The Future of Stablecoins: A Strategic Analysis

The ability to settle payments globally in a fast, secure, and cost-effective way is being transformed by the proliferation of tokenized cash using blockchain technology. Based on multiple tailwinds, 2025 may witness a material shift across the payments industry, for which both incumbents and disruptors need to make urgent preparations. Stablecoins, a form of digital cash issued as tokens on a blockchain, have emerged as a global alternative to conventional payments infrastructure. Currently issued mostly in US dollars, stablecoin circulation has doubled over the past 18 months but still facilitates only about $30 billion of transactions daily—less than 1 percent of global money flows.

Stablecoin advocates say that the technology can transcend banking hours and global borders, offering substantial improvements on current payment infrastructure, including speed, cost, transparency, availability, and increased inclusion of those who are underserved by the banking system. Today, however, stablecoins are employed mostly as an intermediary, requiring abundant liquidity and off-ramps (venues for exchanging digital assets) to traditional fiat currency.

True scaling of stablecoins will require a shift in the prevailing paradigm that requires most transactions to settle in local currency. If and when the majority of customers choose to retain their funds in stablecoins, this could have far-reaching consequences for the demand for underlying reserves and implications for the deposit funding and revenue models of financial institutions. Since major use cases include cross-border payments and remittances, trading and capital market settlement, and treasury and cash management, the implications of such a funding shift would be global.

In this article, we assess the extent to which stablecoins are challenging the incumbent payment infrastructure, discuss the benefits and risks of reliance on stablecoins for global payments, and address why 2025 could be an inflection point for the technology. We then identify the steps that financial institutions should consider to participate in the development of stablecoins. Finally, we describe the signs of accelerating adoption of stablecoins, recognizing that, for many financial institutions, it can take time to implement new systems.

Tokenized value today

Over the past few years, central banks and financial institutions have created several types of tokenized money. These include the following:

• Central bank digital currencies (CBDCs). CBDC is the official digital version of a nation’s fiat currency. CBDC is legal tender, backed by a nation’s central bank and issued on a centralized or permissioned (not publicly accessible) ledger. CBDCs exist for both retail (public) and wholesale use (for business-to-business settlement). Examples include the People’s Bank of China’s e-CNY and the Eastern Caribbean Central Bank’s DCash (EC Dollar).
• Stablecoins. Stablecoins are tokenized cash issued by private institutions on public blockchains (for example, Ethereum), pegged to fiat currency, and backed by audited reserves. Unlike CBDCs, stablecoins are not officially legal tender and have received varying levels of regulatory scrutiny and oversight. Examples include Tether (USDT), Circle (USDC), and EUR CoinVertible (EURCV).
• Bank-issued tokenized deposits. These are tokenized representations of customer deposits held in bank accounts, backed one-to-one by funds held by the issuing institution. These tokens are not intended to be legal tender but are typically issued on permissioned blockchains to enable real-time payments and settlements within or between institutions. One example is JPMorgan’s JPM Coin.

Common to all three of these types of money is the ability to clear good funds and settle a payment almost instantly, requiring verification of existing funds and confirmation of sending and receiving entities before a transaction can be initiated. Thanks to digital compliance processes and smart contracts, these payments could be automatically checked for anti–money laundering (AML) and know-your-customer (KYC) issues and screened for sanctioned entities via on-chain analytics services and auto-executing instructions.

These types of money represent a direct challenge to traditional global payments rails, such as utilizing the Swift payment messaging network, using correspondent banking, or employing wire transfers such as Fedwire. The majority of these legacy payment networks can take one to five business days to complete a transaction because they rely on multiple intermediaries, operating in different business time zones and employing periodic batch-based processing. Furthermore, most payments are required to undergo manual or only semiautomated regulatory checks, such as AML, KYC, and sanctions screening.

Despite these challenges—and because of attendant value drivers—the existing legacy payments infrastructure processes between $5 trillion and $7 trillion in global money transfers daily (including institutional, commercial, and consumer money transfers), according to data from Swift and the Bank for International Settlements.

By comparison, on-chain data—transactions verified and recorded on a blockchain—suggest that about $250 billion of stablecoins have been issued, including $155 billion by Tether and $60 billion by Circle. These facilitate $20 billion to $30 billion of real on-chain payment transactions per day, split between remittances and settlements. Therefore, despite much publicity, stablecoins process less than 1 percent of the global daily money transfer volume.

Based on current utility, some may argue that stablecoins pose little to no threat to incumbent payment networks. However, the volume of stablecoin transactions has grown organically by an order of magnitude over the past four years.

Tokenized value today

Over the past few years, central banks and financial institutions have created several types of tokenized money. These include the following:

• Central bank digital currencies (CBDCs). CBDC is the official digital version of a nation’s fiat currency. CBDC is legal tender, backed by a nation’s central bank and issued on a centralized or permissioned (not publicly accessible) ledger. CBDCs exist for both retail (public) and wholesale use (for business-to-business settlement). Examples include the People’s Bank of China’s e-CNY and the Eastern Caribbean Central Bank’s DCash (EC Dollar).
• Stablecoins. Stablecoins are tokenized cash issued by private institutions on public blockchains (for example, Ethereum), pegged to fiat currency, and backed by audited reserves. Unlike CBDCs, stablecoins are not officially legal tender and have received varying levels of regulatory scrutiny and oversight. Examples include Tether (USDT), Circle (USDC), and EUR CoinVertible (EURCV).
• Bank-issued tokenized deposits. These are tokenized representations of customer deposits held in bank accounts, backed one-to-one by funds held by the issuing institution. These tokens are not intended to be legal tender but are typically issued on permissioned blockchains to enable real-time payments and settlements within or between institutions. One example is JPMorgan’s JPM Coin.

Common to all three of these types of money is the ability to clear good funds and settle a payment almost instantly, requiring verification of existing funds and confirmation of sending and receiving entities before a transaction can be initiated. Thanks to digital compliance processes and smart contracts, these payments could be automatically checked for anti–money laundering (AML) and know-your-customer (KYC) issues and screened for sanctioned entities via on-chain analytics services and auto-executing instructions.

These types of money represent a direct challenge to traditional global payments rails, such as utilizing the Swift payment messaging network, using correspondent banking, or employing wire transfers such as Fedwire. The majority of these legacy payment networks can take one to five business days to complete a transaction because they rely on multiple intermediaries, operating in different business time zones and employing periodic batch-based processing. Furthermore, most payments are required to undergo manual or only semiautomated regulatory checks, such as AML, KYC, and sanctions screening.

Despite these challenges—and because of attendant value drivers—the existing legacy payments infrastructure processes between $5 trillion and $7 trillion in global money transfers daily (including institutional, commercial, and consumer money transfers), according to data from Swift and the Bank for International Settlements.

By comparison, on-chain data—transactions verified and recorded on a blockchain—suggest that about $250 billion of stablecoins have been issued, including $155 billion by Tether and $60 billion by Circle. These facilitate $20 billion to $30 billion of real on-chain payment transactions per day, split between remittances and settlements. Therefore, despite much publicity, stablecoins process less than 1 percent of the global daily money transfer volume.

Based on current utility, some may argue that stablecoins pose little to no threat to incumbent payment networks. However, the volume of stablecoin transactions has grown organically by an order of magnitude over the past four years.

Tokenized value today

Over the past few years, central banks and financial institutions have created several types of tokenized money. These include the following:

• Central bank digital currencies (CBDCs). CBDC is the official digital version of a nation’s fiat currency. CBDC is legal tender, backed by a nation’s central bank and issued on a centralized or permissioned (not publicly accessible) ledger. CBDCs exist for both retail (public) and wholesale use (for business-to-business settlement). Examples include the People’s Bank of China’s e-CNY and the Eastern Caribbean Central Bank’s DCash (EC Dollar).
• Stablecoins. Stablecoins are tokenized cash issued by private institutions on public blockchains (for example, Ethereum), pegged to fiat currency, and backed by audited reserves. Unlike CBDCs, stablecoins are not officially legal tender and have received varying levels of regulatory scrutiny and oversight. Examples include Tether (USDT), Circle (USDC), and EUR CoinVertible (EURCV).
• Bank-issued tokenized deposits. These are tokenized representations of customer deposits held in bank accounts, backed one-to-one by funds held by the issuing institution. These tokens are not intended to be legal tender but are typically issued on permissioned blockchains to enable real-time payments and settlements within or between institutions. One example is JPMorgan’s JPM Coin.

Common to all three of these types of money is the ability to clear good funds and settle a payment almost instantly, requiring verification of existing funds and confirmation of sending and receiving entities before a transaction can be initiated. Thanks to digital compliance processes and smart contracts, these payments could be automatically checked for anti–money laundering (AML) and know-your-customer (KYC) issues and screened for sanctioned entities via on-chain analytics services and auto-executing instructions.

These types of money represent a direct challenge to traditional global payments rails, such as utilizing the Swift payment messaging network, using correspondent banking, or employing wire transfers such as Fedwire. The majority of these legacy payment networks can take one to five business days to complete a transaction because they rely on multiple intermediaries, operating in different business time zones and employing periodic batch-based processing. Furthermore, most payments are required to undergo manual or only semiautomated regulatory checks, such as AML, KYC, and sanctions screening.

Despite these challenges—and because of attendant value drivers—the existing legacy payments infrastructure processes between $5 trillion and $7 trillion in global money transfers daily (including institutional, commercial, and consumer money transfers), according to data from Swift and the Bank for International Settlements.

By comparison, on-chain data—transactions verified and recorded on a blockchain—suggest that about $250 billion of stablecoins have been issued, including $155 billion by Tether and $60 billion by Circle. These facilitate $20 billion to $30 billion of real on-chain payment transactions per day, split between remittances and settlements. Therefore, despite much publicity, stablecoins process less than 1 percent of the global daily money transfer volume.

Based on current utility, some may argue that stablecoins pose little to no threat to incumbent payment networks. However, the volume of stablecoin transactions has grown organically by an order of magnitude over the past four years.

If that rate of growth were to continue, stablecoin transactions could surpass legacy payment volumes in less than a decade—and potentially sooner, based on expanding applications. The ability for tokenized cash to operate continuously, satisfy demand for instant settlement, and offer improved operational risk controls solves real-world pain points and offers a compelling value proposition to end users that could accelerate adoption.

On that basis, any institution engaged in payments activity today may want to begin preparations for engaging with tokenized cash, while institutions whose business relies on legacy technology should actively develop capabilities to support this new payment method.

Why stablecoins have grown in popularity

The current wave of modernization of payments infrastructure was born out of a growing need to address perennial problems. These include the following:

• Speed. Delays in settlement of one to three business days are common when using traditional payment rails, especially when sending payments cross-border.
• Cost. Traditional payment processing typically involves multiple intermediaries (for example, correspondent banks and clearing houses); as a result, this process can generate multiple fees.
• Transparency. Complex legacy infrastructure can obscure the routing and status of payments, especially during international transfers.
• Availability. Payment systems reliant on the traditional banking system usually only operate during business hours, which do not include weekends and holidays.
• Inclusion. Since much of the traditional payments infrastructure relies on banks, many people are underserved or excluded by KYC regulations and face other access hurdles such as the need for a state-issued ID or multiple proofs of residence.

In addition, the creation of domestic payment systems (often unique to continents and even to individual markets) has led to many siloed systems and proprietary networks, making true global integration of payments difficult to achieve.

Image description:
A table compares legacy payment rails and stablecoin across speed, cost, cross-border, automation and programmability, security, transparency, settlement risks, and availability. Overall, stablecoins offer transformative capabilities that address key limitations of legacy payment systems, such as increased speed; lower costs; borderless, minimal, or nonexistent foreign transaction fees; and 24/7 operations.

On top of these perennial issues, there has been a proliferation of needs, including merchant settlements, business-to-business payments, cross-border payments, retail remittances, and automated payments (for example, from government). As a result, demand has grown in the past decade for more-responsive, real-time, low-cost, secure, and inclusive global payment solutions.

Some incumbents historically may have hesitated to pursue innovative payment systems in part because they might disrupt existing revenue lines. Competition among financial institutions has stymied efforts to collaborate, while a lack of standardization and consistent international regulations has prevented the emergence of a modern, global system. However, we believe such incumbents should continue to innovate, even if this might compete with existing