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Despite the considerable buzz surrounding last year’s GENIUS Act and notable interest from larger financial institutions, smaller banks are treading carefully into the stablecoin and tokenized deposit landscape. While discussions reveal some enthusiasm for the potential of these innovative tools in business payments and treasury management, a widespread adoption surge is not yet underway.
Mac Thompson, founder and CEO of White Clay, a consulting firm, notes that after extensive conference attendance, smaller players are actively discussing stablecoins and tokenized deposits. However, meaningful implementation remains limited. The primary driver for this hesitation? Most institutions are waiting to see practical applications emerge for both mechanisms, which fundamentally rely on blockchain technology.
Currently, the most frequently cited use case for stablecoins is facilitating seamless cross-border payments. This area presents a clear value proposition for businesses seeking faster, more efficient international transactions.
Addressing Underlying Concerns and Regulatory Gaps
Beneath the surface of cautious interest, concerns about reputation risk significantly influence some institutions’ reluctance. The GENIUS Act—Guiding and Establishing National Innovation for U.S. Stablecoins Act—aimed to create a robust framework for stablecoin issuance, including stringent backing requirements with cash, U.S. Treasury securities, or equivalents. This legislation was a direct response to past instances of stablecoins failing to maintain their promised stability, which naturally created reputational challenges.
Another major apprehension for bankers stems from the historical lack of robust anti-money laundering (AML) protocols around stablecoins, unlike the strictures governing traditional bank deposits. Given banks’ reliance on public trust and their rigorous compliance obligations, this gap has been a significant deterrent.
Key Insights from the Evolving Landscape:
- A prior Cornerstone Advisors study indicated that only 5% of banks intended to invest in or implement stablecoin activities in 2026.
- Regulatory Uncertainty: Federal banking regulators are still in the process of finalizing regulations for payment stablecoins. The comment period for the FDIC’s proposed rules, for instance, extends until mid-May, highlighting the ongoing development of the regulatory framework.
- Legislative Stalls: The Clarity Act, envisioned as a complementary piece of legislation to the GENIUS Act, remains stalled in the Senate. This bill faces significant contention, not only between the banking and crypto industries but also among crypto firms themselves, particularly concerning the legality of interest-like incentives on stablecoins.
Diverse Perspectives on Digital Payment Evolution
The controversy surrounding the payment of interest on funds held in stablecoins by platforms like Coinbase has indeed complicated the broader assessment of stablecoins as a payment mechanism. This issue has drawn criticism from across the banking spectrum, including community bankers and JPMorgan Chase CEO Jamie Dimon, who recently argued that entities acting like banks should obtain bank charters.
Beyond this debate, smaller institutions are scrutinizing the stablecoin mechanism itself, with varying degrees of optimism.
Case Study No. 1: Encore Bank’s Vision for Cross-Border Efficiency
Greg Lewis, Chief Deposit Officer at Encore Bank, a $3.6 billion business bank, sees early potential in stablecoins to better serve customers. The primary appeal lies in enabling easier, instant cross-border payments.
Lewis explains, “It’s solving something that banks need to solve and it’s what clients need. They need payments. They need more flexibility. Those are things banking’s not offering through cross-border methods today.” He views stablecoin payments not as a definitive solution but “just another rail that will be attached into the ecosystem and how banks operate.” Initially, this could greatly benefit wholesalers, distributors, and even cross-border real estate transactions. A significant challenge lies in integrating stablecoins into clients’ enterprise resource planning (ERP) systems. Deeper embedding into these processes would enhance client relationships and open doors to “smart payments”—programmable, self-executing transactions.
Case Study No. 2: INB, N.A.’s Sandbox Approach
Mark Donovan, Chief Operating Officer at INB, N.A., a $2.5 billion-asset business bank, is conducting quiet experiments with stablecoins in non-customer-facing applications. Donovan stresses the urgency: “This is moving at a speed where we don’t have the luxury of just watching it and trying to passively stay educated on it. We need to figure out how to play with it in a sandbox environment.”
He adds, “We’re not commercializing anything yet, because there are so many dynamics and risk vectors.” Practical implementation details, he notes, still require significant clarification. Donovan observes a stronger appeal for banks in tokenized deposits, but this also requires the development of common protocols and networks, particularly at the community bank level, before widespread adoption.
Customer Sentiment and the Broader Payments Ecosystem
Stablecoins are still nascent enough that bankers report little client demand. Currently, inquiries are limited to a few sophisticated clients curious about their bank’s plans in this area. Donovan suggests the initial attraction for business customers would be addressing the slow, expensive, and often cumbersome nature of traditional wire transfers, contrasting it with the promised speed and finality of blockchain transactions.
Beyond the “Stablecoin Rails”: Value in the Ecosystem
Jesse Honigberg, EVP of Products and Platforms at Customers Bank, a $24.9 billion institution, highlights that the GENIUS Act establishes a crucial baseline for the payment stablecoin industry, particularly regarding backing mechanisms. Customers Bank already offers CUBIX, a private instant payments service primarily used for large transactions among digital asset companies and some title companies.
Honigberg emphasizes that the real challenge isn’t merely the transfer of funds via stablecoins but the surrounding ecosystem. “It’s onboarding the clients. It’s monitoring the transactions. It’s dealing with everything that comes from all the ecosystems. All of those things are where banks add value,” he states. Ultimately, customers seek fiat currency—the real-world money traveling through stablecoins—rather than stablecoins themselves. “There’s a long way from discussing a potential use case to turning it into something real that can scale,” Honigberg cautions.
The consensus among interviewees is that payment mechanisms rarely disappear; new methods simply expand the banking menu. INB’s Donovan notes that even while experimenting with stablecoins, the bank is actively working to build out FedNow acceptance among its business customers. Mac Thompson believes that once the initial hype subsides, banks and businesses will prioritize simplicity for each transaction. While stablecoins or tokenized deposits might be ideal for some purposes, a comprehensive suite of existing services often provides simpler solutions for others.
Encore Bank’s Greg Lewis suggests that stablecoins are unlikely to be a standalone profit center for smaller banks. Instead, they represent a component of a larger strategy. “You have to think about relationship value,” Lewis concludes. “Your ultimate goal is to have a profitable customer, not a profitable product. So stablecoins are a piece of the puzzle, not necessarily where you’re going to bet to make a lot of your return.”
Source: thefinancialbrand.com