Pet Stablecoins: Why Some Banks Issue Their Own Digital Tokens, While Others Don't

A joint announcement by IBM and Stellar said that as many as six global banks might issue their own stablecoins on IBM's blockchain-powered payments network, dubbed "Blockchain World Wire".

Citigroup, the corporation behind one of the world's top-20 banks by asset value, revealed earlier this week that it was abandoning its "Citicoin" project to focus on more conventional remittance methods like SWIFT. The bank's reasoning seemed focused on preserving the current forms of inter-bank transfers as a proven and universal method.

"A lot of people are obsessed with this 'token' thing, but at the end of the day a bank is a really fancy ledgering company with amazing security; the key to bank's successful use of blockchain tech, in a practical way, is to shift some of the authentication of a user from the centralized bank to the user's own device, proven by a cryptographic ledger. That's really what this bank-issued coin is really all about - it's still the same USD ledger, its authentication for who is allowed to change the ledger has shifted from username/password at the bank to pub-pri key cryptography in a distributed fashion."

Interestingly, while JPMorgan Chase's move was largely reported as a first for a United States bank, New York-based Signature Bank rolled out a similar feature earlier in December 2018.

DePaolo's viewpoint seems to echo the findings of Citigroup's "Bank of the Future" report, which suggests that fintech companies that are actively disrupting the banking market with new technologies are driving out its longstanding participants - or at least compelling them to give up a large portion of their margins, a traditionally important source of income for banks.

Primarily, banks tend to pick up blockchain for instantaneous cross-border payments.

The two largest blockchain projects aiming to streamline cross-border remittance for global banks are hosted by Ripple and IBM Blockchain.

Both of them are networks that are open to a wider amount of financial institutions, while some banks - like the aforementioned JPMorgan Chase - want to deploy their own private ledgers.

"Only banks can 'take deposits,' which have a specific meaning with specific legal protections around the assets held on deposit in case of bankruptcy. Some, such as Gemini, have set up 'trusts' to park the cash, but it requires costly monthly attestations that come, frankly, for free as a bank. In addition, the Gemenis, the Circles, etc. all seem to be releasing their coins for the purpose of de-risking within their platforms. Very short term thinking, and no one is going to do real business using that setup. That's what banks are for."

The list of such lenders includes the Bank of Canada, the Spanish bank BBVA and the Bank of England, among others.