The shift of stablecoins from niche crypto assets to credible institutional financial instruments is gaining irreversible momentum. This trajectory was the central theme of a recent A-Team Group webinar, “Unpacking Stablecoin Challenges for Financial Institutions,” sponsored by Apex Group.
Drawing on expertise from Sergey Nazarov, Co-founder of Chainlink, Daniel Gabreil, Digital Assets and Currency Lead APAC and Middle East, Accenture, and Peter Hughes, Founder and CEO at Apex Group, the discussion moved past basic definitions to focus on the technical, regulatory, and operational friction points currently governing adoption within capital markets.
Macro Drivers and the Revenue Imperative
Institutional interest in stablecoins is not merely driven by technological curiosity; it is underpinned by clear economic and geopolitical factors. The passage of the Genius Act in the US, according to one panel member, served as a launch into the stratosphere, significantly reducing perceived risk by signalling the US commitment to complete legalisation.
Beyond regulatory relief, the commercial incentive is significant. Stablecoin issuance represents a lucrative revenue-generating opportunity, allowing issuers to capture the yield on underlying reserves. It was noted that issuers can make “3.5% or 4% on all the money that’s held in your stablecoin”.
Furthermore, stablecoins offer a clear path to efficiency gains that bypass traditional correspondent banking friction. The “ease of use in terms of the frictionless movement of money globally” means payments arrive in seconds, leading some large firms to contemplate issuing their own stablecoin to save £40 million or £50 million in payments and FX costs.
However, this efficiency poses a threat to traditional banking models. One panellist referenced a study predicting that the movement to stablecoins could decrease commercial bank commissions and fees by approximately £5 billion by 2028 due to the erosion of FX revenues. Consequently, commercial banks are now exploring accessing secondary DeFi markets to achieve additional yield for clients, marking a critical “Revolut moment” where they acknowledge competition from neo-banks and decentralised finance platforms.
Mitigating Technical and Minting Risks
For stablecoins to fulfil their mandate in capital markets, their stability must be proven transparently and continuously. This necessity is addressed through real-time proof-of-reserve, a mechanism that verifies the underlying collateral is present at all times, ideally verifiable every minute or second via custodian APIs.
This immediacy is vital as it reduces the “gap” in time during which fraud could occur. A key technological innovation discussed was secure mint, which programmatically builds collateral verification directly into the smart contract controlling issuance. This addresses the primary minting risk. A panellist explained that this mechanism makes “overminting impossible,” ensuring the system rejects any command to create stablecoins without corresponding verified reserves.
Moving stablecoins across different chains introduces secondary minting risk, as the cross-chain bridge temporarily takes control of minting rights. Solutions like Chainlink’s Cross Chain Interoperability Protocol (CCIP) address this by implementing extensive checks before any cross-chain minting is permitted.
Navigating Regulatory Fragmentation and Compliance Automation
In an audience poll, the greatest challenge cited was integration with legacy technology stacks, closely followed by navigating global regulatory uncertainty. This reflects the banking sector’s tendency to layer new technology onto existing infrastructure, such as SWIFT ISO 20022 message-based systems.
Regulatory divergence poses substantial strategic risk, particularly concerning legal finality and issuance regimes. One panellist highlighted the difficulty for global institutions when a stablecoin redeemed in one jurisdiction may not hold the same “finality” or “irrevocability” under the law of the receiving jurisdiction, citing the discrepancy between the UAE and EU processes as an example.
The most persistent obstacle to mainstream adoption, however, remains compliance, specifically anti-money laundering (AML) and Know Your Customer (KYC) requirements. It was stated that ensuring “clean AML at all times” is perhaps the “biggest challenge to take stablecoins into the mainstream”.
The consensus solution lies in programmability and the automation of compliance. Rather than relying on inefficient, error-prone human-led compliance departments, smart contracts enable “embedded supervision”. This involves setting out compliance conditions within the contract and verifying identity, sanctions screening, and other requirements via oracles.
Yet, regulatory requirements themselves can introduce friction. A panellist noted that requiring a financial institution to KYC not only their client but also the transaction beneficiary, as is sometimes the case in jurisdictions like Switzerland, “defeats the purpose of using stablecoins for atomic instantaneous settlement”. The ultimate prize is the ability to reuse verification, allowing an entity verified by one institution to gain instant access to others within the financial ecosystem, a level of efficiency achievable only through automated, on-chain compliance.
Strategic Outlook and Actionable Steps
The potential impact of Central Bank Digital Currencies (CBDCs) on private stablecoins was generally downplayed. Panellists suggested that while the retail role of stablecoins might be threatened in authoritarian states, wholesale CBDCs are unlikely to pose a “huge threat,” as banks would simply issue stablecoins built on top of the wholesale CBDC records.
Looking ahead, the market is preparing for the introduction of yield-bearing stablecoins. It was argued that once regulators align and allow for this, the mass adoption effect will follow swiftly, fundamentally changing banking models.
For institutions preparing for this inevitable shift, the advice was practical and focused:
- Establish strong internal alignment across risk, treasury, and compliance departments to expedite decision-making.
- Seek expert advice to ensure stablecoins are compatible with existing accounting, tax, and risk-related requirements.
Choose a simple starting strategy – such as leveraging an end-to-end solution like “stablecoin as a service,” or launching a small team to implement one or two highly specific use cases – to build expertise and confidence incrementally.
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