International financial regulatory bodies continue to flag the potential risks and rewards of stablecoins, but a growing number of banks and traditional financial institutions want an invite to this party.
A new ‘Understanding Stablecoins’ report by the IMF’s Monetary and Capital Markets Department cites a recent Visa (NASDAQ: V) study that found “approximately 80% of stablecoin transactions are conducted by bots and automated systems for arbitrage and rebalancing.”
However, the IMF says stablecoins also show great promise in enabling faster/cheaper payments, both for cross-border remittances as well as everyday retail purchases by consumers in emerging markets.
The report also flagged the risks of wider stablecoin adoption, including currency substitution in countries with unstable fiat currencies and the resulting impact on a central bank’s “ability to control its monetary policy and serve as lender of last resort.”
Stablecoins could also allow users to circumvent capital controls and “undermine financial integrity” by facilitating illicit purposes like money laundering and terrorist financing. And of course, there’s the ever-present risk of stablecoins slipping their 1:1 peg with whatever fiat currency they represent following a ‘bank run’ that forces an issuer to swiftly liquidate (potentially at a loss) their reserve assets.
The IMF signaled the need for global cooperation to help “mitigate operational, financial integrity, legal, and macrofinancial risks.” But differing legal/regulatory frameworks in major financial markets “may create regulatory arbitrage opportunities that could affect the overall effectiveness of the regulations.” Another potential limiting regulatory factor is stablecoins “held through unregulated entities, including unhosted wallets.”
Among the IMF’s more intriguing recommendations are that “crypto assets should not be granted official currency or legal tender status,” thereby preserving individuals/entities’ right to refuse payments in stablecoins.
Risky business
Last month, Andrew Bailey, chair of the G20-founded Financial Stability Board (FSB), sent a letter to G20 leaders that matched the IMF’s stablecoin concerns regarding “divergences in regulatory and prudential frameworks across jurisdictions.” Bailey said the FSB’s work program for 2026 would include “a focus on stablecoins and other forms of payment.”
Meanwhile, the December risk assessment report of the European Banking Authority (EBA) says stablecoins (aka ‘electronic money tokens’ or EMTs) are “increasing risks to the sector that need to be prudently managed.” These include “idiosyncratic risks” for banks holding stablecoin deposits, including the potential reputational risk of dealing with some stablecoin issuers.
More tangible risks could arise if banks are forced to compete with EMTs for retail and corporate deposits, as banks “may not only experience higher funding costs but also assume pressure on interest margins.” Bank deposit outflows “can undermine banks’ liquidity positions—if they happen in times of stress—making the banking sector potentially more susceptible to liquidity related challenges.”
Banks that deal with EMT issuers are vulnerable to “liquidity shocks” if an issuer is compelled to liquidate large amounts of the reserves held with those banks. And while the European Union’s Markets in Crypto Assets (MiCA) regulation limits the amount of reserves an issuer can hold with one bank, “there is no limit for a credit institution to take as many deposits from as many issuers it may wish.” This could create “dependencies that can lead to sudden funding gaps if reserves are withdrawn rapidly.”
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European bank stablecoin consortium growing
Despite the alleged threat to its reputation, French banking giant BNP Paribas (NASDAQ: BNPQF) announced last week that it’s joining a consortium of nine other major EU banks planning to launch a MiCA-compliant euro-denominated stablecoin.
Those nine banks declared their stablecoin intentions in September, with an H2 2026 timeline for launching this as-yet-unnamed stablecoin. The banks formed a new Amsterdam-based entity, Qivalis, led by former Coinbase exec Jan-Oliver Sell, to obtain an EU electronic money institution license.
Sell called the initiative “a watershed moment for European digital commerce and financial innovation.” Sell said, “A native euro stablecoin isn’t just about convenience—it’s about monetary autonomy in the digital age.”
BNP Paribas similarly described the initiative’s goal as providing “a European alternative to the dollar-backed stablecoin market, contributing to Europe’s strategic autonomy in payments.” Numerous EU institutions, including the European Central Bank, have expressed concerns over the increased adoption of dollar-backed stablecoins and what that might mean for the EU’s financial sovereignty.
The consortium said it’s open to more banks joining the initiative, which Qivalis supervisory board chair Sir Howard Davies called “essential if Europe wants to compete globally in the digital economy while preserving its economic independence.”
The market cap of euro-backed stablecoins currently stands at ~$680 million. While that sum has enjoyed healthy growth this year, it’s still a rounding error compared to the $300+ billion dollar-backed stablecoin market. Of that $680 million, just over half ($344 million) is represented by EURC, the euro-stable issued by USDC-issuer Circle (NASDAQ: CRCL).
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Sweden watching from the sidelines
It seems even Europe’s non-EU members are feeling the pinch. The EU is continuing the glacially slow rollout of its digital euro project, despite concerns that the languid pace of its progress likely means it won’t debut until long after private stablecoins have rendered it moot.
And yet, on December 4, Aino Bunge, first deputy governor of Sweden’s central bank (Sveriges Riksbank), gave a speech saying her country needed to have a debate on “the implications for Sweden of the introduction of a digital euro.”
Sweden isn’t part of the eurozone, and Bunge said the central bank needs to “revisit the issue of an e-krona.” Bunge noted the EU’s delays in getting its digital euro across the finish line and suggested the time to start this revisit was yesterday.
As for stablecoins, Bunge echoed the view of many central bankers that stablecoins are almost entirely used as one half of a digital asset trading pair, while acknowledging that this could change quickly as the market grows.
Bunge added that, “should the market become systemically important, I consider that the settlement of stablecoins should be in central bank money. Central banks may also be required to develop their service offerings to provide settlement of tokenized transactions in central bank money.”
Sweden’s SEB is one of the members of the Qivalis consortium, and last month, Sveriges Riksbank released a stablecoin paper noting SEB’s participation in the group. The paper said it was still “uncertain” whether stablecoins will be more widely adopted in the long term, but it was certain that “strong international cooperation” was needed to ensure the risks of wider adoption could be mitigated.
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Coinbase working with ‘best banks’
Stateside, banks appear equally interested in playing an active role in the newly regulated stablecoin market. Last week, Brian Armstrong, CEO of Coinbase (NASDAQ: COIN), a digital asset exchange, told the audience at the New York Times Dealbook Summit that Coinbase was working with multiple unspecified U.S. banks on integrating stablecoins into their operations.
Speaking alongside BlackRock (NASDAQ: BLK) CEO Larry Fink (whose company works with Coinbase on crypto-based exchange-traded funds), Armstrong said, “Many of the largest banks now, we’re actually powering pilots with them doing stablecoins and custody and trading and these kinds of things.” Armstrong mused that “the best banks are leaning into this as an opportunity,” while warning that “the ones who are fighting it are going to get left behind.”
Banks have been hot under the collar over platforms like Coinbase offering its customers ‘rewards’ for holding Circle’s USDC stablecoin on the exchange. The GENIUS Act that Congress approved this summer contains a prohibition on stablecoin issuers offering users ‘yield, ;and banks believe non-issuers offering rewards should be similarly off-limits.
According to Armstrong, “that’s just the banks trying to protect their profit margin … they should have to pay rewards and higher rates to their own customers, and I think they’re trying to put their thumb on the scale of regulatory capture to prevent crypto from doing that.” (Stablecoin revenue accounted for nearly $355 million in Coinbase’s latest quarterly report, so Armstrong will fight this battle to the death.)
But Armstrong said banks are “going to be increasingly embracing stablecoins” and predicted that “in a year or two, [banks will] come back and say, ‘actually we want to be able to pay interest and yield on stablecoins in our own companies.’”
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Stable mainnet launch, PYUSD market cap jumps
While banks explore their options, the private sector keeps roaring along. Monday saw the mainnet launch of Stable, the Layer-1 ‘stablechain’ focused on payments using USDT, the market-leading stablecoin issued by Tether. First announced in July, Stable is backed by both Tether and the Bitfinex exchange, which operates under the same corporate umbrella as Tether.
StableChain uses USDT not only as its native currency but also as its ‘gas’ token. But this gas token (gUSDT) requires users to bridge their USDT to Stable via Stargate or other cross-chain liquidity protocol. And technically, the USDT used for payments on Stable is actually USDT0, the omnichain version of USDT from the LayerZero interoperability protocol.
But this token soup isn’t finished. Monday also saw the airdrop of Stable’s proprietary token STABLE, which will be used for governance and network security. Users who participated in Stable’s two pre-deposit phases will have until March 2 to claim their tokens. (STABLE’s fiat price hit $0.0267 on Monday before sinking to $0.0171 about 12 hours later.)
Stable’s executive branch includes CEO Matthew Tabbiner (former partner at Introsight Advisors), CTO Sam Kazemian (founder of the Frax (stablecoin) and CFO Brian Mehler (ex-CFO at Gateway Capital and ex-VP of venture investments at Block.one).
Stable has enlisted a wide variety of ‘day 1 partners’ for its mainnet launch, which can be viewed here. Among the more notable names is payment processing giant PayPal (NASDAQ: PYPL), which issues its own dollar-backed stablecoin (PYUSD).
We’d be remiss if we didn’t mention the fact that, following a sluggish start in August 2023, PYUSD’s market cap failed to top $1.2 billion in its first two years. But since September, PYUSD has gone on a tear and now boasts a cap of over $3.8 billion. And this time, it’s not a fat-fingered minting mistake!
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Western Union preps ‘stable card’
Last week, Western Union (NASDAQ: WU) revealed more about its own stablecoin plans at the UBS Global Technology and AI Conference in Arizona. Having recently previewed plans for its own U.S. Dollar Payment Token (USDPT) on the Solana network, WU exec VP/CFO Matthew Cagwin hyped the imminent arrival of a new “stable card.” The card was described as “an increment to our prepaid card we have today here in the U.S.,” except that it focused on emerging markets.
Cagwin said the card would be “like an issuing card, but it would have a much stickier benefit in a country where there’s high inflation.” Cagwin said WU has “a big workforce in Argentina” and the company was required to raise their salaries four times last year “because if you didn’t … they couldn’t afford their bills.”
This card and USDPT are two of the “four or five pillars” of WU’s stablecoin strategy, with another being the Digital Asset Network (DAN) that Cagwin said will launch “in the first half of next year.” WU has “partnerships with four different providers to be able to be an on-ramp/off-ramp with them.”
For customers, “it will feel and look just like a Western Union remittance transaction today. You go into your yellow wallet, you send yourself a transaction and then you’d actually get your [Money Transfer Control Number], you walk in and the payout happens to you and effectively provides the off-ramp or you can do the inverse effect of loading it on the on-ramp side.”
The other pillars of WU’s strategy will likely include WUUSD, a catch-all trademark WU applied for a couple of months ago that could involve a crypto wallet, “cryptocurrency exchange services,” crypto lending, derivatives, and more.
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Taiwan preps first domestic stablecoin
Finally, Taiwan could welcome its first domestic stablecoin next year. On December 3, Focus Taiwan reported that Financial Supervisory Commission (FSC) Chair Peng Jin-lung had informed legislators that he was preparing to submit a draft of the Virtual Assets Service Act to the Cabinet for review before presenting it to the legislature.
Peng said a “high level of consensus” had been reached on the Act, which is based on the EU’s MiCA regulations. The Taipei Times quoted Peng saying a domestic stablecoin launch “would mark an important milestone in bringing virtual asset activities into a fully regulated environment.”
Many details are yet to be determined, including reserve requirements, audit mechanisms, and investor protections. But under the Act’s current form, both banks and private firms would be permitted to issue stablecoins. However, the FSC and Taiwan’s central bank have concluded that only financial institutions will be eligible issuers in the initial rollout to manage risks.
There’s also the question of whether the first stablecoin will be denominated in New Taiwan dollars or the U.S. dollar. Taiwan doesn’t allow its domestic currency to circulate abroad, which would throw a wrench into stablecoin-based cross-border settlements.
Assuming the Act passes in the next legislative session, a six-month buffer period would follow before it takes effect. Meaning any stablecoin launch won’t happen until the second half of 2026.
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Watch | Cut Costs & Streamline Payments: The Case for Stablecoins
Source: https://coingeek.com/regulators-flag-stablecoin-risks-banks-seek-stablecoin-benefits/