Coinbase Brings Stablecoins to Over 1000 Community Banks
Stablecoins Arrive Without a Blockchain
Stablecoins can be held outside the banking system. The next thousand-plus adopters of stablecoin payments are banks. Both statements are true at once, and the bridge between them is a partnership between Coinbase (NASDAQ: COIN), one of the world’s largest cryptocurrency exchanges, and Moov, a payments infrastructure provider. Together the two companies are bringing stablecoin payments and settlements to more than 1,000 U.S. community banks and credit unions, according to a [Month Year] Coinbase announcement
The mechanics matter more than the announcement. Coinbase’s digital asset infrastructure is being integrated into Moov’s payments platform. That combination lets those financial institutions accept stablecoins without building their own blockchains — the distributed ledgers that record crypto transactions, and infrastructure a community bank would otherwise have to run itself. .
What the banks are accepting is a cryptocurrency pegged to a stable fiat currency — that is, government-issued money such as the U.S. dollar or the euro. A stablecoin can be held without a bank account. Its payments settle 24 hours a day, seven days a week, and that round-the-clock settlement enables faster, cheaper money transfers than fiat currency payments, according to .
Where the Reserve Income Comes From
The reserve income is the key incentive. Stablecoin issuers such as Circle (NYSE: CRCL) earn interest on the cash and Treasury reserves they hold at banks and other financial institutions to back their tokens. [4] Circle co-developed its stablecoin, USD Coin, with Coinbase in 2018. [3] Under that partnership, Coinbase retains all reserve income from the USD Coins held on its platform.
Coinbase’s revenue includes trading fees, which rise and fall. Now nearly a quarter of its revenue comes from those stablecoin reserves, according to a [Month Year] Coinbase filing. The reserve income grows when more stablecoins are minted and held, and its steadiness partly offsets the volatility of the trading fees. That is the incentive behind the community-bank push. More institutions accepting stablecoins may lead to more stablecoins and reserve income.
The demand is not only domestic. In countries with hyperinflation, stablecoins let people preserve their savings without buying the underlying fiat currency. For cross-border transfers, they work as a bridge currency between two fiat currencies. They can also be deposited in third-party lending platforms and liquidity pools to earn yields higher than traditional bank accounts, according to .
The Fight the Senate Has Not Settled
Not everyone with an interest in the outcome wants the same outcome. Traditional megabanks consider stablecoins a threat to their fiat-based savings accounts. That clash has held up the CLARITY Act, which aims to establish a clear federal framework for regulating digital assets. The House of Representatives approved it in July, according to the House roll-call record. The Senate has not passed it. The Senate vote will determine how far Coinbase’s model can extend into the banking system. . —
Sources
1. NASDAQ
2. Moov
3. Circle
4. NYSE