Banks Launch Stablecoins Amid USDT's Regulatory Challenges

In recent times, several institutions have announced the launch of their own stablecoins, including Societe General, Revolut, and Bank of America. This trend raises the question of why these institutions are entering the stablecoin market, given that USDT and USDC, the two largest stablecoins, already account for a significant portion of the crypto industry's assets under management.

USDT and USDC are widely accepted across various blockchains and exchanges, providing a stable and less volatile option for investors to move in and out of crypto and preserve their wealth, especially in countries experiencing hyperinflation. The revenue model of stablecoins is highly attractive, with Tether, for example, making substantial profits. This profitability is a significant draw for large banks, which might prefer to handle their own transactions rather than pay third-party fees.

However, the introduction of new stablecoins by banks could dilute the market, which is already facing liquidity issues. The presence of two well-capitalized and liquid stablecoins, USDT and USDC, is beneficial for the market. Introducing more stablecoins could fragment the market, leading to increased transaction costs and a slower, more expensive investor experience.

USDT and USDC have established credibility and trust in the industry, having weathered financial storms that other coins have not. Their dominance continues to grow despite rising competition. For instance, DAI and PYUSD, while impressive, do not come close to the market capitalization of USDT and USDC. However, USDT is currently facing regulatory challenges in the European Union, which could lead to its delisting from major exchanges for European customers.

This regulatory hurdle raises questions about the viability of new stablecoins entering the market. If a well-established coin like USDT struggles with compliance, what chance do smaller, bank-issued stablecoins have? USDC, on the other hand, has been compliant with regulations and has the backing of institutional giants, making it the preferred choice for traditional finance institutions.

Jeremy Allaire, the founder of Circle, which issues USDC, has stated that there is no need for Central Bank Digital Currencies (CBDCs) as the stablecoin market is already thriving and liquid. He suggests that regulators should focus on understanding stablecoins and creating better rules rather than introducing new digital currencies.

For stablecoins to be treated as legitimate assets within