Stablecoins Threaten Bank Business Model as Market Reaches $304 Billion

The stablecoin market has grown to $304 billion, with Tether and USDC holding around $183 billion and $74 billion respectively. Banks are expanding into digital money, but this is disrupting their traditional business model. Arthur Firstov, Chief Business Officer at Mercuryo, notes that stablecoins have become a payments product, competing directly with banks' transaction accounts.

Banks are responding to the threat by prioritizing growth in stablecoin and digital-asset areas. A Federal Reserve survey found that roughly half of respondents were focusing on these areas over the next three years. J.P. Morgan's JPM Coin represents a bank deposit on a blockchain, while Société Générale-FORGE's CoinVertible is a MiCA-regulated stablecoin backed by segregated collateral.

Nitin Gaur, Head of Institutions at Nethermind, explains that tokenized deposits remain bank funding, whereas payment stablecoins require at least one-to-one backing with eligible reserves. This could lead to banks facing higher funding costs and less capacity to extend credit if adoption shifts funding away from traditional deposit sources.

Customers are already using these products for payments beyond banking hours, with Citi reporting a dollar payment from London to Thailand over a US holiday weekend. Western Union launched USDPT in May, while J.P. Morgan reports around $7 billion in daily activity across Kinexys products.