5 Under-Discussed Stablecoin Realities Banks Need To Address (2025)

Stablecoins, once confined to niche cryptocurrency conversations, are now part of mainstream financial discourse. Yet, many banks focus on the fundamental aspects, such as how stablecoins are pegged to real-world assets, without fully exploring the complexities that could directly affect their risk profiles and strategic decisions. Below are five critical, under-discussed realities around stablecoins that every bank should understand in greater depth.

1. Regulatory Ambiguities and Global Divergence Complicate Stablecoin Adoption

Regulations governing stablecoins are not uniform, and this patchwork of rules can create operational headaches for any bank operating beyond a single jurisdiction. In the United States, there is ongoing debate over whether the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC) should oversee stablecoins, while European Union regulators are advancing the Markets in Crypto-Assets (MiCA) framework to streamline regulations across member states.

Asia, meanwhile, demonstrates just how divergent these rules can be. Singapore’s Monetary Authority of Singapore (MAS) has been relatively proactive, issuing licenses for digital payment token services and explicitly discussing stablecoin reserve requirements. Japan emphasizes consumer protection and strict reserve backing, while Hong Kong has shifted in recent years toward a more open approach for digital assets, though it is still shaping clear guidelines for stablecoin operations. This divergence means a stablecoin deemed compliant in Singapore might not meet requirements in Japan, let alone the United States or Europe.

Banks that neglect these regulatory nuances risk more than just fines or sanctions. Missteps can lead to reputational harm, loss of customer trust, and operational inefficiencies, especially in cross-border transactions. On the other hand, a proactive regulatory strategy can establish trust and potentially pave the way for collaborative discussions with policymakers. Banks able to demonstrate robust compliance practices may even help shape future legislation, ensuring stablecoins, and digital assets more broadly, integrate seamlessly into the existing financial architecture.

2. Collateralization and Transparency Gaps Weaken Market Confidence

The core premise of a stablecoin is its backing by real-world assets or a collateral base that matches its outstanding tokens. If a stablecoin promises a 1:1 peg with the U.S. dollar, for example, holders expect that each coin is supported by a corresponding dollar, or equivalent liquid asset, in reserve. However, the level of transparency around these reserves can vary significantly. While some issuers publish daily or monthly attestations, others have come under scrutiny for offering only sporadic snapshots or unaudited reserves, raising questions about whether the backing is as robust as promised.

Tether (USDT), the market’s largest stablecoin by capitalization, has faced repeated questions about the adequacy and nature of its reserve assets. Although Tether has worked to provide more frequent disclosures, the lack of a fully audited statement has kept skepticism alive among institutional investors. Such uncertainty fuels broader doubts about the integrity of the entire stablecoin space, affecting even well-audited competitors.

For banks, this lack of transparency complicates any potential decision to adopt, custody, or integrate stablecoins into product offerings. The risk is not only liquidity-related but also reputational. A stablecoin issuer that fails to meet redemption requests could trigger cascading effects across the financial system, and banks associated with the issuer might face negative publicity or legal repercussions. There is also an upside, however, for institutions that perform rigorous due diligence. Offering third-party auditing services or providing trusted custody solutions for stablecoin issuers could open new revenue streams and set higher industry standards, ultimately boosting market confidence.

3. Cross-Border Payments and Trade Finance Potential Remains Underrated

Cross-border payments and trade finance are among the most promising areas for stablecoin adoption, yet they often receive less attention than concepts like price volatility or blockchain interoperability. Traditional cross-border transactions typically involve multiple intermediaries, leading to high fees and settlement times that can stretch for days. Trade finance processes, letters of credit, invoice financing, documentation, are similarly bogged down by paper-based workflows, delayed reconciliations, and limited transparency.

Stablecoins have the potential to change that dynamic. By using blockchain technology, stablecoin settlements can occur almost instantaneously, speeding up funds availability and reducing transaction costs. This advantage is particularly compelling in regions like Southeast Asia, where remittances play a significant economic role, and in markets such as Africa and Latin America, which benefit from faster, cheaper cross-border flows. Projects in the Philippines, for instance, have tested stablecoin-based remittance corridors aimed at lowering fees significantly compared to traditional wire services.

Banks, however, must consider anti-money laundering (AML) and know-your-customer (KYC) protocols, which can become more complex when dealing with pseudonymous blockchain transactions. Regulatory acceptance of stablecoins for cross-border use also varies. Institutions willing to run pilot programs, in controlled environments, stand to gain valuable insights into stablecoins’ advantages and pitfalls, potentially positioning themselves as innovative leaders in the evolving global payments landscape.

4. Monetary Policy Interplay with CBDCs Raises Strategic Questions

Stablecoins do not exist in a vacuum. Their rise comes at a time when central banks worldwide are exploring Central Bank Digital Currencies (CBDCs). The interplay between private stablecoins and official digital currencies is an emerging topic that many banks overlook in their strategic planning. CBDCs have moved beyond theoretical papers: China’s e-CNY pilot continues to expand, and the European Central Bank is progressing with the digital euro concept. In Asia, nations like Thailand and Hong Kong are engaging in multi-CBDC experiments, such as Project mBridge, to streamline cross-border settlements.

This growing momentum for CBDCs could shift the role of private stablecoins. Some regulators might see stablecoins as competition to or complementary with CBDCs, leading to either tighter restrictions or new forms of partnership. A future in which stablecoins need to interoperate seamlessly with CBDC networks is not far-fetched. Banks that ignore these developments could be caught off guard if the market adopts a model where state-backed digital currencies overshadow or heavily regulate private ones.

At the same time, embracing stablecoins in tandem with a watchful eye on CBDC pilots could prove advantageous. If policymakers eventually require or encourage interoperability standards, those institutions that have already built robust stablecoin infrastructure may find it easier to adapt. Strategic decisions made now, around technology investments, partnerships, and customer education, could determine whether a bank remains competitive in a world increasingly defined by digital currency frameworks.

5. DeFi Integration Opens Doors to Emerging Use Cases

Decentralized finance (DeFi) has become one of the most dynamic sectors of the cryptocurrency ecosystem, relying heavily on stablecoins as the liquidity backbone for lending, staking, derivatives, and tokenized real-world assets (RWAs). Although still in its early stages, DeFi holds the potential to redefine how financial services, from loans and insurance to asset management, are conceptualized and delivered.

Despite its growth, DeFi carries substantial risks around smart contract vulnerabilities, regulatory uncertainty, and often volatile returns. Yet ignoring it entirely may mean missing opportunities that could reshape a bank’s future offerings. Tokenizing traditional assets, for example, can make them accessible to a broader range of investors, potentially unlocking new revenue streams. Stablecoins allow for near-instant settlement within DeFi platforms, further enhancing liquidity and market participation.

For banks, a gradual, cautious approach to DeFi can involve targeted partnerships with reputable technology firms or incremental experiments, such as small-scale pilots, to learn how these platforms function and what compliance measures are necessary. The objective is not necessarily to adopt every DeFi concept but to stay informed and adaptive. As regulators clarify the rules around DeFi, banks that have already developed internal expertise in stablecoins and blockchain are likely to integrate more smoothly and seize emerging use cases ahead of slower-moving competitors.

Conclusion: Balancing Innovation and Prudence in a Rapidly Evolving Market

Stablecoins have progressed from a curiosity in the cryptocurrency world to a significant force in the global financial system. For banks, they offer both potential rewards, such as more efficient cross-border payments, new avenues in DeFi, and supplementary roles alongside CBDCs, and significant risks, notably in areas like regulatory uncertainty and reserve transparency. Recognizing these under-discussed realities is the first step toward building a stablecoin strategy that is both innovative and resilient.

Maintaining open communication with regulators, rigorously vetting stablecoin issuers, and taking measured steps into emerging areas like DeFi can help financial institutions navigate this evolving landscape. By staying informed and adaptable, banks can responsibly explore stablecoin applications, positioning themselves for longer-term relevance and success in an increasingly digital financial world.