Banks and large institutional players are showing a keen interest in the stablecoin industry after PayPal’s recent venture into the world of cryptocurrency. According to Richard Rosenthal, Principal and Partner at Deloitte, these entities are exploring various possibilities to engage with dollar-pegged crypto tokens and are increasingly willing to experiment with them.
In a podcast conversation with Walter Hessert, Head of Strategy at Paxos, Rosenthal discussed the advantages that dollar-pegged crypto tokens can offer to markets and how recent developments are making firms more open to the idea of incorporating them into their operations.
Rosenthal highlighted how many banks have been studying and exploring ways to participate in the stablecoin ecosystem. This includes considerations such as becoming a reserve bank, banking a significant portion of the cash underpinning stablecoins, or providing the infrastructure to facilitate the settlement, issuance, and support of stablecoins. The growing recognition of the opportunity in this space is driving these players to engage and explore potential avenues.
Stablecoins are cryptocurrency tokens that are pegged to stable assets such as fiat currencies like the USD. Examples of popular stablecoins include Tether USD (USDT) and USD Coin (USDC), with their issuers backing the tokens with multi-billion dollar reserves primarily consisting of cash and U.S. Treasuries.
Deloitte reportedly began auditing financial statements for Circle, the issuer behind USDC, earlier this year. Additionally, the company audits Coinbase, America’s only publicly listed crypto exchange, which also offers asset custody for Grayscale, the world’s largest Bitcoin fund.
Rosenthal believes that tokenizing dollars and other assets could significantly enhance market liquidity by unlocking funds currently tied up in existing settlement cycles, especially in the context of cross-border transfers. He noted that tokenized assets are also compatible with smart contracts, making processes more efficient through automated logic.
According to Rosenthal, clients, banks, and the market are exploring a range of use cases for tokenized assets, including securities lending, tokenized money market funds, bank deposits, mortgage servicing rights, and digitized repos.
In a related development, PayPal introduced its Web3-focused stablecoin, PYUSD, in August, which has accumulated a market cap of $44.4 million. Despite the Securities and Exchange Commission (SEC) issuing a subpoena related to the token, both Paxos and Deloitte view PayPal’s offering as a game-changer for the industry.
The regulators also compelled Paxos to cease its BUSD stablecoin operations in February, alleging that the token was an unregistered security. Nevertheless, Hessert of Paxos believes that PayPal’s entry into the stablecoin space sends a strong signal to other payment companies, indicating that stablecoin is a trusted and safer product, backed by a reputable entity like PayPal.
Overall, the growing interest and engagement of banks and institutional players in the stablecoin sector, along with PayPal’s foray into the space, mark an important evolution in the cryptocurrency industry. As more entities explore the possibilities presented by stablecoins, the landscape of digital assets and decentralized finance continues to evolve.