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Crypto firms and Wall Street banks are now fighting for control over how money works in the digital age. At the center of it is the stablecoin.
Behind every coffee tap or online purchase, there’s a payment system most people never think about. JPMorgan alone handles 6,000 transactions per second around the world.
Crypto companies want in. They’re pushing for stablecoins to replace the old system. They say it’s faster, cheaper, and built for the internet. Banks say it’s reckless and could wreck the financial system.
Banks want to block stablecoin rewards before it’s too late
Right now, stablecoin issuers can’t offer interest. But platforms like Coinbase, Kraken, and Gemini still can. That’s the gap banks want closed. They’re lobbying Congress to ban interest on stablecoins across the board.
They argue that crypto companies are acting like banks without following banking rules. JPMorgan’s CFO, Jeremy Barnum, warned it could lead to a “parallel banking system.” A Treasury study said $6.6 trillion could leave banks for stablecoins. Fed economist Jessie Wang said it might be closer to $65 billion, but banks aren’t taking chances.
Coinbase pulled support from the crypto bill in January. Brian Armstrong, the CEO, said, “We’d rather have no bill than a bad bill.” Lobbyists are now meeting in Washington, trying to find a middle ground. But the banks don’t want crypto firms paying interest at all. They think it’s unfair competition.
Trump-backed crypto firms step into politics and banking
Crypto firms aren’t sitting back. They’ve raised $193 million ahead of the midterms to back pro-crypto lawmakers. Donald Trump, now in his second term, supports stablecoins. His family business even launched one and applied for a U.S. bank license.
The Federal Reserve is deciding whether to give crypto companies “skinny” accounts to access Fed payment systems directly. Banks hate the idea. Meanwhile, Europe already set its crypto rules in 2024. Benchmark’s Mark Palmer said this is a big moment for banks and fintechs that have ignored stablecoins until now.
Ripple’s Jack McDonald said banks are scared of losing the deposit business, where they barely pay interest. Circle’s Jeremy Allaire told people in Davos that this is no different from when money market funds started, and banks freaked out back then, too.
Regulators fear de-pegs, criminal use, and bank runs
There’s real concern about what happens if stablecoins break. In 2023, when Silicon Valley Bank collapsed, Circle’s USDC dropped below $1. It had 8% of its reserves locked in the failed bank.
Circle pushed for a rescue, and the peg held, but it showed how shaky things could get. The European Central Bank warned that a run on stablecoins could force them to sell billions in U.S. Treasuries fast, causing damage. Hilary Allen from American University said a stablecoin panic could spark a run on the entire Treasury market.
In the UK, the Bank of England wants to cap stablecoin holdings at £20,000 for people and £10 million for companies to slow deposit outflows. Crypto firms hate the idea. They say it would stop the industry from growing.
Banks worry that as stablecoins grow, they’ll have less money to lend for things like mortgages or business loans. Philipp Paech from the London School of Economics said less liquidity means higher loan costs, weaker banks, and a less stable system.
Governments are now worried that crypto firms will try to become banks. Circle, Ripple, and others got conditional trust charters to offer custody and brokerage services. Their customers still don’t get insured deposits. Bybit is working on launching actual bank accounts.
The Bank Policy Institute fought back last year. They said crypto firms want the perks of being banks without the rules. Allaire responded at Davos that lending is now moving away from banks. He wants stablecoins to be “very, very safe money” backed by regulated reserves.
Right now, most stablecoin use comes from traders moving in and out of crypto. But the future could look very different. Banks and asset managers are already experimenting.
Société Générale created euro and dollar stablecoins. BNP Paribas, UniCredit, and Standard Chartered are building theirs too. Citi and Bank of America are exploring the same path.
Even PayPal and Western Union are joining in. The New York Stock Exchange is working on a tokenized stock platform. Goldman Sachs CEO David Solomon said they’re already playing with the tech.
But stablecoins also carry a darker side. Chainalysis said they made up 84% of illicit crypto transactions last year. Tether often shows up in global criminal cases. The company says it works with law enforcement in 48 countries.
Some experts think stablecoins aren’t that special. Paech said they’re just like e-money systems used by PayPal. He said they only stand out “in the dodgy corners of the economy,” like money laundering.
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