Wall Street’s Stablecoin Dreams Hit Turbulence: Why Giants Are Struggling to Launch

Wall Street's big guns are fumbling their crypto plays—again. The latest hurdle? Stablecoins.

Banks and asset managers betting on dollar-pegged tokens face regulatory quicksand, tech headaches, and that classic finance-industry trait: glacial speed. Meanwhile, DeFi protocols keep eating their lunch.

Here’s why the suits can’t get it together:

• Compliance chaos: Every regulator wants a different pound of flesh
• Legacy tech: 50-year-old settlement systems vs. blockchain’s atomic clocks
• Analysis paralysis: More committees than a UN summit

The irony? These are the same institutions that dismissed crypto as a ‘fad’ five years ago. Now they’re scrambling to replicate what startups built from scratch—with all the elegance of a gold-plated Segway.

Prediction: First-movers will be… crypto-native firms (again). Wall Street’s ‘fast followers’? More like slow-motion spectators.

Should Companies Create Their Own Stablecoins 

While the GENIUS act opens new avenues for stablecoin usage, experts caution that the journey toward successful implementation will not be straightforward. The potential for instant payments and settlements that stablecoins promise is enticing, particularly when traditional banking transactions can take days.

Companies such as Walmart and Amazon are reportedly considering their own stablecoin initiatives, signaling a significant shift in how retail and financial services could operate in the future.

However, a recent report by Reuters highlights that the GENIUS Act does not immediately eliminate the complexities associated with launching stablecoins. 

Businesses must navigate a labyrinth of strategic and technical challenges. One fundamental decision is whether to create their own stablecoin or to incorporate existing options.

The intended use of the stablecoin will reportedly have greater influence on this decision; for instance, a retail platform might develop a stablecoin to enhance customer engagement, while others could utilize them for internal cross-border transactions.

Stephen Aschettino, a partner at Steptoe, emphasized the importance of purpose in this decision-making process. “Is this something really designed to drive customers to engage with the issuer, or is the issuer’s primary motivation to have a stablecoin that is more ubiquitous?” he questioned.

For non-banking entities, the adoption of stablecoins will inevitably bring new compliance obligations. The GENIUS Act mandates issuers to adhere to anti-money laundering (AML) regulations and know-your-customer (KYC) protocols, which could impose additional costs and oversight requirements. 

Regulatory Guidelines Remain Uncertain

Per the report, the implications of holding dollar-pegged cryptocurrencies for these institutions extend to regulatory compliance as well. Banks must consider how these digital assets will affect liquidity requirements. 

Julia Demidova, head of digital currencies product and strategy at FIS, pointed out that stablecoins held on bank balance sheets might necessitate greater capital reserves under existing regulations. 

“The GENIUS Act is great, but if the bank is treating their stablecoin on the balance sheet under prudential banking regulation, you still need to look at the risk weight of the asset,” she remarked.

Another crucial aspect for companies venturing into these cryptocurrencies is the choice of blockchain technology. Stablecoins can be issued on various blockchain networks, with ethereum (ETH) and Solana (SOL) being popular options. 

However, banks may lean towards private, permissioned blockchains to ensure governance and control over transactions. Demidova noted that banks WOULD likely prioritize clear structures and oversight, which are often lacking in public blockchain environments.

Despite the excitement surrounding the GENIUS Act, its effective date remains uncertain, with federal banking regulators expected to release rules that will clarify compliance and risk management requirements. 

For instance, the Office of the Comptroller of the Currency (OCC) is reportedly anticipated to outline guidelines that will address these issues, while the Treasury Department will need to assess foreign dollar-pegged cryptocurrencies regulatory frameworks in line with US standards.

Featured image from DALL-E, chart from TradingView.com