Stablecoins are a type of digital currency that is tied to the value of another asset, like the U.S. dollar or gold. This helps stablecoins retain a more consistent value than other cryptocurrencies, which often exhibit severe volatility.
The biggest fear around stablecoins for banks is that, until recently, there were no well-defined regulations around their use. On July 18, 2025, President Trump signed the GENIUS Act. This act was designed to encourage more digital asset activities in the U.S. while prioritizing consumer protection. The GENIUS Act USA has many banks considering embracing digital assets to better compete with financial institutions offering cryptocurrencies.
What are Stablecoins?
Stablecoins are digital tokens that are assigned a one-to-one value with a real-world currency like the dollar. Most stablecoins are issued on blockchain-based networks like Coinbase and Ethereum. Unlike cryptocurrencies like Bitcoin or Ethereum, which fluctuate widely, stablecoins were created to avoid volatility.
Some of the top use cases of stablecoins include cross-border payments and remittances, E-commerce and merchant payments, payroll, trading, and decentralized finance (DeFi) applications, such as collateral in lending.
How are Banks Reacting to Stablecoins?
As stablecoins for banks become more prominent, they’re seen as both a threat and an opportunity.
The primary concerns for banks regarding stablecoins have previously centered on regulatory uncertainty, lack of oversight, and potential risks to financial stability. But with the GENIUS Act, banks are rethinking their strategies, particularly as stablecoin adoption grows.
Some financial institutions are even exploring partnerships with fintech firms or blockchain companies to integrate stablecoin technology into their services. Others are researching, testing tokenized deposits, or even considering launching their own regulated digital currencies.
Paypal and Coinbase partnered a few months ago for the PayPal USD (PYUSD) stablecoin. Mainstream banks like Bank of America and Citibank are also embarking on their own stablecoin initiatives.
While some banks are still taking a cautious approach, it’s clear that stablecoins for banks and the GENIUS Act are game changers and could redefine the entire financial infrastructure.
What the GENIUS Act Means for Banks in Small Business Lending
Many financial industry experts expect that the GENIUS Act will finally give banks and their customers the regulatory certainty to move forward with stablecoin payment solutions or new lending models.
Ambiguity regarding previous federal stances on digital assets had prevented many banks from entering the space. Now, with regulatory clarity, banks can begin to explore how stablecoins might build on their existing services.
Stablecoins for banks will provide faster settlements, lower transaction costs, and better financial access. The improvements stablecoins offer can impact the disbursement and repayment of small business loans significantly, especially for the underserved or digitally native borrowers.
For small and community banks that have historically built trust with local businesses, stablecoins may offer an even better opportunity to gain cryptocurrency approvals of tokenization-based solutions, without risking their trust.
Going forward, banks will have to seriously consider new digital infrastructure investments, whether through new tokenized deposit models or strategic partnerships with technology providers, to avoid losing market share.
Assessing the Risks of Stablecoins for Banks
Before your bank thinks about implementing stablecoins, it’s important to recognize the risks. While stablecoins for banks offer speed and efficiency, they also present heightened concerns regarding compliance, cybersecurity, operational viability, and liquidity.
Compliance and Cybersecurity Risks
Compliance risks should be at the forefront of safety and risk assessments of stablecoins for banks. Digital tokens can be used in ways that are unobservable to traditional oversight, which may expose banks to violations of anti-money laundering and sanctions regulations.
Cybersecurity is equally important and requires secure wallet infrastructure, threat assessments, and constant vigilance for fraud and breaches.
Your financial institution can minimize risks by taking the following steps:
Have a Dedicated Crypto Team
Standard compliance teams likely aren’t prepared to manage the new risks of stablecoins for banks. Engage experts or hire compliance professionals to manage counterparty risk and transaction screening. Also, ensure that stablecoin-related banking activities are carried out according to regulations and best practices.
Train Key Staff on Crypto-specific Security Practices
Provide continuing education for your bank’s staff who are working in risk management, IT, operations, and customer support roles. This training should include how to identify phishing attacks, safeguard private keys, identify unusual transaction behavior, and what to do in the event of a breach.
Invest in Technology
Utilize blockchain intelligence solutions that can trace illegal on-chain activity. Deploy multi-layered security measures, such as implementing multi-factor authentication, incident response plans, etc.
Operational Considerations
In addition to stablecoin creating new workflows, banks will need to be mindful about moving to 24/7 blockchain networks. Stablecoin activity will also include third-party issuers, which offer exposure to additional risk.
Here are some tips to help mitigate the operational risk and drive success for your bank’s stablecoin strategy:
Monitor Third-party Issuers
Your teams should monitor the ongoing financial and operational viability of any stablecoin issuers. Tokens should always be redeemable for face value, especially in any market stress situation.
Ensure Access to Real-Time Blockchain
Data Access to real-time blockchain data can assist you in monitoring transactions and wallet activity that can indicate that stablecoin holders are losing confidence. For example, an unusual increase in the total volume of stablecoin transfers or requests for redemptions may indicate that liquidity is becoming strained or holders are losing trust in the issuer.
Liquidity Risks
Banks using fiat-backed stablecoins for payments and settlements can’t ignore the liquidity risks. As we all know, liquidity constraints amid volatile financial conditions can jeopardize the stability of fiat currency-backed stablecoins.
There are steps your bank can take to mitigate stablecoin liquidity risks:
Structure Robust Risk and Liquidity Frameworks
Policies should define limits on holdings of specific stablecoins (if certain risk parameters aren’t met). Include stablecoin-related scenarios in your liquidity stress testing process, such as a sudden pause of redemptions or a run on the market. Have contingency plans in place in case a stablecoin becomes distressed.
Stay Committed to Due Diligence and Counterparty Monitoring
Reduce information asymmetry to some degree through direct discussions with your stablecoin issuer and institutions you partner with regarding their reserve management, custodial relationships, and regulatory readiness.
Create or Improve Internal Oversight and Governance
Make sure your financial, risk, and compliance teams understand expectations and accountabilities in monitoring stablecoin exposures. Similar to cash-like instruments, the bank’s financial experts should monitor the inflows, outflows, and liquidity gaps of stablecoins.
Final Thoughts
Stablecoins for banks are a rapidly expanding part of the financial ecosystem. And now, with the introduction of the GENIUS Act , your financial institution can be well on its way to using stablecoins securely and in compliance with the law
Acting now can put your bank ahead of the curve in a rapidly evolving market. Whether you're considering stablecoin integrations, exploring tokenized lending, or improving your compliance and risk profile, Biz2X offers the tools and infrastructure your financial institution needs to modernize with confidence.
FAQs About Stablecoins for Banks
1. Why are banks on high alert about stablecoins?
Stablecoins for banks have leaders in these institutions on high alert because of the GENIUS Act. With more trust in Stablecoin issuers and wider adoption, the U.S. Treasury Department believes that it could lead to a $6.6 trillion outflow from traditional bank deposits to stablecoins. This can impact a bank’s lending capacity, particularly where small business loans are concerned.
2. What are the benefits of stablecoins for banks?
The primary benefit is the likelihood of retaining deposits that would otherwise be lost to stablecoin issuers. Stablecoins for banks also overcome many of the limitations of the traditional financial system. Stablecoins offer almost instantaneous payment settlements, lower transaction fees, tailored, automated processes, and full transparency into each transaction.
3. How can stablecoins support a bank’s small business lending strategy?
Stablecoins for banks can improve the speed and efficiency of small business loan disbursements and repayments. Their near-instant settlement capability reduces wait times and cuts transaction costs, especially for cross-border lending or borrowers with limited access to traditional banking.
4. How does the GENIUS Act USA affect banks?
It’s the first U.S. federal law to set clear rules about stablecoin issuance and oversight. The law removes previous legal uncertainty and opens the door to safely and confidently adopting, integrating, or issuing stablecoins into a bank’s operations with clear regulatory backing.
5. How can my financial institution reduce its infrastructure and compliance investment when adopting stablecoins?
Partnering with a reputable Fintech provider like Biz2X can significantly reduce the associated internal tasks when implementing stablecoins into your operations. Stablecoins for banks can ultimately help your institution grow as financial solutions move away from traditional banking models.
Contact Biz2X to learn more about how stablecoins for banks can future-proof success for your financial institution.
