Banks Turn to Stablecoins Amid Fears of Losing Market Share to Digital Currencies

The increasing competition in the stablecoin market, coupled with impending US regulations, has caught the attention of traditional financial institutions, primarily due to fears of being left behind by digital currencies, stated Ben Reynolds, BitGo's managing director of stablecoins, at Consensus 2025 in Toronto. During a panel discussion, Reynolds mentioned that BitGo's recently introduced stablecoin-as-a-service has garnered substantial interest from US and international banks seeking to tokenize deposits or issue stablecoins. Many banks are taking a defensive stance, fearing the potential loss of deposits, and are exploring stablecoins to avoid being left behind. While yield-bearing stablecoins have experienced rapid growth, they still represent a small fraction of the $230 billion stablecoin market. Experts believe that the primary use case for stablecoins lies in payments and transactions, but they also see potential in 'collateral mobility' – the ability to instantly transfer funds across different platforms. The flexibility and programmability offered by crypto are significant advantages over traditional money market funds. Yield-bearing stablecoins could also appeal to institutions by reducing the friction associated with moving between crypto holdings and brokerage accounts. However, regulatory differences will play a crucial role in shaping the market, with distinctions between tokenized Treasury funds and stablecoins being particularly important. Yield-generating tokens have the potential to increase investor access, especially for those who are underbanked or face high minimum investment limits in traditional mutual funds.