Stablecoins have the potential to take business away from traditional financial institutions and give an advantage to up-and-coming fintechs with experience trading digital assets, according to researchers from the consulting firm Deloitte.
The findings are timely after the U.S. Senate passed a bill June 17 that aims to set up a regulatory framework for stablecoin use. A variation on the Senate bill — dubbed the GENIUS Act — is also under consideration in the U.S. House of Representatives.
“As reliance on these products grows, so does the risk of disintermediation of existing financial systems,” said a report from Deloitte researchers that was published on June 12.
Stablecoins are a type of cryptocurrency typically pegged to a fiat currency such as the euro or U.S. dollar, making their value more stable than other digital assets like Bitcoin that frequently surge and decline.
Cross-border payments have emerged as one of the most practical uses for stablecoins. Sending money from one country to another is both complicated and expensive, and requires the involvement of multiple financial institutions.
Stablecoins can easily be converted from a fiat currency, like the dollar, and sent to a recipient in a foreign country, and then converted into that country's currency, contended Richard Rosenthal, who leads Deloitte's digital assets banking regulatory practice and is one of three authors of the Deloitte report.
The report also highlighted risks of using stablecoins, including “regulatory noncompliance, market volatility, operational inefficiencies, and cybersecurity threats.”
With stablecoins, "you could avoid the bank rail entirely," Rosenthal said in a phone interview.
Financial institutions still have a role, he stressed. For example, some entity needs to convert a digital asset into a recipient's currency, Rosenthal said. “The bank network could be useful on that last mile,” he said.
Still, stablecoins issuers such as New York City-based Circle Internet Group will have an advantage over traditional financial institutions once stablecoins gain more prominence in the payments space, Roy Ben-Hur, Deloitte's digital assets financial services leader, said in a phone interview.
“Early adopters will take the majority of the market on the banking side,” he said. “If I'm coming later, it's going to be hard for me.”
Circle’s sold stock in an initial public offering earlier this month, and the shares jumped after the Senate vote.
While stablecoins are still far outside the payments mainstream, major retailers such as Amazon and Walmart are exploring the use of the digital assets, the Wall Street Journal reported June 13.
Fiserv CEO Mike Lyons said earlier this month that the Milwaukee-based payment processor is working on the infrastructure to let merchant customers pay bills with stablecoins.
The GENIUS Act will almost certainly lead to a rise in the use of stablecoins, but the bill's full impact remains to be seen as some of the details have not been hashed out, Rosenthal said. “We're going to be looking out for details, such as who can be an issuer?” he said.
