Major Banks Explore Stablecoins Amid Regulatory Clarity

Traditional financial institutions are increasingly exploring the potential of stablecoins, with major players like Bank of America and Standard Chartered considering the launch of their own stablecoins. This move follows JPMorgan's introduction of JPM Coin, now rebranded as Kinexys Digital Payments, which facilitates transactions with institutional clients on their blockchain platform, Kinexys. Mastercard is also joining forces with Bleap Finance to enable stablecoins to be spent directly onchain, integrating blockchain assets with Mastercard’s global payment rails. Visa has joined the Global Dollar Network (USDG) stablecoin consortium, becoming the first traditional finance player to do so. Intercontinental Exchange (ICE), the parent company of NYSE, is investigating the use of USDC and US Yield Coin within its derivatives exchanges and other markets.

This renewed interest in stablecoins is driven by regulatory clarity and acceptance. In the United States, Congress is considering legislation to establish formal standards for stablecoins, while the European Union’s Markets in Crypto-Assets regulation requires stablecoin issuers to adhere to specific financial standards. The UK is also planning consultations to draft rules governing stablecoin use. The Trump administration's executive order 14067 supports the development of lawful and legitimate dollar-backed stablecoins worldwide, further signaling the era of stablecoins, particularly those pegged to the USD.

The stablecoin landscape is dominated by two established stablecoins: Tether’s USDt (USDT) and USDC, which capture 65% and 28% of the stablecoin market cap, respectively. Both are centralized fiat collateralized. USDe, launched in February 2024, holds about 2% of the stablecoin market cap and uses an unconventional mechanism based on derivatives in the crypto market. There are three primary mechanisms of stablecoins: centralized, fiat-collateralized; decentralized, cryptocurrency-collateralized; and decentralized, uncollateralized.

Stablecoins are designed to overcome the volatility of cryptocurrencies by being pegged to a stable asset and following a mechanism that sustains the peg. However, stablecoins pegged to volatile assets like gold or electricity may not be suitable for those seeking a no-risk asset. USDe maintains a peg to the USD through delta hedging, generating a 27% yield annually, but this comes with inherent risks due to its reliance on derivatives. The collapse of TerraUSD (UST) was not due to a reserve problem or mechanism but rather the actions of fraudsters and manipulators. The Terra blockchain offered a 19.5% yield on staking through the Anchor protocol, which was unsustainable and allegedly a Ponzi scheme. In March 2025, Galaxy Digital reached a $200-million settlement with the New York Attorney General over claims of promoting the LUNA digital asset without disclosing its interest in the token. In January 2025, Do Kwon, founder of Terra, was found liable for securities fraud and is facing multiple charges in the US.

Most stablecoins are centralized assets collateralized and controlled by a company, which could lead to unauthorized use of customers’ funds or false claims about reserves. To prevent misconduct, regulators should closely monitor these companies and set rules similar to securities laws. Centralized stablecoins run counter to the notion of blockchain and the premise of Bitcoin, which was supposed to be a decentralized mechanism free of intermediaries. If a stablecoin is centralized, it should follow the regulations of any other centralized asset. It may be time to develop an algorithmic, decentralized stablecoin that is free of any control of a company, bank, or government, reviving the core notion of blockchain.