablecoin Network in June 2025, supporting Paxos Global Dollar (USDG), Fiserv's FIUSD, PayPal USD (PYUSD), and Circle's USDC across over 150 million merchant locations worldwide. Over 3.5 billion Mastercard cards in circulation can engage with crypto, with millions already spending stablecoin balances globally. The network achieved 30% of transactions tokenized in 2024, a major digital payment milestone. Mastercard positioned itself as bringing "expertise, unparalleled network, state-of-the-art services and leading partnerships to integrate stablecoins into the financial mainstream with a vision of making them as seamless and ubiquitous as traditional forms of payment."
Cross-border payment use cases emphasize Mastercard Move enabling financial institutions and wallets to send and receive stablecoin flows seamlessly for remittances, global payroll, and supplier payments. Mastercard One Credential launched in 2025 provides a flexible way to spend both fiat and stablecoin balances through a single product, with Fiserv as first adopter.
The Multi-Token Network built for programmable payments and stablecoin settlement powers Fiserv's Digital Asset Platform, offering off-the-shelf support for programmable, on-chain commerce. Merchant settlement pilots announced in April 2025 partnering with Nuvei, Circle, and Paxos allow merchants to settle sales and receive payments in stablecoins, reducing payment processing fees (merchants paid $187.2 billion in fees in 2024), enabling 24-hour settlement, and accessing programmable money features.
Circle's banking network expanded globally with direct wholesale access to USDC in major financial centers spanning U.S., UK, EU, Singapore, Hong Kong, Brazil, Japan, and UAE. The company filed for a national trust bank charter with the Office of the Comptroller of the Currency on June 30, 2025, seeking to establish First National Digital Currency Bank, N.A. to oversee USDC Reserve management under OCC supervision as a federally regulated trust institution offering digital asset custody to institutional customers. Circle achieved first NYDFS BitLicense in 2015, became the first global stablecoin issuer MiCA-compliant in 2024, and received in-principle approval from Singapore's Financial Services Authority in April 2025.
Integration with Finastra's Global PAYplus platform in August 2025 gave Circle access to 8,000 customers including 45 of the world's top 50 banks processing over $5 trillion daily in cross-border transactions. Jeremy Allaire emphasized the partnership "enables financial institutions to test and launch innovative payment models that combine blockchain technology with the scale and trust of the existing banking system." Payment network collaborations extended to Worldpay for USDC settlement enabling weekend transactions, Stripe offering USDC payouts across Ethereum, Solana, and Polygon blockchains after processing $1 trillion in total 2023 payment volume, and MoneyGram using USDC on Stellar blockchain for remittances across 180 countries through 440,000 physical locations.
Société Générale's EUR CoinVertible (EURCV) launched April 2023 on Ethereum achieved MiCA compliance as Electronic Money Token in July 2024, making it one of the first euro stablecoins under the new framework with free transferability and no whitelisting restrictions. Jean-Marc Stenger, CEO of SG-FORGE, stated: "Robust and regulated stablecoins are essential for the proper functioning, security and institutionalization of crypto-asset markets. With EUR CoinVertible, and the implementation of the European MiCA regulation, SG-Forge is strengthening its offering to crypto ecosystems." In June 2025, SG-FORGE launched USD CoinVertible (USDCV) with BNY Mellon as reserve custodian on Ethereum and Solana, expanding to Stellar in February 2025 and planned XRP Ledger deployment announced November 2024.
With 46.79 million EURCV in circulation, Société Générale holds the third most significant euro stablecoin position with roughly 10% market share and approximately €40 million ($47 million) daily turnover as of September 2025. The 100% cash backing held at Société Générale for EURCV and BNY Mellon for USDCV maintains bankruptcy-remote structures with daily public disclosure of collateral composition audited by HACKEN.
Distribution through Bitstamp (December 2023), Bullish Europe (September 2025 for USDCV), and Bitpanda (September 2024) provides exchange access, while liquidity partnerships with Wintermute, Flowdesk, and Keyrock support market-making. Target applications include instantaneous global money transfer, real-time foreign exchange, out-of-hours 24/7 settlement, digital asset payments, volatility reduction, and smart contract integration across DeFi protocols like Morpho and Uniswap.
Debating whether stablecoins replace or redefine banks
Critics argue stablecoins could fundamentally displace traditional banking. Christian Catalini from MIT wrote in Harvard Business Review that stablecoins "could rewire the global financial system, displace SWIFT, Visa, and Mastercard, and accelerate the unbundling of financial institutions."
The displacement mechanisms operate through deposit competition, payment disintermediation, cross-border dominance (already 3% of global payments versus 0% in 2022), and emerging market dollarization with high adoption in Argentina, Nigeria, and Turkey. McKinsey described stablecoins as "the first true market fit for non-crypto digital assets," capturing real economic activity beyond speculation.
The deposit competition threat materializes through multiple channels. The U.S. Treasury warned transactional deposits are "at risk" with worst-case scenarios projecting 20% decline if stablecoin growth comes from bank deposits. Stablecoins offering yield can undercut banks constrained by overhead and regulation: Stripe charges merchants 1.5% for stablecoin acceptance versus 3% for traditional cards, and platforms like Coinbase offer 4% annual rates on stablecoin holdings. Standard Chartered's research shows two-thirds of current stablecoin supply already functions as savings in emerging market accounts, indicating behavioral shift from bank deposits to digital dollar holdings.
Payment system disintermediation bypasses correspondent banking infrastructure that generates significant bank revenue. Correspondent banking relationships require pre-funded Nostro accounts, multiple intermediaries taking 2-6% fees, and 1-5 day settlement. Stablecoins compress this to sub-1% fees and under-one-hour settlement, threatening Citi's 40% bottom-line contribution from transaction services. The $27.6 trillion annual stablecoin transaction volume in 2024 already exceeded combined Visa and Mastercard volume, demonstrating captured payment flows shifting outside traditional banking rails.
Counterarguments emphasize banks' irreplaceable structural roles. Credit intermediation represents the fundamental banking function that stablecoins cannot perform. Full-reserve backing required by regulations means stablecoin issuers cannot create credit through fractional banking. Banks provide overdrafts, lines of credit, and elastic money supply expansion that stablecoins by design exclude. The Bank for International Settlements argued that "pre-funded accounts would be recipes for payment system gridlock" because the economy requires credit creation beyond existing money stock. This structural limitation means stablecoins can process payments but cannot perform core banking functions of maturity transformation and credit allocation.
Deposit insurance distinguishes bank deposits from stablecoin holdings critically. FDIC protection for bank deposits up to $250,000 prevents most retail runs, while stablecoins lack government guarantee. The March 2023 Silicon Valley Bank collapse demonstrated this gap: Circle's $3.3 billion uninsured deposits were trapped, causing USDC to depeg to $0.87 until Federal Reserve emergency intervention through the Bank Term Funding Program. The episode proved stablecoins depend on central bank support during banking crises, undermining independence claims. Nobel laureate Jean Tirole stated in September 2025 he is "very, very worried" about supervision of stablecoins, citing "political and financial conflicts of interest" and predicting potential bailouts.
Regulatory oversight subjects banks to capital requirements under Basel III, stress tests, and comprehensive examination that stablecoins avoided until recent MiCA and GENIUS Act frameworks. Banks must hold capital buffers against risk-weighted assets, maintain liquidity coverage ratios, and submit to Federal Reserve supervision with resolution planning. Stablecoin issuers faced minimal oversight pre-2024, and even current frameworks apply lighter-touch requirements than bank capital rules. Arthur Wilmarth from George Washington University Law School warned the GENIUS Act provides "weak and inadequate" standards that "would set the stage for runs triggering systemic crises and bailouts."
Lender-of-last-resort access remains exclusive to banks. During liquidity stress, banks can borrow from Federal Reserve discount window facilities against collateral. Stablecoins have no such access - when USDC depegged, Circle could not directly obtain Fed liquidity. The IMF noted: "Central banks cannot provide liquidity to issuers of private digital money" under current frameworks. This structural vulnerability means stablecoins face higher run risk than bank deposits, particularly during systemic stress when investors flee to safety and redemption demands spike.
Settlement finality differences matter for systemic risk. Bank payments settle in central bank reserves, providing ultimate finality backed by government. Stablecoins settle in private issuer claims - receiving USDC means holding a claim on Circle's reserves, not Federal Reserve liabilities. The BIS emphasized this "singleness of money" principle: all money should trade at par with central bank money with universal acceptance. Historical evidence from 19th century U.S. free banking showed private banknotes trading at discounts up to 20% from par. Recent depegging events during FTX and SVB crises demonstrated stablecoins can diverge from par during stress, violating singleness and creating uncertainty about value.
The public versus bank-issued stablecoin comparison reveals different risk-return tradeoffs. Public stablecoins like Tether and Circle achieved massive scale ($140 billion USDT, $55 billion USDC) through network effects, permissionless access, and first-mover advantages. Tether generated $13 billion profit in 2024 from reserve yields, exceeding BlackRock's earnings. Public stablecoins provide borderless access and integrate across DeFi ecosystems without institutional gatekeeping. However, transparency concerns persist - Tether paid $41 million CFTC fine for reserve backing allegations, relies on quarterly attestations rather than full audits, and maintains opaque banking relationships primarily offshore.
Bank-issued stablecoins prioritize regulatory compliance, leverage existing customer bases, and integrate with banking infrastructure. JPMorgan's Kinexys and Citi Token Services operate on permissioned blockchains with full KYC/AML controls, FDIC-supervised parent banks, and direct integration with traditional payment systems. Société Générale's EURCV achieved MiCA compliance immediately, provides daily public disclosure with third-party audits, and maintains bankruptcy-remote reserve structures. The trade-off involves limited interoperability, slower innovation cycles constrained by regulatory approval processes, and confined networks restricted to bank customers rather than open access.
A hybrid model emerged in 2024-2025 with interoperable bank consortiums. The Wall Street Journal reported in May 2025 that JPMorgan, Bank of America, Citi, and Wells Fargo discussed joint stablecoin issuance through either Early Warning Services (which operates Zelle) or The Clearing House (representing 22 banks). Bank of America CEO Brian Moynihan stated: "You need networks... I'd expect you'll see consortiums as well as individual banks moving." This consortium approach attempts to combine bank regulatory compliance and deposit insurance with network scale approaching public stablecoins. The Brookings Institution noted "only the biggest banks can stomach the legal uncertainty and AML/KYC risks," suggesting consolidation among major institutions.
Disintermediation risks cut both ways. If stablecoins are Treasury-backed with 100% reserves, the Bank Policy Institute warned of "substantial deposit decline with 20% worst-case scenario" draining banks' cheapest funding source. Alternatively, if stablecoins hold bank deposits as reserves, they create "systemic risk vehicles akin to money market funds in 2008" with concentrated wholesale funding in handful of global banking giants. The Atlantic Council questioned whether concentrating reserves "among a handful of global banking giants is an improvement over 11,000 banks in SWIFT." IMF economist Hélène Rey warned stablecoins "could hollow out banking sectors" with "effects on systemic risk warranting close examination."
Systemic risk analysis reveals multiple historical bank run precedents. TerraUSD's May 2022 collapse eliminated $45 billion in a week, triggering contagion across stablecoin markets. USDC's March 2023 depeg to $0.94 following Silicon Valley Bank's seizure of Circle's $3.3 billion uninsured deposits caused $10 billion in redemptions over one weekend. Tether experienced billions in withdrawals during May 2022 stress, maintaining peg but raising reserve transparency questions. Moody's Analytics defined depegging as exceeding 3% daily fluctuation, documenting 2,347 such events in 2022 alone across various stablecoins.
Run risk mechanisms parallel money market funds with elevated fragility. New York Fed research titled "Are Stablecoins the New Money Market Funds?" identified similarities in run dynamics but noted stablecoins face greater vulnerability due to no lender of last resort, bearer instrument nature allowing instant peer-to-peer transfers, and 24/7 trading that accelerates herd behavior. Economists Gary Gorton and Jeffrey Zhang argued stablecoins face "elevated run risk because they depend on credible 1:1 peg maintenance" with "network effects and herd behavior accelerating runs once confidence erodes."
Fire sale risk emerges from major stablecoins' Treasury holdings. Tether holds $113 billion in U.S. Treasury bills (18th largest sovereign holder), while combined stablecoin Treasury exposure exceeds $150 billion. BIS research warned that $3.5 billion stablecoin inflows depress T-bill yields 2.5-5 basis points, with redemption effects three times larger. Rapid redemptions forcing Treasury liquidations during market stress could disrupt short-term funding markets, transmitting shocks from crypto to traditional finance. The European Systemic Risk Board stated in May 2023: "Growing interconnectedness combined with a run on a major stablecoin could cause systemic risk" to broader financial stability.
Banking system contagion channels multiplied through direct bank exposure (Silvergate failed March 2023, Signature seized, SVB Circle deposits triggered USDC depeg), collateral interconnections (crypto platforms using BlackRock BUIDL as collateral, stablecoin-denominated margins in derivatives), and Treasury market impact from sudden liquidations. The BIS warned in July 2025: "Stablecoins' rising interconnections have reached a stage where spillovers can no longer be ruled out." Chainalysis documented $12.4 billion in fraud across crypto in 2025, noting a "growing professionalized fraud ecosystem" that could spill into traditional finance.
Proposed solutions to systemic risks include regulatory integration into the two-tier monetary structure by granting stablecoin issuers central bank accounts and requiring reserves in central bank deposits, bank-only issuance allowing LOLR access but creating moral hazard, enhanced reserves through MiCA's 1:1 ratio with high-quality liquid assets and stress testing, and systemic designation where Financial Stability Board 2023 recommendations suggest "global stablecoins" above thresholds receive bank-like supervision with emergency liquidity access. The challenge remains building frameworks that capture efficiency benefits while preventing runs and limiting taxpayer bailout exposure.
A hybrid financial system takes shape
The Bank for International Settlements' June 2025 Annual Economic Report argued stablecoins fail three critical tests and advocated a "tokenized trilogy" approach. BIS General Manager Agustín Carstens stated "while stablecoins may play a subsidiary role if adequately regulated, their future role is unclear."
The tests examined singleness (stablecoins lack universal acceptance at par and trade at varying rates), elasticity (cannot expand supply beyond full backing and require upfront payment), and integrity (facilitate financial crime with $25-32 billion flowing to illicit actors in 2024). BIS recommended tokenizing central bank reserves, commercial bank money, and government bonds on a unified ledger rather than relying on private stablecoins.
BIS innovation projects demonstrated the vision: Project Agorá with 7 central banks and 43 institutions testing cross-border wholesale payments, Project Pine for monetary policy operations, and Project Promissa for tokenizing promissory notes. The BIS survey found one-third of central banks intensified CBDC work directly in response to stablecoin proliferation, viewing it as a competitive threat to monetary sovereignty. Hyun Song Shin stated: "Society has a choice: transform on tried and tested foundations of central bank money and sound banking, or re-learn lessons about unsound money with real societal costs."
IMF analysis from 2025 warned of "major financial stability risks" from stablecoins. Hélène Rey identified positives in faster cheaper cross-border payments but emphasized negatives including dollarization risk, capital flow volatility, banking system weakening, and money laundering facilitation. IMF Working Paper 25/141 documented $2 trillion in stablecoin flows during 2024 with highest concentration in North America ($633 billion) and Asia-Pacific ($519 billion). Wharton's Yao Zeng observed: "The landscape changed but rules largely unchanged. Stablecoins may function well in good times but falter under stress."
Central bank CBDC development accelerated in parallel with stablecoin growth. China's e-CNY reached 7 trillion yuan ($986 billion) in transaction volume by June 2024 (four times year-over-year increase) across 17 provinces in the world's largest pilot. India's Digital Rupee achieved ₹10.16 billion ($122 million) circulation with 334% year-over-year growth serving 6 million users, testing programmable payments and offline functionality. Switzerland's Project Helvetia III moved to production with CHF 750 million in tokenized bonds settled with wholesale CBDC. The Atlantic Council tracked 137 countries (98% of global GDP) exploring CBDCs with 72 in advanced phases, 49 running active pilots, and 3 launched.
Programmable CBDC features represent half of planned implementations according to Central Banking surveys. Singapore conducted live wholesale CBDC pilots in 2024-2025 for interbank payments and cross-border securities settlement. However, political obstacles emerged: U.S. President Trump's executive order halted retail CBDC development, limiting Federal Reserve work to wholesale cross-border research in Project Agorá. Fed Chair Jerome Powell confirmed no retail CBDC during his tenure ending 2026, while Fed Governor Lisa Cook warned stablecoin run liquidations could disrupt funding markets given interconnections.
Tokenized treasury fund growth exploded from approximately $100 million in early 2023 to $1 billion by March 2024, $2 billion by August 2024, and $5.4 billion by March 2025 - over 1,000% growth. BlackRock's BUIDL fund leads with $2.5 billion assets under management after 7x annual growth, deployed across 7 blockchains including Ethereum, Aptos, Arbitrum, Avalanche, Optimism, and Polygon. The fund pays monthly dividends from underlying U.S. Treasury yields with $50 million minimum investment targeting institutional clients. Franklin Templeton's BENJI reached $707 million, Superstate USTB $661 million, Ondo USDY $586 million, Circle USYC $487 million, and Ondo OUSG $424 million. Six entities control 88% of the tokenized treasury market.
Use cases expanded beyond speculation to practical institutional applications: crypto derivatives collateral allowing perpetual futures platforms to accept tokenized treasuries as margin, 24/7 on-chain yield enabling continuous interest accrual without traditional market hours, DeFi reserve assets backing stablecoin issuance or providing liquidity pools, and automated treasury management where smart contracts optimize fund allocation. Deloitte projected tokenized real estate alone will reach $4 trillion by 2035, indicating broader real-world asset tokenization trends with treasuries as foundation.
Interbank stablecoin networks advanced from concept to planning. The Wall Street Journal's May 2025 report revealed JPMorgan, Bank of America, Citi, and Wells Fargo discussing joint stablecoin issuance through existing infrastructure like Early Warning Services (operating Zelle with 2,000+ financial institutions) or The Clearing House (representing 22 banks). JPMorgan processes $1-2 billion daily through JPM Coin while announcing JPMD deposit token for Coinbase's Base public blockchain. CEO Jamie Dimon acknowledged: "We're going to be involved in both JPMorgan deposit coin and stablecoins."
Citigroup launched Citi Token Services commercially in October 2024 across four markets processing billions in cross-border payments, with CEO Jane Fraser calling tokenized money the "killer app for liquidity" and confirming exploration of Citi-branded stablecoin issuance. Bank of America CEO Brian Moynihan predicted: "You need networks. I'd expect you'll see consortiums as well as individual banks moving." Société Générale pioneered regulated stablecoin issuance in Europe with EURCV achieving MiCA compliance in July 2024, launching multi-chain deployment across Ethereum, Solana, Stellar, and planned XRP Ledger integration.
Blockchain-based correspondent banking represents BIS's vision for "next-generation correspondent banking" on unified ledgers merging payment instructions with account updates for atomic settlement and AI-powered AML/CFT compliance. Benefits include eliminating messaging-to-clearing-to-settlement delays and enabling 24/7 operation. Project mBridge with China, Hong Kong, Thailand, UAE, and Saudi Arabia reached minimum viable product stage before BIS withdrew in October 2024 due to sanctions circumvention concerns, illustrating geopolitical complexities.
SWIFT's September 2025 blockchain integration announcement with Consensys brought 30-plus global banks including JPMorgan, HSBC, Bank of America, and Deutsche Bank into partnership building a blockchain layer for real-time 24/7 cross-border payments while maintaining ISO 20022 compatibility and integrating with XRP Ledger, Hedera, and Ethereum Layer 2s like Linea. This hybrid architecture preserves SWIFT's messaging network while adding blockchain settlement capabilities, potentially bridging 11,500 member institutions to tokenized finance.
Market projections forecast exponential growth. Current stablecoin market capitalization of $210-250 billion in Q1 2025 is expected to reach $400 billion by end-2025 and $2 trillion by 2028 according to Standard Chartered and McKinsey forecasts. McKinsey identified "2025 as an inflection point" due to regulatory clarity from MiCA and GENIUS Act, maturing infrastructure from Chainlink CCIP and ISO 20022 adoption, and institutional adoption through BlackRock, JPMorgan, and payment networks. However, current use cases remain limited: approximately 3% of cross-border payments and less than 1% of capital markets transactions employ stablecoins, indicating substantial growth runway.
Expert opinions span partnership, competition, and collision perspectives. Partnership advocates include MIT's Christian Catalini: "Stablecoins and CBDCs are complementary, not competitors. They can coexist and enhance each other." BIS General Manager Carstens argued central banks should "lead digital innovation" with stablecoins playing a "subsidiary role if regulated." Citi CEO Jane Fraser called tokenized money the "killer app for liquidity," while Bank of America CEO Moynihan predicted "industry consortiums and banks moving individually."
Competition proponents emphasize transformation potential. BlackRock CEO Larry Fink stated "tokenization has potential to transform capital markets infrastructure." Circle CEO Jeremy Allaire predicted "stablecoin networks will become the most important financial structures." Congressional testimony positioned stablecoin adoption as extending "reserve currency status of the U.S. dollar" as a geopolitical competition tool against China's digital yuan.
Critics expressing collision concerns include Nobel laureate Jean Tirole, who stated in September 2025 he is "very, very worried" about supervision, questioning "current standards" and warning of bailouts. George Washington University's Arthur Wilmarth called GENIUS Act "weak and inadequate, setting the stage for runs triggering systemic crises and bailouts." Senator Elizabeth Warren criticized legislation for lacking "key safeguards and allowing risky asset investments." IMF's Hélène Rey warned stablecoins would "likely create major financial stability risks including dollarization, volatility, banking system weakening, and money laundering."
Nuanced systemic views emerged from practitioners. Wharton's Yao Zeng observed: "The landscape changed, rules unchanged. Function well in good times but falter under stress." LSE's Jong Kun Lim argued "central bank finality is critical foundation, but it's misguided to categorically exclude stablecoins" from the monetary system. JPMorgan's Jamie Dimon remained skeptical personally ("don't get the appeal") but pragmatic institutionally: "We're going to be involved because we can't afford the sidelines." Singapore's Ravi Menon positioned CBDCs as "reinforcing the role of central bank money in safe payments," viewing CBDCs and regulated stablecoins as complementary rather than competitive.
The symbiosis question yields complex answers
The relationship between banks and stablecoins from 2023-2025 reveals neither pure partnership nor pure competition, but rather a complex evolution toward regulated coexistence with significant systemic risks requiring careful management. Evidence demonstrates banks cannot ignore stablecoins - the $27.6 trillion annual transaction volume exceeding Visa and Mastercard combined, plus institutional adoption by BlackRock, Visa, and Mastercard, proves stablecoins captured real economic activity.
Simultaneously, stablecoins cannot replace banks - the March 2023 USDC crisis requiring Federal Reserve intervention, structural inability to create credit through fractional banking, and lack of deposit insurance or lender-of-last-resort access prove stablecoins depend on traditional financial infrastructure and central bank backstops.
The hybrid model crystallizing involves banks providing three foundational layers: custody and reserve management (BNY Mellon for Circle and Ripple, BlackRock for USDC reserves, Cantor Fitzgerald for Tether), minting and redemption infrastructure (Cross River Bank for Circle, Standard Chartered for Paxos), and regulatory compliance frameworks (NYDFS supervision of Paxos, MiCA licensing of SG-FORGE, OCC national trust charter sought by Circle).
Public stablecoins provide transaction layers: 24/7 settlement across borders (3-5 seconds on XRPL versus 1-5 days correspondent banking), programmable payment automation (conditional release, automated treasury management, smart contract integration), and global distribution networks (90 million wallets, integration with DeFi protocols, cross-chain interoperability).
Bank-issued tokenized deposits and stablecoins represent a parallel development with different regulatory treatment. Tokenized deposits (JPMorgan Kinexys, Citi Token Services, HSBC Tokenized Deposit Service) remain under traditional banking law, preserve central bank settlement finality, maintain deposit insurance coverage, and allow interest payments while restricting transferability to verified customers. Public stablecoins under MiCA and GENIUS Act frameworks require 100% reserves, prohibit interest (in EU), enable free transferability, and lack deposit insurance while achieving global interoperability.
Regulatory frameworks converged on core principles - 100% reserve backing, redemption at par, authorization before operations, AML/KYC compliance - while diverging on strategic containment. The EU fears USD stablecoin-driven dollarization weakening ECB monetary sovereignty, leading to stringent MiCA enforcement and digital euro development.
The U.S. views USD stablecoins as geopolitical tools strengthening dollar dominance internationally, creating more permissive GENIUS Act frameworks. Singapore balances innovation-friendly regulation with strict quality standards through MAS-regulated labels and purpose-bound money pilots. This regulatory fragmentation (30% bank deposit requirements in EU, varying U.S. state standards, single-jurisdiction issuance in Singapore) creates scalability obstacles that international coordination through FSB standards partially addresses.
Technological infrastructure maturation enables convergence through Chainlink CCIP providing institutional-grade cross-chain interoperability securing $14+ trillion transaction value, ISO 20022 adoption by 80% of global financial transactions bridging blockchain and banking messaging, SWIFT blockchain integration announced September 2025 connecting 11,500 banks to tokenized assets, and compliance infrastructure via Chainlink ACE with GLEIF vLEI enabling privacy-preserving KYC and automated sanctions screening. These developments transform stablecoin technology from experimental to production-grade institutional infrastructure.
Systemic risk management remains incomplete. Historical run events (TerraUSD $45 billion collapse, USDC $0.94 depeg, Tether stress redemptions) demonstrate fragility, while $25-32 billion flowing to illicit actors in 2024 reveals integrity gaps. Current frameworks lack comprehensive lender-of-last-resort mechanisms, stress testing requirements comparable to banks, and resolution planning for systemically important stablecoins. The concentration risk with Tether controlling 70% market share and combined USDT-USDC holding 88.5% creates too-big-to-fail dynamics without corresponding prudential regulation.
Future trajectories point toward $2 trillion stablecoin market capitalization by 2028, continued bank consortium development (JPMorgan-Citi-BofA-Wells Fargo discussions), tokenized treasury expansion beyond $5.4 billion current level, CBDC proliferation across 137 countries, and SWIFT blockchain integration operationalizing in 2025-2026. The question shifts from whether coexistence occurs to how deeply infrastructures merge and whether regulatory frameworks prevent systemic crises while preserving innovation benefits.
The paradox resolves into complementarity: banks provide trust, regulation, credit creation, and deposit insurance; stablecoins provide speed, programmability, global reach, and 24/7 operations. Neither fully supplants the other. Instead, the financial system evolves toward a tokenized two-tier structure where central bank money anchors stability, regulated banks intermediate credit and custody reserves, and blockchain-based stablecoins process transactions with programmable logic.
The 2023-2025 period represents the foundation-building phase of this transformation, with production deployments like JPMorgan's $1.5 trillion processed, Visa's stablecoin settlement, and Société Générale's MiCA-compliant issuance demonstrating viability while historical crises and regulatory responses reveal ongoing adaptation requirements.
Success requires avoiding two extremes: unregulated stablecoin proliferation risking systemic runs and taxpayer bailouts, and excessive containment stifling innovation benefits in cross-border payments, financial inclusion, and programmable money. The evidence suggests neither outcome - instead, regulated integration into monetary architecture with banks and stablecoins occupying distinct but interconnected roles.
he speedboat metaphor, while unattributed to a verified source, captures the dynamic: stablecoins accelerate banking efficiency without crushing traditional institutions, provided regulation channels speed toward productive use cases while maintaining guardrails against systemic risk. The next phase from 2025 onward will test whether this hybrid architecture delivers promised efficiency gains without triggering financial instability.