Major Financial Institutions, namely JPMorgan Chase, Bank of America, and Citigroup, are set to establish a US Dollar-backed digital coin project.
In a move to counter the growing influence of crypto-based digital payments and protect traditional banking's deposit bases and transaction volumes, major U.S. banks, including JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo, are exploring a joint stablecoin initiative.
One such stablecoin, USD1, has already made its mark in the market. Launched by World Liberty Financial (WLFI), USD1 is a dollar-backed stablecoin that has rapidly gained traction and surged to a $2.14 billion market cap. The USD1 stablecoin project is backed by reserves held and managed by BitGo Trust Company, a South Dakota-chartered trust company, which provides secure custody services.
The UAE deal involving USD1, worth USD1, highlights its global appeal. USD1 ranks as the second-largest stablecoin on BNB Chain after USDT. A significant boost to USD1 came from a $2 billion investment by Abu Dhabi's MGX fund to acquire a stake in Binance using USD1.
The success of both the banks' stablecoin venture and USD1 depends on navigating ethical concerns and regulatory hurdles. The Act requires stablecoins to be 1:1 backed by liquid reserves, and it addresses regulatory concerns like anti-money laundering and consumer protections. Senator Elizabeth Warren has criticized USD1's rise, arguing that it risks corruption, especially as the GENIUS Act progresses. The Trump family holds a 60% stake in World Liberty Financial, raising ethical concerns about potential conflicts of interest.
The integration of USD1 with Chainlink for multi-chain transfers enhances its utility. Stablecoins, pegged to the U.S. dollar, offer fast, low-cost cross-border transfers, aiming to compete in the $245 billion stablecoin market, currently led by Circle's USDC and Tether's USDT.
Discussions involve payment firms like Early Warning Services (Zelle's operator) and The Clearing House, co-owned by the banks. The consortium model could enable broader participation from other financial institutions. A Fireblocks survey notes that 58% of traditional banks already use stablecoins for such payments.
The venture's progress depends on U.S. stablecoin legislation, particularly the GENIUS Act. The U.S. aims to dominate the crypto sector, echoing President Trump's remarks about crypto leadership and America's global economic dominance through the USD. However, the road ahead is fraught with challenges, and it remains to be seen how these initiatives will shape the future of digital finance.
