Stablecoins have moved from the fringes of finance to the mainstream. They are expected to reshape payments systems and impact firms across the financial services sector. A recent FT article described how the increased use of stablecoins is expected to lead to a ‘fundamental rewiring’ of the financial system.
The total value of issued stablecoins has surged to USD 280 billion, up from USD 200 billion at the start of 2025 and USD 120 billion 18 months ago. It is forecast to reach more than USD 400 billion by year-end and USD 2 trillion by 2028.
Stablecoins make it easier for consumers to invest in and cash out of other cryptocurrencies - 80% of all crypto transactions now involve stablecoins. They offer faster and cheaper payments and are also valued as providing easy access to a proxy for USD, very popular for people in countries with high inflation or volatile currencies.
But what does this mean for traditional financial institutions – or ‘tradfi’? There will be opportunities as well as challenges, but disruption to the status quo is certain - which firms will need to carefully navigate.
Legislation passed in the US in July 2025 has now inextricably tied stablecoins to US government debt, arguably the bedrock of the global financial system. This will have real world consequences for tradfi globally.
The US Guiding and Establishing National Innovation for US Stablecoins (Genius) Act provides a framework for the regulatory oversight of stablecoins, requiring issuers to back every token with short term liquid assets held in reserve – often US Treasury bills. Stablecoin issuers purchased USD 40 billion of US Treasury bills last year to back their tokens, more than most foreign purchasers and at a similar level to the largest US government money market funds.
This is large enough to move global financial markets. Research has shown that purchases by stablecoin issuers of USD 3.5 billion over 10 days pushes up the price of US government debt, reducing yields by up to 0.025%. While this may not seem much, it is similar to what a central bank might do to stimulate an economy, comparable to small-scale quantitative easing on long-term yields.
Should stablecoin issuers need to sell US Treasuries – which they would need to do if there was a rush of stablecoin redemptions - the impact in the market is two to three times larger.
The price and yield on US government debt impacts everything from global capital flows, the interest rates firms can achieve when borrowing money and corporate valuations. A shock to the crypto market therefore increasingly brings the risk of a ‘ripple effect’ in global financial markets with serious ramifications for financial institutions and corporates globally.
The rise in stablecoins is also reshaping the competitive landscape for traditional payments businesses. Faster, cheaper, blockchain-based alternatives to legacy card networks are enticing retailers away from incumbents such as Visa and Mastercard, and will have an increasing impact on their revenue streams. Profits generated from cross-border payments are most at risk, as these transactions carry higher fees and settlement times, with stablecoins offering a considerably faster, more cost-effective alternative.
The Coinbase Payments platform, launched in June 2025 is an example of this, enabling retailers to easily accept stablecoin payments. This platform is targeted at e-commerce platforms such as Shopify and eBay, giving it access to thousands of small to medium sized firms.
Legacy firms are responding by reducing fees on cross-border payments, with some also looking at how they can utilise blockchain-based systems. Some may choose to develop their own stablecoins to retain and grow their market share in payments, or derive revenues from support services to stablecoin issuers (eg custody and exchange services). Klarna is the latest example, announcing in November 2025 it is launching its own stablecoin (KlarnaUSD) to cut the cost of cross-border payments.
What is certain is that stablecoins are revolutionising the payments landscape and forcing legacy firms to respond or risk ceding market share.
There are also concerns that the popularity of stablecoins could divert customer funds from bank deposits. This would reduce banks’ deposit base, critical for funding the loans banks make and undermining their business model.
In May 2025 the US Treasury warned that around USD 6.6 trillion in deposits in US commercial banks could be “at risk” of migrating to stablecoins. Lower deposits would mean banks may be forced to raise interest rates to attract and retain deposits or increase their funding in the more expensive wholesale markets.
In response, some banks are taking steps to “tokenise” their deposits which allows them to be used for blockchain-based transactions. Our team played an instrumental role in the design and delivery of a bond tokenisation platform for a HSBC, that enabled the issue of the first digital native GBP bond in 2023.
Several US banks have also announced plans to develop a jointly backed stablecoin focussed on G7 currencies. This can prove lucrative as stablecoin issuers earn yields on the US Treasuries backing their tokens.
However, banks are increasingly having to compete with non-bank entities who do not face the same regulatory or capital requirements for their deposits and payments business. Competition is also intensifying with major technology companies also exploring stablecoin integration. For example, Apple, Airbnb, Uber and X have reportedly held preliminary discussions about incorporating tokens into their payment systems.
As their usage grows, there are questions around what would happen if a stablecoin collapsed. While the reserve requirements in the Genius Act are meant to protect stablecoin holders, we know from experience that this does not always work in practise.
For example, payments firms in the UK are required to segregate funds to ensure consumers receive their money back if the firm fails. However, the FCA found that there was an average shortfall of 65% of customer funds in firms that became insolvent between 2018-2023.
There are also uncertainties about how effective the Genius Act will be in reality at protecting holders of stablecoins and as well as the ability to restructure in the event of distress.
In the UK, more clarity on the regulatory framework is expected in 2026. The Joint Transatlantic Taskforce for Markets and the Future, announced in September 2025 by the US and UK to enhance collaboration on capital markets and digital assets, may result in convergence of UK stablecoin regulation.
There are no easy answers, but firms across the financial services sector (especially tradfi payments businesses) need to be asking themselves how stablecoins might affect their business, particularly as they may consider moving towards the adoption of stablecoin in their own business model.
While no-one is expecting stablecoins to usurp traditional deposit funding and payments in the near term, in the medium term and beyond, the ‘fundamental rewiring’ of the financial system is not in doubt.
