The Battle for The Soul of Stablecoins, Who Will Win?

From the time of Mesopotamia where bartering barley for cattle was the norm and in Lydia, now modern day Turkey, where they issued the first true metal coins to Marco Polo learning about paper money in China and bringing it back to Europe. There has always been a desire to streamline how money moves, after the 2008 crisis the rise of Bitcoin and digital assets in general began, with no signs of slowing down enough to stop that evolution. But the rise of digital asset gave birth to a tool that will change how we move money globally.

Many moons ago an idea came forward to solve two problems, first it was to give traders of Bitcoin, Ethereum and other crypto assets the ability to mitigate risks with something that was not volatile, something that was stable, The second problem was on and off ramping from and to the crypto sphere, what could be created that would allow for conversions into fiat in the simplest way possible. So in 2014 the stablecoin was born on a blockchain called BitShares and they gave birth to the very first stablecoin called BitUSD.

Now the idea was to have a stable token that was backed by their native token in order to provide risk mitigation in a volatile crypto market, and it worked for a while. The downfall of BitUSD was the decline in value of their native token which in turn impacted the stablecoin. But what did happen was this changed things forever in the crypto space and actually as we can see now it is beyond that.

Their idea sparked a slew of other ideas and players in the game, any innovation in the financial markets or any area for that matter comes down to trial and error. So here came Nubits with their USNBT stablecoin and it suffered the same fate. Then a group created Realcoin, a simple concept, the issuance of a stablecoin backed by fiat reserves so that the peg is never at risk, so 1 stablecoin equals US$1 in reserves, simple idea and it worked. It didn’t rely on algorithmic pegging but relied on reserve assets, issuance and redemption, arbitrage and market liquidity.

Now why is Realcoin so significant? Well that is because the name changed to Tether and they set the standard for stablecoin issuance that we see today.

Make no mistake that other stablecoins launched after Tether/Realcoin that were successful such as MakerDao/DAI, which launched in 2017 and backed by a multi-asset treasury, TrueUSD, USDC and GUSD. Then many others failed such as Basis Cash “BAC”, Iron Finance’s “IRON”and the largest stablecoin collapse in history TerraUSD’s “UST”.

So now that we went through the history lesson on stablecoins, let’s begin the conversation on what is happening now. Traditional financial institutions realized a few years back that Tether and Circle were raking in not millions but billions in US Treasury assets under management, they were not paying a yield to the holders of their stablecoins but they were getting the entire yield from the treasury holdings and other yield bearing assets they were holding to back the tokens. Then exchanges and other groups started to offer yield on those stablecoins through deposits, where those deposits could be used to lend those stablecoins coins to other exchanges, traders and institutions.

This is when the banks started to see deposits move from traditional bank savings accounts to a more lucrative stablecoin yielding system. This sparked a rage from banks, it wasn’t that the stablecoin market evolved, it was that they were not benefiting. This is what it all comes down to, the innovators took the pain, made the errors, had some major successes and now that it is a well oiled machine the banks that have barked so much about cryptocurrency are now jumping in head first.

Recently a consortium of 21 banks came together to provide a direct challenge to Tether and Circle, this consortium includes the likes of Bank of America, Citi, Goldman Sachs, Deutsche Bank, UBS, Santander, Wells Fargo, MUFG, Fidelity and others. They are forming a new entity to issue a USD stablecoin in 2027, followed by EUR and other G7 currency tokens. They didn’t fire a simple warning shot, they fired missiles and they don’t want the crumbs as they believe they are entitled to the entire cake.

Banks usually move somewhat slow and that isn’t because they want to, it is because they are so big and highly regulated that they cannot move at the speed of light as a fintech can. They started this initiative in 2025 with just 10 banks and now as 21 banks aligned with G7 currency issuance plans, well this just changed things a bit. But do not get confused as to what this is, this is not innovation or community based growth, this is pure and simple greed. The consortium intends to comply with GENIUS Act (U.S.) and MiCA (EU), as is expected, that is because they need to have fully regulated institution grade stablecoin framework due to the regulations that revolve around them.

Make no mistake, this is not a crypto native stablecoin at all, it is a bank native settlement instrument designed to reclaim the yield and payment flows currently captured by USDT and USDC. They want those deposits, they want that yield, they want that cake and not the crumbs, plain and simple.

Will this put a crack in Tether’s foundation?

Well probably not, they are unlikely to panic at all. Its real strength isn’t regulation, it’s liquidity. USDT is everywhere, you can find it on exchanges, in trading pairs, inside DeFi pools and across emerging markets. Banks can’t easily replicate that kind of global, organic adoption at the snap of a finger.

So Tether will probably lean even harder into what already works. Expect them to deepen their presence in emerging markets, expand on and off ramp partnerships and continue improving settlement speed. If regulators apply pressure, Tether may also move toward greater transparency, but only as much as necessary to maintain dominance and they are dominant.

The conversation is a bit different for Circle, they are in a more vulnerable position. The announcement of the 21 bank stablecoin consortium already caused Circle’s stock to drop 6%, this signals that investors can see real competitive pressure from the banks.

Circle’s response will likely be strategic and aggressive. They’ll strengthen institutional partnerships, push USDC deeper into tokenization of real world assets and expand across more blockchains to stay relevant. They have already launched their own blockchain to try to front run the 21 bank initiative but will that be enough?, probably not. Circle will more than likely go out and lobby for regulatory frameworks that favor non bank issuers, because once banks enter the stablecoin arena, Circle risks being squeezed out unless the rules protect them. So they really have no choice but to dig their heels in and fire back.

Now the Stripe led OpenUSD has already shaken the market once, causing a 17% drop in Circle’s stock earlier in the quarter. Now, with banks entering the stablecoin race, OpenUSD becomes part of a three way battle for the soul of the stablecoin market, this competition will reshape stablecoin dynamics for years to come.

But is that where the conversation ends? Not in the least, this brings up a big question, Does This Undermine the Purpose of Tokenization and Blockchain?

In some ways we can say YES IT DOES, bank issued stablecoins are centralized and permissioned. They’ll almost certainly require KYC/AML and even if they run on public blockchains, they’ll behave like private settlement tokens. This shifts stablecoins away from open, decentralized ecosystems and toward bank controlled rails, key word is CONTROLLED. The result is less decentralized liquidity and more institutional control.

Now in some ways we can say NO IT DOESN’T, institutional stablecoins legitimize blockchain based settlement. They give regulators clarity, give institutions comfort and push banks and asset managers to tokenize everything from bonds and FX to commodities and private credit. Tokenization grows, even if decentralization shrinks. It’s a trade off of sorts, more adoption for less decentralization.

Looking at the pros and cons matters as sometimes you have to lose a little of something to gain a little of something else. I have always said and will always say that there will be a convergence not dominance from either TradFi or DeFi, it comes down to how it will all work.

Now how about the blockchains, what is that impact? Well let me go over three blockchains to give you a good idea of what could happen there.

Lets start with Ethereum, they stand to benefit the most. Banks already prefer Ethereum’s maturity, tooling and regulatory alignment. MiCA compliant stablecoins gravitate toward Ethereum, and most tokenized assets such as bonds, funds and RWAs already live there. If the consortium issues ERC-20 versions of its stablecoin, Ethereum gains more settlement volume, more institutional nodes, and more liquidity. So it is a win, plus they are pushing the Ethereum institutional initiative, that within itself is opening up a lot of doors globally.

Next up is Solana, they could benefit, but probably cautiously. Its speed and low fees make it attractive for retail payments but banks may hesitate due to Solana’s history of outages and concerns about centralization. If banks pursue fast, low cost cross-border payments, Solana might become a secondary chain, useful, but not the primary institutional rail.

Lastly let’s ask the question, can a less widely known blockchain that has been around for almost a decade without fanfare benefit? Well guess what, Pecu Novus could gain strategically, especially if it positions itself correctly. Because it already supports ERC-20 and EVM compliance at the protocol level that began this year, bank issued tokens could run natively without bridges potentially. Its distributed RPC endpoints add reliability, and USXM’s issuer specific stablecoin architecture is something that the banks may want to work with as it takes a single stablecoin and segments it across multiple issuers with bespoke permissions.

In the end there an pros and cons, for banks this is about control of the cake and for innovators this is about freedom to grow and build, in the middle and there is a middle, where traditional finance will meet and converge with decentralized finance to create what will undoubtedly be the future of finance and change things forever.

Louis Velazquez