Banks Investigating Stablecoin Options Amid Concerns Over Market Share Loss, According to BitGo Executive

As competition among stablecoins intensifies amid potential regulations in the U.S., financial institutions are becoming increasingly aware, largely driven by concerns about losing ground to digital currencies, according to Ben Reynolds, BitGo’s managing director of stablecoins, during an event in Toronto.

During a panel discussion, Reynolds noted that BitGo’s new stablecoin-as-a-service initiative has attracted significant interest from banks, both domestic and international, keen on tokenizing deposits or creating their own stablecoins.

“Many banks are adopting a defensive stance—worried they might lose their deposits,” Reynolds remarked. “They see stablecoins and ponder: How can we ensure we don’t fall behind?”

Recently, yield-bearing stablecoins and tokenized money market funds have rapidly gained popularity; however, they still only represent a small portion of the overall $230 billion stablecoin market.

Sam Broner from A16z emphasized that while there is considerable potential in yield-bearing stablecoins, their main role is in the realm of payments and transactions where users are generally indifferent to yields. Nevertheless, a significant upcoming application could be in “collateral mobility,” which refers to the seamless transfer of funds to fulfill responsibilities across various platforms.

“You can’t accomplish much with a money market fund share,” Broner pointed out. “There are lock-up periods, settlements limited to business hours, and contracts needing manual review. The crypto space offers programmatic, open-ended flexibility.”

Yield-bearing stablecoins may also prove advantageous for institutional players, according to Matt Kunke, crypto product strategist at BlackRock. “For decentralized autonomous organizations (DAOs), protocols, or market makers, transferring between crypto assets on exchanges and brokerage accounts can be slow and cumbersome,” he mentioned. “Stablecoins that offer yields help alleviate that friction.”

However, the regulatory landscape will significantly influence the market. “A tokenized Treasury fund is classified as a security, while a proper stablecoin is not,” he clarified. “They deserve to operate in fundamentally different markets.”

Joseph Saldana, CFO of the Wyoming Stable Token Commission, highlighted that yield-generating tokens can enhance access for investors compared to traditional mutual funds, which often enforce investment minimums that exclude many individuals.

“We aim to support the underbanked and provide broader access to financial instruments enjoyed by a wider audience,” Saldana expressed.