Financial institutions, are you ready! Preparing for stablecoins

Some traditional financial institutions (tradfi) are developing digital assets strategies, while others have been waiting to see how use cases for these assets emerge. That is now changing fast.

The US GENIUS Act, enacted in July 2025, will underpin increasing adoption of US dollar stablecoins both within and outside the United States,  providing a framework for the issuance, reserve composition and regulatory oversight of these stablecoins.  Meanwhile, the MiCA regime continues to develop in the EU, and the UK's own regime for cryptoassets is expected to reach a landing in 2026. 

In a recent briefing, found here, we considered some of the main legal and regulatory issues which financial institutions will need to consider as stablecoins grow in significance. Here is some of the critical context.

Stablecoins as a challenge and an opportunity for banks

Stablecoins have the potential to threaten banks’ business models by diverting customer funds from bank deposits and competing with banks' payment businesses. Whether this will happen in practice will depend on a number of issues, including:

• Comparative efficiency and resilience: Stablecoins are likely to be more competitive as a payment method in jurisdictions with relatively high fees for payments and relatively inefficient or unreliable payment systems, including for cross-border payments. The extent of future competition between stablecoins and other payment mechanisms will depend on how central and commercial banks respond, including by making existing systems cheaper and more efficient or developing new systems, such as tokenised deposits and central bank digital currencies.
   
• Customer trust: Customers holding or paying in stablecoins do not enjoy the same regulatory protections as bank depositors and users of other payment systems. If the absence of these protections for stablecoin results in low trust (or if scandals involving stablecoins erode trust), stablecoins will be less competitive with established (or other new) payment methods.
   
• Payment of yield: Current proposals for stablecoin regulation would prohibit the payment of interest, reducing the risk that stablecoins compete with interest-bearing bank deposits. Whether significant competition with bank deposits emerges will depend on factors including: interest rates; and the extent to which stablecoin regulation can be arbitraged to provide rewards to holders. 
   
• Digital assets adoption: One use for stablecoins is as a settlement asset for transactions involving other digital assets. The extent of use of digital assets more generally, including in smart contracts, will therefore continue to influence the adoption of stablecoins.

Banks are responding to potential future demand for safe digital assets by developing tokenised deposit offerings. Banks may also develop their own stablecoins, not only as a defensive measure but also to grow their payments businesses, and to seek to gain a share of the revenues currently enjoyed by card companies. This will be a particularly important proposition in cross-border payments.

Banks may also derive revenues from services to stablecoin issuers and to customers holding stablecoins, such as custody and exchange services. It will be important for banks to assess what range and combination of these services will drive both maximum customer engagement and their own synergies.

Questions for senior leadership on stablecoins

The senior leadership of financial institutions should ask themselves a number of preliminary questions as they consider the legal and regulatory aspects of their organisation's strategic response to the development of stablecoins. Click here to find out what we think those questions are.