The largest United States banks are set to enter the stablecoin market.
As the legislative process works itself out in Congress, the banks are preparing to move into this realm. They are doing so even without understanding the market totally.
Over the last 24 months, the stablecoin market exploded. We topped $250 billion, now coming in at $263B. I still hold steady with the prediction that we will see this number jump into the trillions once the United States gets clear regulation.
The numbers below show what we are referring to. These are the bank deposits, as of June 2024, provided by Grok which pulled from the FDIC website.
JPMorgan Chase - $2,396,530,000,000
Bank of America - $1,910,491,000,000
Wells Fargo - $1,365,991,000,000
Citibank - $1,278,137,000,000
U.S. Bank - $523,785,000,000
This is almost $7.5 trillion in deposits.
US Commercial Banks Set To Enter Stablecoins
Bank of America announced back in February their plans to release a stablecoin once the framework is established in the US. Well Fargo has talked about entering in different ways.
Now we have two of the other names on the list telling us they are entering.
JPMorgan Chase, the largest bank in the United States with $3.6 trillion in assets, has plans to “to be involved in […] stablecoins,” CEO Jamie Dimon said on Tuesday during an earnings conference call.
Dimon still is unsure of the validity of stablecoins. He still feels that people will opt to make payments through the traditional rails.
“We’re going to be involved in both JPMorgan deposit coin and stablecoins to understand it, to be good at it,” Dimon said. “I think they’re real, but I don’t know why you’d want to [use a] stablecoin as opposed to just payment.”
Even still, he realizes the importance of being in this market, to compete with FinTech. Right now, Tether and Circle dominate the industry. This might not be the case in the near future as the big players enter.
In spite of Dimon's resistance, JPMorgan, which owns Chase, could radically alter the space. Simply due to the sheer size of its deposits, it stands to be one of the central players.
That one institution could almost double the stablecoin market if just 10% of the deposits were tokenized as stablecoins.
Over time, my guess is we see a much higher percentage.
Bigger Initiatives By The Banks
JPMorgan is not the only one getting involved.
Dimon's comments came the same day Citigroup announced its own plans to enter the stablecoin race. During a post-earnings conference call on Tuesday, Citigroup CEO Jane Fraser told analysts that the bank is considering issuing a stablecoin to facilitate digital payments.
"We are looking at the issuance of a Citi stablecoin, but probably most importantly is the tokenized deposit space, where we're very active," Fraser said. "This is a good opportunity for us."
The stablecoin market will not take off in isolation. Payments of services is large yet makes up only a small fraction of the total. When couple with other crypto-based financial services, the utility of stablecoins explodes.
Citigroup is taking a bigger view of things. If they get involved in larger portions of the industry, which I think many banks will, it will expand the use case for its stablecoin.
Ultimately, like anything else in the digital world, these banks are required to set up ecosystems to compete. Physical locations, in banking, are still important but are dwindling with each passing year.
In comparison, it is likely the crypto system just keeps growing. Wall Street is on board with this as shown by their actions over the last 18 months. Investment banks see the opportunity to make large sums of money by building out infrastructure and products to provide to the buying public.
Connection To DeFi
There is a lot of discussion about DeFI and will it compete with centralized entities. On one level, this makes sense. However, we can view things differently.
If we keep seeing the decentralized world expanding, this will feed into the centralized system.
Let us look at Dimon and what he is missing.
With stablecoins, there are going to be hundreds issued. Dimon questions why not just make a payment? If one is operating in a digital wallet, that is not easy to do.
However, if the banks are involved in stablecoins, including the swapping, a transfer of value could be done to a bank account, settling the transaction. This means I can send USDC to a Bank of America account, which it will ultimately swap for its own coin.
Here we see expansion out to every digital wallet that is housing value. The banks can tap into this. Of course, we could see value pushed from the banks to these wallets.
Ultimately, we are seeing an industry being built before our eyes. It will take another 5 years to see how things ultimately evolve.
That said, we will presume the banks are going to be heavily involved. They are already showing signs this is the case.