Regulators Open Door to Stablecoin Era as Banks Rewrite the Rules

The U.S. Federal Reserve is set to host a conference on October 21, focusing on innovations in the payments sector, particularly stablecoins and the tokenization of financial products. This event, part of the "Payments Innovation Conference," will bring together a range of stakeholders, including regulators, financial institutions, and technology providers, to explore the opportunities and challenges presented by emerging technologies. The conference will also cover topics such as the convergence of traditional and decentralized finance, as well as the intersection of artificial intelligence and payments systems [1].

The conference reflects a broader shift in the Federal Reserve’s approach to cryptocurrency and digital assets. In April, the Fed removed guidance discouraging banks from engaging in crypto and stablecoin activities. It also ended a program that had previously supervised banks in the crypto space and removed "reputational risk" designations from bank examinations related to crypto, signaling a more accommodating stance toward the industry [1].

The discussion of stablecoins at the conference aligns with recent regulatory developments, including the passage of the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act in July. The act mandates that stablecoin issuers back their tokens with cash or short-term Treasury bonds and prohibits them from paying interest, although rewards on stablecoin holdings are still permitted through crypto exchanges. This has raised concerns among banking industry groups, who view the rewards as a potential regulatory loophole that could draw deposits away from traditional banks [4].

Citi has also highlighted the growing role of stablecoins in the tokenization of financial assets, particularly in the context of securities and digital assets. According to the firm’s report, bank-issued stablecoins are expected to become a key enabler of digital asset adoption by 2030, supporting real-time collateral mobility and facilitating the tokenization of funds and private market securities. Citi predicts that by 2030, 10% of market turnover will occur through digital assets and tokenized securities [2].

However, challenges remain. The Journal of Economic Perspectives points out that while cryptocurrencies like Bitcoin have not achieved widespread adoption due to slow transaction times and high costs, stablecoins are gaining traction as a more viable medium for payments. Unlike Bitcoin, stablecoins are typically pegged to fiat currencies and backed by assets such as Treasury bonds, making them more stable and practical for everyday transactions. Despite this, the report notes that stablecoins still lack the regulatory clarity and reliability needed to fully replace traditional payment systems [3].

The Federal Reserve and other regulators are increasingly recognizing the potential of tokenized financial products. For instance, JPMorganChase and BlackRock are exploring tokenized deposits and money market funds, which promise real-time settlement and programmable functions through smart contracts. These developments could redefine how payments and asset transfers are conducted, particularly in the institutional space, where speed and efficiency are paramount [3].

The ongoing debate over stablecoin regulation and its impact on the broader financial system will likely continue as policymakers and industry leaders navigate the balance between innovation and stability. With the CLARITY Act under consideration, which seeks to establish a regulatory framework for blockchain-based financial products, the next phase of this evolution could reshape the competitive landscape between traditional banks and crypto platforms [4].

Source:

[1] The Federal Reserve Conference on Stablecoins and Tokenization (https://www.theblock.co/post/369338/federal-reserve-conference-stablecoins-tokenization)

[2] Bank-Issued Stablecoins Tipped as Key Enabler of Tokenization (https://www.bankingexchange.com/news-feed/item/10405-bank-issued-stablecoins-tipped-as-key-enabler-of-tokenization)

[3] Crypto, Stablecoins, and the Rise of Tokenization (https://conversableeconomist.com/2025/09/02/crypto-stablecoins-and-the-rise-of-tokenization/)

[4] The Loophole Turning Stablecoins Into a Trillion-Dollar Fight (https://www.wired.com/story/genius-act-loophole-stablecoins-banks/)