Stablecoins and Banking: Separating Fact From Fiction

In the weeks since the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act) became law on July 18, financial institutions have encountered a great deal of information about payment stablecoins. Some industry observers and commenters have inflated expectations about stablecoins’ impact, while others predict very little will change.

The reality is that few, if any, know how the future of financial services will take shape. Factors such as consumer and commercial adoption, infrastructure advancement and further regulatory developments will all play a role in shaping the opportunities and risks associated with payment stablecoins.

During times of emerging technology and innovation, it can be a challenge to cut through the noise and discern how a bank should respond. One helpful first step bank directors and executive teams can take is to sort through the various claims and predictions they are hearing about payment stablecoins and recognize them as either fact or fiction.

Claim #1: Banks don’t have a role to play in the stablecoin ecosystem and will quickly be disintermediated.
This is fiction. Banks are already integral in facilitating on- and off-ramps between fiat money and digital assets. The need for that interoperability will continue for the foreseeable future. Furthermore, banks have a long history of bundling financial services, such as payments, credit and deposits, to build franchise value. Payment stablecoins might encroach on the payment aspect of those bundles, but their future as a deposit alternative is less certain.

Claim #2: Now that the GENIUS Act is law, risks are reduced, and banks don’t need to be as cautious when pursuing stablecoin activities.
This is mostly fiction. Now is a great time to consider stablecoin strategies, but the establishment of regulatory and supervisory frameworks does not fundamentally change the risk characteristics of the activities. Those risks include anti-money laundering and counterterrorism financing, cybersecurity and operational controls, and third-party risks related to virtual asset service providers.

Claim #3: There’s no blueprint for banks to follow when engaging in digital asset activities.
This is fiction. Several banks already have engaged in digital asset activities through core banking products and services, the custody of digital assets and the holding of stablecoin reserves. Moreover, novel activities do not always drive novel risks. Rather, novel activities often result in new manifestations of familiar risks. The trick is to understand how existing risk management and compliance frameworks need to be tweaked.

Claim #4: “If we build it, they will come.”
This, too, is fiction. Unlike the movie “Field of Dreams,” in which a visionary enterprise ultimately leads to fulfillment, not every new endeavor is destined to succeed. When banks evaluate the role of payment stablecoins in their business strategies, they should start with the needs of their existing clients and prospective customers, and then identify specific problems that payment stablecoins could resolve. Adoption for the sake of adoption is unlikely to yield meaningful results.

Claim #5: All banks need to have a stablecoin plan.
This one is a fact! The plan might be to do nothing for now, and that’s OK. But all financial institutions need to consider the impact of payment stablecoins on their current business models and carefully think through their strategic options. In many cases, it can be helpful to include an outside third party with deep expertise in technology and regulation as a part of that planning. Regardless of whether a financial institution’s strategy is to innovate, cautiously explore or strategically wait, having a clear, well-informed plan is essential.

In the end, the GENIUS Act marks only the beginning of the payment stablecoin story. The path forward will be shaped by a complex interplay of regulation, technology and market forces. The most successful banks will be those that approach the issue with curiosity and discipline. By separating fact from fiction and grounding decisions in sound risk management practices, banks can position themselves to successfully navigate uncertainty, capture emerging opportunities and safeguard their role in the evolving digital financial ecosystem.