Stablecoins and other digital assets are moving from the fringes of finance into the strategic planning discussions of banks, as regulators, technology providers and customers begin to settle on how these instruments might be used at scale. While adoption remains limited, the pace of regulatory activity and innovation is forcing financial institutions to confront how stablecoins could reshape payments, deposits, and competition.
Joseph Cox, a partner at Oliver Wyman and a former Federal Reserve supervisor, said banks are no longer debating whether stablecoins matter, but how quickly the market may develop—and what role traditional institutions should play as the rules take shape.
“The regulatory framework is coming into focus, but it’s still being built,” Cox said. “Banks need to understand where that leaves them strategically and what decisions they may need to make before this scales.”
A Regulatory Framework Still Taking Shape
A key catalyst for recent momentum is the implementation of the GENIUS Act, which established a federal framework for payment stablecoins. While the law has passed, much of the operational detail is still being developed by regulators.
Cox said the Office of the Comptroller of the Currency’s recent proposal to implement the act provides an important signal to banks. Rather than reinventing supervision, regulators are importing familiar banking concepts into the stablecoin space, including expectations around governance, liquidity, capital, and risk management.
“In many ways, it was a conservative proposal,” Cox said. “It’s clear the OCC is thinking about supervising stablecoin issuers using frameworks banks already recognize.”
That familiarity may lower barriers for banks considering stablecoin issuance, though Cox cautioned that other regulatory elements—including updated guidance on anti-money laundering, sanctions compliance, and tokenized securities—will also shape how the market develops. Clarity across agencies will be critical for banks deciding how aggressively to move.
Why Customer Demand Is Emerging
Despite limited issuance by banks so far, demand for stablecoins has emerged in specific use cases where traditional payment rails are either slow, expensive, or difficult to access. Cox said stablecoins’ round-the-clock availability, global reach, and programmability continue to distinguish them from existing systems.
“Stablecoins are global by default, they’re 24/7, and they’re natively programmable,” he said. “They provide a shared ledger that’s auditable and easy to reconcile.”
Most current usage remains concentrated in cryptocurrency trading, but Cox expects other applications—including cross-border payments, tokenized securities settlement, and even AI-driven micropayments—to drive incremental adoption. In these contexts, stablecoins can offer operational efficiencies that are difficult to replicate with legacy infrastructure.
Over time, these use cases may overlap with services banks already provide, raising questions about whether institutions should issue stablecoins, focus on tokenized deposits, or partner with third-party providers.
Tokenized Deposits Versus Stablecoins
Banks, Cox said, have gravitated toward tokenized deposits as a way to apply blockchain technology without fundamentally altering their funding model. Unlike stablecoins, which are typically backed by segregated pools of assets, tokenized deposits remain general liabilities of the issuing bank.
“At a fundamental level, the difference is who can issue them,” Cox said. “Only banks can issue tokenized deposits, whereas stablecoins can be issued by a broader range of firms.”
Tokenized deposits today are largely confined to closed or permissioned systems, limiting their utility relative to stablecoins that circulate freely. For tokenized deposits to become more competitive, banks will need clarity around deposit insurance, interoperability between institutions, and compliance obligations—particularly if tokens move beyond bank-controlled platforms.
The Debate Over Paying Interest on Stablecoins
One of the most contentious issues facing banks and policymakers is whether stablecoin holders should be able to earn yield. The GENIUS Act explicitly prohibits stablecoin issuers from paying interest directly, but it remains silent on whether third parties can share reserve earnings with customers.
That silence has fueled debate—and concern among banks that nonbank platforms could recreate interest-bearing deposits through indirect mechanisms.
“This is top of mind for a lot of banks,” Cox said. “They see arrangements where issuers pay distributors, and distributors then incentivize customers to hold stablecoins, as undermining the spirit of the law.”
The OCC’s proposed rule appears to side with banks, according to Cox, by establishing a presumption that such arrangements constitute evasion of the GENIUS Act unless proven otherwise.
“It was a pretty aggressive interpretation,” he said. “The proposal suggests that paying a third party who then passes yield to stablecoin holders would generally be viewed as evasion.”
Whether that interpretation survives the rulemaking process remains uncertain, particularly if Congress advances broader crypto legislation that addresses yield more directly. Cox said the outcome may come down to legislative compromise rather than regulatory nuance.
At the same time, he questioned whether the issue is as existential for banks as some fear.
“I’m not convinced this is the end of the world,” Cox said. “There have always been alternatives to checking accounts for earning yield, and banks still compete successfully because of trust, credit and bundled services.”
Reexamining Deposit Strategy
Even if yield on stablecoins remains constrained, Cox said banks should view digital assets as a broader competitive challenge to how transaction relationships are managed.
“The most valuable thing in banking is owning the transaction relationship with the customer,” he said. “If you lose that, even if you still have the funding, you’re in a vulnerable position.”
That reality may require banks to revisit deposit strategy, liquidity management, and customer experience. Faster payments, better integration with business software, and improved transparency are increasingly table stakes as fintech and crypto-native firms raise customer expectations.
Digital assets, Cox added, could also accelerate the speed of deposit flows, amplifying liquidity risk and requiring banks to upgrade real-time monitoring and contingency funding capabilities.
New Risk, Familiar Challenges
While the technology is new, Cox emphasized that banks are not being asked to manage entirely new categories of risk. Instead, stablecoins and tokenized assets alter the way familiar risks—such as technology, liquidity and financial crime—manifest.
“These are new expressions of risks banks already manage,” he said.
Permissionless blockchains introduce complexities that don’t fit neatly into traditional vendor management models, while real-time settlement can intensify liquidity demands during periods of stress. At the same time, blockchain transparency could eventually support more effective compliance tools if regulators provide sufficient guidance.
The Risk of Standing Still
Stablecoin usage remains small today, but growth has been rapid. Cox cited projections suggesting the market could reach trillions of dollars by the end of the decade, potentially accounting for a meaningful share of short-term value storage.
“It’s still early, but it’s moving fast,” he said.
For many banks, the near-term goal may not be leadership, but preparedness. Understanding capability gaps, monitoring regulatory developments, and maintaining optionality can allow institutions to move quickly if adoption accelerates.
“This isn’t something banks can just ignore and hope goes away,” Cox said. “Some of these changes are durable, and the institutions that are thoughtful now will be better positioned to serve their customers later.”
As regulations solidify and use cases expand, banks face a familiar strategic dilemma: whether to protect the existing model, adapt it, or try to reinvent it. Stablecoins may not displace traditional banking overnight, but Cox said they are already reshaping the questions financial institutions must answer.
This article was created from original ProSight content with the assistance of Microsoft CoPilot.
