On a closer look, unfortunately, what we expect to happen to the banks (specifically the big banks) may never happen unless decentralized stablecoins grow large enough to rival centralized options and also withstand government attacks.
Today's article will focus on something that we've often ignored when discussing the boom of stablecoins.
Commentators, like myself, often highlight impending revenue threats to the banks when covering the rise of stablecoin issuers. As crypto enthusiasts, it is common practice to write about these things and aggressively predict the downfall of the banks.
It's near too pleasurable to pass on.
Sometimes of course, this “passion?” of calling for the collapse of TradFi revenues leads to missing so much data that could prove our assessments wrong or at least challenge them.
In this case to be explored, there's something we've ignored in these discussions that would make our prediction of the fall of TradFi appear not entirely likely.
Make no mistakes, crypto is still a significant threat to the banks. However, when it comes to the stablecoins boom, the institutions we'd want to be brought down are most likely to be the ones that thrive.
The Wyoming Stable Token Commission, a body authorized by the US state to issue a stablecoin, announced the mainnet launch of the Frontier Stable Token (FRNT) stablecoin.
The FRNT stablecoin is a fully-collateralized digital token backed by short-duration US Treasury bills and US dollars, with a statutorily mandated 102% reserve requirement, the commission said in an announcement on Tuesday.
According to CryptoAmerica host Eleanor Terrett, the FRNT is now live on seven blockchains, including Ethereum, Solana, Arbitrum, Avalanche, Polygon, Optimism and Base. – Cointelegraph report
What does this mean for the banks?
Every new report on developments or launch of stablecoins typically seems like a growing line of revenue threats to the banks and we've heavily carried and sold this sentiment over the last couple weeks but the truth is, as always, those that truly are at risk of a major attack are the small guys within the banking sector.
The top “universal banks” with an extensive suite of services will most definitely evolve quite comfortably and still manage to earn trillions of dollars in revenue.
So technically, crypto has simply made it easy for these banking giants to eliminate competitors.
But how can this be true?
If you pay attention to the quoted report, you'd notice that reserves are held in bonds, specifically Treasury bills as referenced there.
One thing a lot of people may not really know is that stablecoin issuers are not generally banks, at least the top options currently. This means that they need qualified custodians to hold cash, electronic deposits and bonds in their reserves.
Universal banks like JP Morgan are also custodians, meaning that in a stablecoin boom, even without issuing their own stablecoins, they'd still be uniquely positioned to benefit from the market expansion.
They can generate trillions from bonds and several billions (potentially) from lending. Their access to liquidity would grow significantly as consumers migrate on-chain and stablecoins become a default payment method.
The big banks and TradFi institutions we hate so much are very likely to perform well through this transition and gain capital influence never seen before. The only means to fight this dominance would be to adopt, invest and support decentralized stablecoins because significant growth in centralized stablecoin issuance just means more money for the banking giants as most issuers turnnto bonds and will in most cases need these top recognized custodians for their reserves.
In case you missed it
Earlier today I covered the importance of decentralized finance, highlighting its effective role in bringing economies to a point of shared governance and why that matters.
Thank you for reading!