Can Big Banks Dominate the Stablecoin Market and Kill Tether (USDT)?

A significant shift is underway in the cryptocurrency market. Indeed, the potential dominance of big banks in the stablecoin market could threaten firms like Tether.

This trend heralds a new era where traditional financial institutions could reshape the industry, given the spike in regulatory scrutiny seen in 2023.

Tether’s Dominance Threaten by Big Banks

Tether has been a pivotal player in the cryptocurrency market. As a stablecoin, it bridges the traditional fiat currency and the volatile crypto market. Tether’s USDT, pegged to the US dollar, offers the security and stability many traders and investors seek. Its utility in facilitating trade and hedging against volatility has led to its widespread adoption.

However, the landscape is changing rapidly. Big banks, previously wary of the crypto market, are now recognizing the potential of stablecoins. These financial behemoths have the infrastructure, regulatory compliance frameworks, and, most importantly, the trust of the masses, which they have cultivated over decades.

Their entry into the stablecoin market is about expanding their services and maintaining control over the financial system, which could put stablecoin giants like Tether out of business.

“At some point, Janet Yellen is going to say to Jamie [Dimon], and all the other muppets who run these TradFi banks, you are allowed to do a Tether, and they’re going be like great we’re just going to offer a JPMorgan Coin… There’s not going to be none of these trust issues. And overnight Tether has no more business,” Arthur Hayes, Chief Investment Officer of Maelstrom, explained.

Read more: A Guide to the Best Stablecoins in 2024

Therefore, regulatory compliance is a significant edge that big banks hold over existing stablecoin operators like Tether. With increasing scrutiny from regulators worldwide, the stablecoin market is moving towards stricter regulatory compliance. Already accustomed to operating under tight regulatory environments, big banks are well-positioned to adapt and thrive in this new market.

Relying on Trust to Enter the Stablecoin Market

Trust is an invaluable asset in the financial world, and this is where big banks also have the upper hand. Consumers and businesses accustomed to dealing with established banks might prefer a stablecoin backed by these institutions over others like Tether. Big banks’ perceived stability and reliability could lead to a shift in user preference.

“[A hypothetical] JPMorgan Coin is going to be used everywhere around the world [because] there’s not going to be these questions about the legality or whether it’s a security… It’s JPMorgan, they run the US banking system… [In this case] are you going to use Tether or are you going to use the JPMorgan Coin?,” Hayes questioned.

Regarding technology, while banks may initially lag behind, their vast resources allow them to catch up quickly. Investments in blockchain technology and strategic partnerships with fintech companies can accelerate their entry into the stablecoin market.

As big banks make their foray into stablecoins, Tether faces multiple challenges. Its dominance is threatened by the competition and by its ongoing legal and transparency issues.

“Stablecoins will still work the same way, it’s just that these centralized companies in crypto will not be doing it anymore. It won’t be crypto people making this big interest margins, it will be the same banks because at the end of the day, they don’t have any defensible business because they rely on the banks to custody their funds and allow them to trade dead instruments,” Hayes concluded.

Indeed, the possibility of more compliant and transparent stablecoin offerings from big banks could sway users away from Tether.