Why Banks Are Finally Building Their Own Stablecoins

Correspondent banking is a multi-day, 3-5% cost black box. SWIFT is a messaging system, not a settlement layer. This inefficiency is a direct attack on bank margins and client retention in a digital-first world.

• Latency: Settlement takes 2-5 business days
• Opacity: No real-time tracking, high reconciliation costs n- Cost: $25-$50 per transaction, hidden in FX spreads

Bank-issued stablecoins (like JPM Coin, Société Générale's EUR CoinVertible) create a native digital asset liability on a shared ledger. This isn't "crypto"—it's a strategic infrastructure upgrade.

• Finality: Settlement in ~2 seconds, 24/7/365
• Programmability: Enables atomic swaps, automated compliance (e.g., ERC-1400)
• Cost: Reduces transaction costs by >80% versus legacy rails

USDC (Circle) and USDT (Tether) have proven the product-market fit for digital dollars, with $130B+ in aggregate supply. Banks risk becoming dumb pipes if they ccontrol of the monetary layer to private entities and decentralized protocols like Aave and Compound.

• Market Loss: Ceding the $1T+ future digital currency market
• Regulatory Capture: Building their own ensures compliance frameworks (e.g., MiCA) work for them
• Network Defense: Prevents disintermediation by fintechs and DeFi rails

Banks are not building on public L1s; they are deploying on permissioned variants (Corda, Hyperledger Fabric) or regulated subnets (Project Guardian). This balances innovation with control.

• Privacy: Transaction details visible only to counterparties and regulators
• Interoperability: Bridges to public chains (e.g., Axelar, Wormhole) for broader utility
• Control: Banks retain KYC/AML gates and transaction veto power

Near-zero transaction fees destroy the legacy correspondent banking revenue model but unlock higher-margin services. The real money is in embedded finance, treasury management, and programmable capital markets.

• New Revenue: Fees for digital asset custody, on-chain FX, and smart contract services
• Efficiency: Automated regulatory reporting and capital allocation
• Lock-in: Enterprise clients integrated into bank's proprietary digital ecosystem

A live, battle-tested bank stablecoin network is the perfect pilot for wholesale CBDCs (e.g., Project Agorá by BIS). Banks position themselves as the mandatory node operators and interface layer, ensuring their irreplaceability.

• First-Mover Advantage: Become the infrastructure for Digital Dollar/Euro trials
• Regulatory Alignment: Shape the standards that govern future digital money
• Systemic Role: Cement role as the critical plumbing between central bank and retail markets

JPMorgan solved the $9 trillion daily corporate cross-border payment problem with an internal, permissioned blockchain. It's not a retail play; it's a wholesale utility for institutional clients.

• Key Benefit: Enables 24/7/365 instant settlement between JPM accounts, replacing batch processing.
• Key Benefit: Reduces counterparty risk and frictional costs in repo markets and large-value transfers.

Citi's solution targets the inefficiency of corporate liquidity management, where cash is siloed across subsidiaries and jurisdictions.

• Key Benefit: Digitizes client deposits into tokens for instant intra-bank transfers, freeing up working capital.
• Key Benefit: Automates smart contract-based trade finance and letter-of-credit processes, cutting settlement from days to minutes.

The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is solving for blockchain interoperability to prevent fragmentation. Their pilot with Chainlink's CCIP connects hundreds of banks to multiple chains.

• Key Benefit: Allows legacy banks to interact with public blockchains (Ethereum, Sepolia) without rebuilding their back office.
• Key Benefit: Provides a single, secure gateway, mitigating the operational risk of managing multiple layerzero-style bridges.

Banks aren't adopting USDC; they're building their own because regulatory clarity and control are non-negotiable. A bank-issued token is a direct liability on their balance sheet, supervised by their existing regulator.

• Key Benefit: Avoids third-party stablecoin risk (e.g., reserve management, governance disputes of DAI or FRAX).
• Key Benefit: Creates a defensible moat—their network, their rules, their KYC/AML stack—while still gaining blockchain efficiency.

Banks are building on-chain to bypass legacy rails, but this creates a fragmented compliance landscape. Each jurisdiction (EU's MiCA, US state-by-state rules) imposes different reserve, reporting, and licensing requirements.\n- Risk: A liquidity crisis if a major jurisdiction deems the asset a security or imposes a freeze.\n- Precedent: The SEC's ongoing cases against Ripple and Coinbase show how regulatory ambiguity can freeze billions.

A bank's stablecoin is only as strong as its real-world asset (RWA) attestations. If off-chain collateral data (treasury bonds, cash deposits) is corrupted or delayed, the peg breaks.\n- Risk: A silent bank run where on-chain redemptions outpace off-chain settlement capacity.\n- Weak Link: Reliance on centralized oracles like Chainlink introduces a single point of failure for the entire monetary system.

Bank chains will be permissioned, creating walled gardens of liquidity. Bridging to public DeFi (Uniswap, Aave) requires trust-minimized bridges, which are still a major attack vector.\n- Risk: A bridge hack (see Wormhole, Ronin) could drain the institutional stablecoin's collateral pool.\n- Dilemma: Using a LayerZero or Axelar adds third-party risk; building a proprietary bridge is a $100M+ security undertaking.

A successful bank-issued stablecoin could rival central bank digital currencies (CBDCs). This sets up a direct conflict with sovereign monetary policy, inviting severe political backlash.\n- Risk: Forced redenomination or shutdown by central banks fearing loss of monetary control.\n- Example: The Fed could restrict access to the Fedwire system for banks issuing competitive stablecoins, strangling their on/off-ramps.

Correspondent banking is a 3-5 day, opaque, and expensive settlement layer. Banks are losing revenue to fintechs and stablecoin rails like Circle's USDC and Tether's USDT, which settle in seconds for pennies.

• Cost: Legacy SWIFT transfers cost ~$25-50; stablecoin transfers cost <$0.01.
• Speed: Settlement finality drops from days to ~15 seconds on chains like Solana or Stellar.
• Control: Owning the rail prevents ceding the customer relationship to third-party crypto providers.

A bank-issued stablecoin (e.g., JPM Coin, BNY Mellon) is a liability on their own balance sheet, enabling atomic settlement and automated compliance. This turns static deposits into programmable assets.

• Efficiency: Enables instant intraday repo, auto-executing corporate treasury functions, and collateral fluidity.
• Revenue: Unlocks new fee streams from on-chain DeFi integrations and tokenized asset markets.
• Defense: Prevents deposit flight to higher-yielding, on-chain money markets like Aave and Compound.

Frameworks like MiCA in the EU and proposed U.S. stablecoin bills provide a compliance playbook. Banks are building now to shape standards and avoid being sidelined by Central Bank Digital Currencies (CBDCs) or private sector giants.

• First-Mover Advantage: Establishing the technical and regulatory template for institutional tokenization.
• Interoperability Mandate: Future-proofing for cross-chain bridges and wholesale CBDC interoperability layers.
• Risk Mitigation: Controlling the issuance and redemption process mitigates the counterparty risk inherent in using third-party stablecoins.