Banking on Stablecoins: How Financial Institutions Can Lead the Next Wave of Digital Money?
Stablecoins are tokenized assets designed to maintain stable values by being pegged to fiat currencies (e.g., USD), commodities (e.g., gold), or other cryptocurrencies (e.g. Bitcoin). They combine transaction speed, security, and programmability with traditional asset stability, ideal for daily payments.
Recent regulatory advancements provide clarity and consumer protection, fostering trust in stablecoins, including:
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The GENIUS Act in the U.S.: The act is a U.S. legislative proposal introduced in 2025 to establish a federal regulatory framework for stablecoins used in payments. It mandates full reserve backing, requires issuers to hold segregated assets in qualified custodians, and enforces strict consumer protection guardrails.
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Hong Kong's Stablecoins Bill: The Hong Kong Stablecoins Bill, passed in May 2025, establishes a licensing regime for fiat-referenced stablecoins. It aims to regulate stablecoin issuance and activities to ensure financial stability and compliance with the Financial Stability Board (FSB) recommendations
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Singapore’s Single Currency Stablecoin Framework: The framework applies to stablecoins pegged to the Singapore Dollar or any of the G10 currencies. It mandates robust requirements on reserve asset composition, capital adequacy, redemption rights, etc., to ensure value stability and consumer protection.
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MiCA in the European Union: The EU’s Markets in Crypto-Assets Regulation (MiCAR) fully regulates stablecoins, imposing strict requirements on reserve backing, transparency, and issuer accountability. MiCAR aims to safeguard financial stability while fostering innovation in the digital asset space.
Stablecoins have regained prominence not only due to regulatory support but also because of their crucial role in the digital economy. As digital tokens pegged primarily to the U.S. dollar, stablecoins provide transparency, security, and programmability through blockchain technology. This allows institutions to enhance automation, reduce operational costs, and foster trust. The programmability aspect of blockchain, combined with advancements in artificial intelligence, is expected to significantly accelerate automation, thereby further reducing manual processes within financial institutions.
Current market dynamics
Stablecoins have experienced substantial growth, reaching an adjusted transaction volume of $7 trillion in the last year alone, a 60% year-over-year increase. There are now over 251 million active unique addresses involved in stablecoin transactions. The stablecoin supply has increased significantly, averaging $217 billion in Q2 2025, up from $187.8 billion in the previous year. Despite this growth, 99% of stablecoin supply remains U.S. dollar-denominated, predominantly minted by non-bank issuers like Tether and Circle.
Yet, compared to the potential market, these figures are modest. Today, most stablecoins are issued by non-bank entities that, despite their licenses, do not offer the same guarantees as regulated banks.
This gap presents a significant market opportunity for traditional banks.
The business case for Banks
Stablecoins present a compelling opportunity for banks to modernize their operations, enhance service offerings, and unlock new revenue streams while addressing key infrastructure challenges.
- Modernizing Payments Infrastructure: Adopting stablecoins allows banks to modernize their payments infrastructure, offering 24/7 payment capabilities that replace inefficient wire transfers.
- Transforming Financial Services: As banks issue their own stablecoins, these instruments could revolutionize everyday transactions for consumers and businesses, offering substantial savings and efficiency improvements. Stablecoins could notably transform cross-border payments, remittances, corporate treasury management, and B2B transactions, significantly expanding banks' product offerings.
- Creating Lucrative Revenue Streams: Stablecoins also represent a lucrative revenue stream. Tether, for instance, is more profitable than Europe's largest banks due to the interest earned on its U.S. Treasury reserves. Banks could replicate such profitability by integrating stablecoins into their business models, earning attractive interest rates while maintaining regulatory compliance and financial stability.
- Overcoming Infrastructure Challenges: The limited infrastructure for converting stablecoins back to fiat currency remains one critical barrier. Banks developing integrated on-/off-ramp services could significantly streamline settlements, boosting overall liquidity and adoption. Banks that efficiently resolve these conversion issues will gain substantial market share, facilitating seamless financial transactions.
Strategic opportunities for Banks
A recent Visa White Paper highlights the following opportunities for banks:
- Dollar Store of Value
Stablecoins offer significant value in emerging markets, providing consumers and businesses access to U.S. dollar-denominated accounts, thereby hedging against local currency inflation and depreciation. This creates major opportunities for banks in regions with economic instability, providing reliable financial solutions to their clients.
- Cross-border Remittances
Stablecoins make international payments faster, cheaper, and more transparent. They can reduce reliance on correspondent banking, enabling direct transfers in U.S. dollars. This significantly benefits individuals sending remittances to countries with limited financial infrastructure and high transaction fees.
- Corporate Treasury and B2B Payments
Corporations can benefit from rapid repatriation of profits and efficient transfers to emerging markets, outperforming traditional correspondent banking systems. This offers banks the opportunity to significantly enhance corporate client services, facilitating swift and secure cross-border payments that improve liquidity and operational efficiency.
- Credit Facilities
Banks could offer on-chain, over-collateralized credit solutions, reducing operational costs and expanding global credit access, ultimately improving profit margins. This innovative approach enhances financial inclusion by providing secure, accessible credit solutions, especially in underserved regions.
- Settlement
Stablecoins provide immediate (T+0) settlements, enhancing capital efficiency and business certainty without reliance on traditional banking hours. This immediate settlement capability significantly reduces risks associated with delayed transactions, improving overall business environment stability. Public blockchains dramatically lower settlement costs. Ethereum transactions, for example, now cost just 3 cents compared to FedNow's 5 cents. Other blockchain networks, such as Base, offer even lower transaction costs, highlighting the efficiency advantages banks can leverage. These cost savings can translate into competitive pricing for bank customers, enhancing client satisfaction and retention.
Looking ahead
Major banks must strategically position their stablecoin offerings as secure, efficient, and reliable alternatives. Stablecoins, while increasingly popular, are not the sole players in digital money. Despite their momentum, stablecoins have not yet secured their position as the definitive on-chain store of value. Other forms of digital assets, notably tokenized deposits, the largest and most established form of digital money, and central bank digital currencies (CBDCs), are also emerging as a digital store of value and means of payment. Whether stablecoins can surpass traditional deposits as the preferred store of value remains an open question.
Nonetheless, stablecoins are undoubtedly entering a period of rapid growth and widespread acceptance, driven by regulatory clarity and strategic adoption by major financial institutions.
Initiatives such as the Circle Payments Network, supported by leading banks including Standard Chartered, Deutsche Bank, Société Générale, and Santander, exemplify this acceleration. Additionally, innovative payment standards such as Coinbase’s x402 protocol are streamlining stablecoin transactions, empowering AI-driven financial operations.
As financial institutions face a rapidly evolving competitive landscape, stablecoins are poised to transform global finance and offer strategic opportunities banks cannot ignore. Since launching the Universal Digital Payments Network (UDPN) in 2023, an interoperable payments infrastructure for regulated digital currencies of tomorrow, GFT has been leading innovation in the payment and regulated digital currency space.
Last year, GFT and Red Date Technology introduced the UDPN Stablecoin Management System, an end-to-end platform that supports stablecoin issuance and management for regulated financial institutions and issuers. This production-ready solution enables rapid deployment with unmatched speed and operational simplicity.
The system allows GFT and Red Date to develop robust use cases within weeks and scale to full production in months. It is already driving wholesale digital currency adoption among Tier 1 financial institutions in APAC, the Middle East, and Europe through Project Kissen, a wholesale digital currency settlement platform enabling banks to issue, manage, and transact digital currencies seamlessly.
Thanks to the UDPN Stablecoin Management System, banks can focus on real-world applications such as remittance payments, tokenized carbon credit settlements in the Middle East, and cross-border e-commerce payments, without being slowed down by operational complexities.
If you are exploring the issuance and management of stablecoins, reach out and schedule a call with our Digital Asset & Digital Money Team to dive into our Stablecoin offering and schedule a demo of our Stablecoin Management System.
References
- Visa, "Stablecoins and the Future of Onchain Finance," Visa White Paper, 2025.
- Boston Consulting Group, "Stablecoins: Five Killer Tests to Gauge Their Potential," BCG White Paper, 2025.
