US and EU Banks Accelerate Stablecoin Plans Amid Regulatory Progress

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As a seasoned analyst with over two decades of experience in the financial sector, I have witnessed the evolution of banking from traditional brick-and-mortar institutions to digital platforms. The latest development – European banks entering the stablecoin market – is an intriguing twist that combines the old and new worlds of finance.

Financial institutions in both the USA and Europe are intensifying their initiatives to release stable digital currencies, driven by increasing regulatory understanding and consumer interest.

Traditional financial establishments are being spurred by the advent of the EU’s Markets in Crypto-Assets Regulation (MiCA) and the increasing global focus on blockchain payments, to challenge well-established cryptocurrency companies such as Tether Holdings.

European Banks Enter Stablecoin Market

Multiple banks across Europe are entering the market of profitable digital currencies called stablecoins, with Societe Generale – Forge from France being one of the first to offer their Euro-backed stablecoin to individual investors. Similarly, Oddo BHF SCA in Frankfurt and Revolut in London are planning to introduce Euro stablecoins, while AllUnity, a company backed by Deutsche Bank’s asset management arm DWS, aims to launch its Euro stablecoin in 2025.

As per Jean-Marc Stenger, CEO of SG-Forge, it’s expected that an increasing number of banks will incorporate bank-backed stablecoins into their operations; in a nutshell, his response was affirmative. At present, SG-Forge is engaging with approximately ten banks regarding potential collaborations or adoption of SG-Forge’s stablecoin issuing technology.

In a similar vein, just like Visa Inc., the worldwide leader in digital payments technology, is collaborating with banks such as BBVA to develop a stablecoin solution using blockchain, Sheffield, who heads up crypto at Visa, has indicated that the company is currently engaged in discussions with financial institutions based in Hong Kong, Singapore, and Brazil.

US Banks Await Regulatory Green Light

In the U.S., banks are eagerly awaiting legislative adjustments which might allow them to introduce stablecoins. As discussions about regulation continue, institutions like JPMorgan Chase are already experimenting with blockchain-based payment systems. While JPMorgan has employed its deposit token, JPM Coin for internal transfers, it does not provide the same universal accessibility as open-source stablecoins that can be accessed through any digital wallet.

Naveen Mallela, who oversees JP Morgan’s digital assets division Kinexys alongside someone else, predicts increased market adoption for these digital assets over the next three years. He emphasizes that stablecoins and tokenized deposits could potentially function together, each offering distinct payment solutions.

Nevertheless, it’s important to acknowledge that US banks face certain challenges regarding stablecoins. The question remains unclear about which reserves can support stablecoins and whether these deposits would qualify for federal insurance. These complications should not be disregarded as they could potentially cause confusion during financial crises, as warned by experts.

MiCA Brings Stablecoin Regulatory Clarity in Europe

The implementation of MiCA is a significant step for stablecoin issuers in Europe, as it will take effect on December 30, 2024. MiCA establishes that stablecoin providers should hold valid licenses to operate within the EU, and it also outlines rules for managing reserves and protecting investors.

1/ MiCA is here! Starting Dec 30, 2024, the EU’s groundbreaking crypto regulation takes effect.

What does this mean for crypto providers, stablecoins like $USDT and $USDC, and investors?

Let’s break it down

— Fefe Demeny (@FefeDemeny) December 28, 2024

The USDC stablecoin issued by Circle has been given approval under MiCA, allowing it to be used more broadly within the region. On the other hand, Tether Holdings, currently leading the market, have not disclosed any intentions regarding obtaining a license for their Euro-pegged stablecoin. This ambiguity could provide opportunities for banks and potential competitors to enter this particular niche.

Currently, the European Central Bank has voiced apprehensions regarding the possible influence of stablecoins on conventional banking systems. An analysis conducted by the ECB indicates that transforming retail deposits into stablecoins might diminish a bank’s liquidity reserve level.

Central Banks and Consortium Coins

As private banks start to release their own stablecoins, national banks are aggressively creating Central Bank Digital Currencies (CBDCs). These digital currencies backed by the government might one day challenge or even replace privately issued stablecoins in large-scale financial transactions.

Having spent over two decades working in the financial industry, I’ve witnessed a remarkable transformation in the way we handle transactions and store assets. As a seasoned professional at Libre Capital, I’ve noticed that every financial institution seems to be diving headfirst into the world of digital currencies, and for good reason.

Simultaneously, Ripple‘s RLUSD stablecoin, introduced on December 16, 2024, rapidly grew popular in the worldwide cryptocurrency market. Additionally, the RLUSD has recently been listed on Independent Reserve, a regulated crypto exchange based in Singapore.

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2024-12-28 20:37