Wall Street is actively deploying stablecoins to cope with changes in the payment field. 1. fiat currency collateral, 2. crypto asset collateral, 3. algorithm stablecoins have their own characteristics and risks; the motivations of bank layout include improving cross-border payment efficiency, expanding service boundaries, responding to competitive pressure, meeting institutional needs and exploring CBDC; cases such as JPMorgan Chase JPM Coin, Citi Citi Token, Fidelity and Goldman Sachs show that traditional finance has regarded it as a critical infrastructure; facing the challenges of non-bank payment and technology giants, banks adopt strategies such as embracing technology, building an ecosystem, improving experience, leveraging compliance advantages and participating in CBDC; in the future, supervision will strengthen reserve audit, license management, consumer protection, AML/CFT compliance and global coordination, promote the integration of stablecoins into the mainstream financial system, and achieve a safe and controllable digital payment transformation.

In the wave of the digital economy, stablecoins, as the bridge connecting the traditional finance and the crypto world, are increasingly attracting the attention of global financial giants. Once upon a time, cryptocurrencies were regarded as marginalized investment products, but now, major banks and financial institutions on Wall Street have turned their attention to the "blue ocean" of stablecoins. This is not just a simple business expansion, but also a "war to defend" the dominance of traditional banks over the payment field. When crypto assets such as Bitcoin are volatile and discouraged by many investors, stablecoins provide a stable basis for the circulation and value storage of digital assets with their pegged to fiat currency. This stability is what traditional financial institutions value. It provides a lower risk threshold for institutional investors to enter the crypto market and also draws a grand blueprint for building a more efficient and low-cost cross-border payment system. This change on Wall Street marks that stablecoins are moving from a niche concept to a mainstream financial perspective, and their potential revolutionary impact is being recognized and accepted by more and more traditional financial institutions.

Classification and characteristics of stablecoins

Stablecoins are not a single concept, they can be divided into several main types according to their anchoring mechanisms. Understanding these types is essential to assess their risks and application scenarios. Different types of stablecoins have significant differences in their degree of decentralization, risk resistance and regulatory transparency.

• Fiat currency collateralized stablecoins: This type of stablecoins is the most common type, such as USDT, USDC, etc. They maintain a 1:1 peg to fiat currency by holding equivalent fiat currency (such as USD) as reserves. Its characteristics are high stability, but the degree of centralization is also relatively high, and the issuer needs to conduct a transparent reserve audit.
• Crypto Asset-Cleared Stablecoins: This type of stablecoins maintain value stability by over-collateralizing other crypto assets. For example, MakerDAO's DAI is issued through collateralized crypto assets such as ETH. Its degree of decentralization is relatively high, but it faces the risk of fluctuations in the price of underlying mortgage assets.
• Algorithmic Stablecoins: These stablecoins do not rely on any collateral, but adjust supply through algorithms and smart contracts to maintain price stability. For example, UST (failed) is an attempt to an algorithmic stablecoin. Its decentralization is the highest, but the risk is also the greatest. Once there is a problem with the algorithm model or the market fluctuates violently, it may lead to decoupling or even collapse.

Reasons for traditional banks to lay out stablecoins

Traditional banks' layout of stablecoins is not a whim, but is based on careful consideration of market trends and their own business development. The core driving force for traditional banks to enter the stablecoin field is to improve payment efficiency, reduce costs, and deal with the challenges of the digital economy.

• Improve cross-border payment efficiency: The traditional cross-border payment process is complex, time-consuming and expensive. Stablecoins can achieve almost instant global settlement, significantly reduce transaction costs and improve capital circulation efficiency.
• Expand the boundaries of financial services: Stablecoins can provide banks with new products and services, such as digital asset custody, stablecoin lending, tokenized asset issuance, etc., thereby attracting new customers and creating new revenue.
• Coping with competitive pressure: Non-bank payment institutions and technology giants continue to innovate in the field of digital payments, posing a challenge to traditional banks. Laying out stablecoins helps banks remain competitive in the payment field.
• Meet the needs of institutional clients: More and more institutional investors and businesses are beginning to get involved in digital assets, and they have a strong demand for secure and compliant stablecoin services. As a regulated financial institution, banks have the advantages of providing such services.
• Explore the prospects of central bank digital currency (CBDC): The practical experience of stablecoins can provide valuable reference for banks to participate in the issuance and circulation of CBDCs in the future, laying the foundation for the future digital financial system.

Wall Street giant stablecoin layout case

More and more Wall Street giants are beginning to actively explore and even practice stablecoins. These cases show that traditional finance’s acceptance of stablecoins is increasing significantly and regarding it as an important part of future financial infrastructure.

• JPM Morgan’s JPM Coin: JPMorgan was one of the first banks to get involved in stablecoins. JPM Coin is a blockchain-based digital currency used for instant wholesale payment settlement between corporate clients of the bank. It aims to increase the efficiency of internal and inter-institutional transactions. The use scenarios of JPM Coin include cross-border payments, securities settlements and other forms of capital transfer, which greatly shortens the time required for traditional interbank transfers.
• Citi Token Services of Citibank: Citibank has also launched its enterprise-level tokenization services designed to provide more efficient global transaction and cash management solutions. Citi’s token service leverages blockchain technology, allowing enterprise customers to tokenize their deposits to enable instant payments around the clock and simplify cross-border fund flows.
• Fidelity Digital Assets: Although Fidelity focuses on crypto asset custody and trading services, its attention to stablecoins continues to increase. Fidelity sees the huge potential of stablecoins in institutional trading and settlement, and actively explores how to integrate them into the existing service system to meet customers' needs for stable and compliant digital assets.
• Goldman Sachs' research and investment in stablecoins: Goldman Sachs has been closely following the development of cryptocurrencies and blockchain technology. Although it has not issued its own stablecoins yet, Goldman Sachs has released research reports on many occasions, deeply analyzing the market potential and regulatory framework of stablecoins, and investing in multiple blockchain infrastructure companies, which have laid the foundation for possible entry into the stablecoin business in the future.

Traditional banks' payment "defense war": challenges and strategies

Faced with challenges from non-bank payment institutions and technology giants, traditional banks are launching a "war of defense" in the payment field. The core of this "defense war" lies in how to maintain its leadership in the payment field in the digital age and cope with the impact of technological innovation.

• Coping with the rise of non-bank payment institutions: PayPal, Square (now Block) and other non-bank payment institutions quickly occupy market share through convenient mobile payment and online payment services. These institutions are not bound by the strict regulation of traditional banks and can launch innovative products faster. Banks need to deal with it by improving user experience and providing more flexible payment options.
• Technology giants enter the market: With its huge user base and strong technical strength, technology giants such as Apple, Google, and Amazon have deeply intervened in the payment field through services such as Apple Pay, Google Pay, and Amazon Pay, and may further expand by leveraging their ecosystem advantages. Banks need to work with these giants or develop their own strengths, such as in enterprise-level payments and compliance services.
• The impact of blockchain and distributed ledger technology: Blockchain technology provides de-mediated, efficient and low-cost payment solutions. As one of the applications of blockchain, stablecoins can directly realize point-to-point value transfer and bypass the clearing and settlement systems of traditional banks. Banks need to actively embrace these new technologies, rather than excluding them.
• Data security and privacy protection: In the era of digital payments, data security and user privacy have become the top priority. Any data breach or privacy violation can seriously damage the bank's reputation. Banks need to invest more resources to strengthen cybersecurity measures and ensure the security of user data.
• Challenges of regulatory compliance: With the development of digital assets and blockchain technology, regulators are also constantly improving relevant regulations. When banks innovate payment products, they must ensure that they fully meet changing financial regulatory requirements, which is both a challenge and an advantage.
• Strategy: Embrace technological innovation: Banks need to actively invest in cutting-edge technologies such as blockchain, artificial intelligence, and big data to develop new payment products and services. For example, use AI to deal with anti-fraud and use big data to analyze user behavior.
• Strategy: Build an open ecosystem: Banks can cooperate with other financial technology companies and developers to jointly build an open payment ecosystem, provide API interfaces, and allow third parties to integrate bank payment services, thereby expanding the scope of services.
• Strategy: Improve customer experience: Providing a more convenient, personalized and seamless payment experience is the key to attracting and retaining customers. This includes simplifying payment processes, providing multi-channel services, and real-time transaction feedback.
• Strategy: Give full play to compliance advantages: As a regulated financial institution, banks have natural advantages in compliance, risk management and funding security. This is especially important in the digital asset space, where banks can provide more trusted services with their credibility.
• Strategy: Explore Central Bank Digital Currency (CBDC) Opportunities: Banks can actively participate in the research, testing and issuance of central bank digital currencies, become important players in the future CBDC ecosystem, and thus gain a place in the new payment paradigm.

Future regulatory trends of stablecoins

With the increasing popularity of stablecoins and the intervention of Wall Street, global regulators have also continued to pay attention to them. Future stablecoin regulatory trends will be clearer and stricter to ensure financial stability, consumer protection and anti-money laundering compliance.

• Reserve transparency and audit: Regulators will require stablecoin issuers to disclose more detailed and frequent reserve information and conduct independent third-party audits to ensure the authenticity and adequacy of their reserves. This will be the key to ensuring the stability of the stablecoin value.
• License and Qualification Requirements: Stablecoin issuance may be considered as a payment service provider or electronic currency institution and requires a corresponding financial license. This will raise the entry threshold for the stablecoin industry and ensure that issuers have sufficient capital and operational capabilities.
• Consumer Protection: Regulators will introduce measures to protect stablecoin holders, such as clarifying whether stablecoins constitute securities, commodities or currencies, and how user assets are handled when the issuer goes bankrupt.
• Anti-money laundering (AML) and Fighting Terrorism (CFT): Stablecoin transactions will face stricter AML/CFT requirements, including KYC (Know Your Customer) verification, transaction monitoring and suspicious activity reporting. This will help prevent stablecoins from being used for illegal purposes.
• Global Coordinated Supervision: Given the cross-border nature of stablecoins, regulatory cooperation will be strengthened between different countries and regions, striving to formulate a unified or coordinated regulatory framework to avoid "regulatory arbitrage" and ensure global financial stability.
• Integration with the existing financial system: Regulation will work to incorporate stablecoins into the existing financial regulatory framework rather than treating them as completely independent financial products. This may mean that stablecoin issuers need to comply with relevant regulations of banks, securities or payment institutions.

Ranking of mainstream cryptocurrency exchanges worldwide (by user activity and trading volume)

Although traditional banks are making efforts in the stablecoin field, cryptocurrency exchanges are still the core hub of digital asset trading. These platforms are an important part of stablecoin transaction volume. Understanding the characteristics of mainstream exchanges helps to understand the circulation paths of stablecoins in the crypto ecosystem.

1. Binance

• One of the world's largest cryptocurrency exchanges.
• Offers a wide range of stablecoin trading pairs.
• Have a strong ecosystem, including BNB Chain.
• Supports deposits and withdrawals of multiple legal currency.

2. OKX (Ou Yi)

• The world's leading cryptocurrency trading platform.
• Provides a variety of trading products such as spot, contracts, options, etc.
• Committed to technological innovation and provide services such as Web3 storage.
• Have a broad user base in the Asian and European markets.

3. Huobi (Huobi)

• A well-known old cryptocurrency exchange.
• Provides a wide range of stablecoin trading pairs.
• It has operating agencies in many countries and regions around the world.
• Pay attention to user experience and security construction.

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