new opportunities for traditional finance

The approval of a law by Congress has marked a turning point for the U.S. financial sector, prompting large institutions like Citigroup to explore new opportunities in the world of stablecoin. 

These cryptocurrencies, anchored to a fiat currency or other assets like the US dollar, are rapidly gaining ground as payment and settlement instruments, thanks also to a clearer and more favorable regulatory framework.

Stablecoin: interest from traditional banks is growing

Citigroup, together with giants like Fiserv and Bank of America, is considering a decisive entry into the stablecoin sector. The new law requires stablecoin issuers to hold safe assets, such as U.S. Treasuries or cash, to back the digital coins. This scenario paves the way for traditional banks to offer custody and administration services for these assets, an opportunity that Citigroup intends to seize.

Biswarup Chatterjee, global head of partnerships and innovation for Citigroup’s services division, stated that the custody of high-quality assets to support stablecoins is the first option the bank is considering. 

The services division of Citi, which handles treasury, liquidity management, and payments for large companies, represents a fundamental pillar of the group’s strategy, currently engaged in a deep restructuring.

The stablecoin market: numbers and prospects

According to a McKinsey study, the value of stablecoins issued to date is around 250 billion dollars, but their main use remains the settlement of transactions in the world of cryptocurrencies. However, the recent regulatory opening could favor a wider use of stablecoins also in traditional payments and financial services.

Citigroup had already announced in July that it was considering issuing its own stablecoin, but it is the first time the bank publicly discusses a broader digital strategy, which also includes the custody of digital assets linked to investment products.

Custody of digital assets and ETFs on bitcoin

Another area of interest for Citigroup concerns the custody of digital assets that underlie investment products such as bitcoin ETFs. After the SEC’s authorization, many asset managers have launched ETFs that follow the spot price of bitcoin. The largest of these, the BlackRock iShares Bitcoin Trust, boasts a capitalization of about 90 billion dollars.

Chatterjee emphasizes the need for secure custody for the digital currency equivalent that supports these ETFs. Currently, the sector is dominated by Coinbase, which serves as custodian for over 80% of cryptocurrency ETF issuers. However, the entry of banks like Citi could change the dynamics, offering custody services with high standards of security and compliance.

Citigroup: faster payments thanks to stablecoin

Citigroup is also evaluating the use of stablecoin to speed up payments, which in the traditional banking system can take several days. Today the bank already offers “tokenized” dollar payments through a blockchain network, allowing transfers between accounts in New York, London, and Hong Kong 24 hours a day.

The goal is to develop services that allow clients to send stablecoin between accounts or instantly convert them into dollars, making payments immediate. Citi is engaging with its clients to identify the most promising use cases and tailor the new solutions to the needs of global enterprises.

A more favorable regulatory context

The administration of President Donald Trump, known for its crypto-friendly approach, has helped make the regulatory framework more relaxed for banks and financial companies that want to expand into the world of cryptocurrencies. However, Citigroup and other institutions will still have to comply with existing regulations, especially regarding anti-money laundering and currency controls for international transfers.

Chatterjee emphasizes the importance of ensuring that the digital assets held were used for legitimate purposes before acquisition, in addition to strengthening cybersecurity and operational security to prevent theft and ensure the protection of clients’ assets.

Citi looks to the future of stablecoin

The hypothesis of a direct issuance of stablecoin by Citigroup remains on the table, while the bank continues to explore all the opportunities offered by the new regulations. The entry of large banks into the stablecoin sector could represent a turning point for the spread of these instruments even in the world of traditional finance, accelerating innovation in payments and custody services.

With a rapidly evolving market and a growing demand for secure and regulated digital solutions, Citigroup is preparing to play a leading role in the new era of stablecoin, offering cutting-edge services to businesses and investors worldwide.