Stablecoin Hegemony Under Fire: Big Banks Enter the Fray

In a recent conversation between cryptocurrency expert Arthur Hayes and renowned journalist Laura Shin, a noteworthy concern emerged regarding the potential influence of banking giants like JP Morgan entering the stablecoin domain.

Hayes, the founder of BitMEX, highlighted a potential risk looming over centralized stablecoin issuers with the possible advent of major banks into this sphere.

💸 Could big banks like JP Morgan end Tether's reign?@cryptohayes predicts a shakeup in the stablecoin world on @unchained_pod:https://t.co/2f2fBSLlAr pic.twitter.com/fLaDxwMBu5

— Laura Shin (@laurashin) December 29, 2023

As the traditional business realm increasingly eyes the crypto space, Hayes suggested an imminent exploration by banks into issuing their own stablecoins. He shed light on the strategy employed by existing issuers, like Tether, who secure their assets with treasury bills and deposits, aiming to maintain a steady 1:1 value against the US dollar.

The reliance of these issuers on banks to handle their deposits and facilitate debit instrument trading was emphasized by Hayes. He underscored the indispensable role banks play in the stability and functioning of these issuers, suggesting their vulnerability without this support.

Moreover, Hayes argued that the profit margins seen in companies like Tether make it almost inevitable for major banks to eventually foray into the stablecoin market. He pointed out the inherent weaknesses in the business models of stablecoin issuers, heavily reliant on banks for fund custody, making them susceptible to external market shifts.

At the forefront stands Tether, boasting a circulation of over $91 billion USDT, marking its dominance in the stablecoin landscape and securing the third-largest market cap globally, overshadowing alternative cryptocurrencies such as BNB, Solana, and XRP.

In contrast, Circle, a close competitor, trails behind with a circulating supply of approximately $24 billion. DeFiLama estimates the overall stablecoin market valuation to hover around $130 billion, signifying the substantial influence of these assets in the broader financial ecosystem.

According to Hayes, the current supremacy of stablecoin issuers, particularly Tether, has been fueled by the reluctance of significant players in the US banking sector to participate. However, this status quo might encounter a significant challenge if behemoths like JP Morgan make a decisive leap into this evolving landscape.

Author

Alexander Stefanov

Reporter at CoinsPress

Alex is an experienced finance journalist and a cryptocurrency and blockchain enthusiast. With over five years of experience covering the industry, he deeply understands the complex and constantly evolving world of digital assets. His insightful and thought-provoking articles provide readers with a clear picture of the latest developments and trends in the market. His passionate approach allows him to break down complex ideas into accessible and insightful content. Follow up on his content to be up to date with the most important trends and topics - stay ahead of the curve with CoinsPress.