Balancing first-mover strategies and market reactions

Companies may likely encounter multiple opportunities to engage with PSCs and should continuously assess which part of the value chain to participate in. Some entities will aggressively seize market share with a first-mover strategy, while others will react when external use of PSCs demands their involvement. Executives should evaluate market conditions, competitive positioning, and long-term objectives to navigate this evolving landscape effectively. The use of distributed and decentralized blockchains for issuance and transactions using PSCs will enable participants to be nimble within the ecosystem. Lower barriers to entry and higher competition between platforms will likely foster innovation and provide opportunities for entities to position themselves strategically in the evolving PSC landscape.

From crypto trading to remittances: The expanding use cases of PSCs

PSCs can offer advantages like instant settlement and reduced cross-border costs, encouraging users to shift from traditional financial systems to blockchain networks without the volatility of non-fiat-backed cryptocurrencies. With a market capitalization exceeding $200 billion³, businesses are increasingly enabling PSC payments. The demand for PSCs presents opportunities for issuers, driven by their use in cryptocurrency trading and as a stable medium during market volatility. PSCs are also being used in remittances and non-digital asset transactions, providing a faster, cost-effective alternative to traditional financial systems.

To fully realize PSC potential, technological infrastructure must improve, and broader acceptance among financial institutions, merchants, and consumers is needed. Issuers can earn yields on collateral reserves backing PSCs by investing in high-quality liquid assets like US Treasury instruments and repurchase (“repo”) agreements. This model helps in PSC stability and allows issuers to profit from interest on reserves and repo transaction spreads. PSC issuance has mainly been by nonbanking entities outside US federal regulation, but a potential US regulatory framework could support new issuers. Financial institutions and payment processors should integrate PSCs to drive efficiencies and meet customer demands. A clear regulatory regime would endeavor to provide consistent protections, supervisory frameworks, and transparent reporting, enhancing the financial ecosystem and attracting more participation and investment.

Enhancing risk and control measures

While PSCs unlock various opportunities, they also introduce significant risks that issuers must manage. These risks vary depending on an entity’s role in the PSC ecosystem. Establishing or enhancing risk and control frameworks through a digital asset risk assessment is crucial.

Considerations for issuers

The regulatory landscape for PSCs is complex and varies across jurisdictions. Issuers and service providers must be aware of these requirements and their impact on business strategy, governance, enterprise risk management, compliance, audit, and treasury.

Issuers and non-issuers should develop business strategies supported by ongoing regulatory and competitive risk analysis. A formalized risk management framework is essential to identify, measure, monitor, and mitigate risks like regulatory noncompliance, market volatility, operational inefficiencies, and cybersecurity threats. Establishing a risk governance framework to define risk appetite and maintain effective controls is crucial for compliance and timely response to changing regulatory requirements.

Strong governance arrangements are crucial for issuers, including defined organizational structures, effective board and management committees, and clear roles and responsibilities. Effective management of underlying PSC reserves is essential for stability and liquidity, requiring robust treasury policies, regular stress testing, and contingency planning to maintain the peg and support timely redemption. Issuers should perform a roll-forward of tokens in circulation and reconciliation to underlying reserves, as well as publicly release a transparency report to enhance confidence and trust among PSC users.

Taking the next step

The evolution of stablecoins from niche user-to-user transactions to mainstream business-to-business and business-to-consumer payment applications is poised to significantly transform traditional payment systems, a domain historically dominated by banks. As the adoption of stablecoins increases, the potential for disintermediation of existing financial systems becomes more pronounced. However, with a robust federal framework in place, banks have the opportunity to develop reliable solutions that leverage payment stablecoins to enhance operational efficiency through faster and more secure payments.

This shift is likely to drive customer demand for stablecoin-based transactions, thereby challenging the traditional payment infrastructure and reshaping the financial landscape. It is crucial for payment stablecoin issuers and users to understand and comply with federal and state regulatory expectations, which impact various aspects of their operations, including business strategy, governance, risk management, compliance, audit, and treasury. These regulatory requirements, set by US regulators and global bodies, necessitate continuous monitoring and adaptation to the evolving regulatory landscape for payment stablecoins.

Endnotes:
¹ US Congress, “S.394 – GENIUS Act of 2025”; US House Committee on Financial Services, “Hill and Steil release discussion draft for stablecoins”
² US House Committee on Financial Services Democrats, “Ranking Member Maxine Waters unveils bipartisan stablecoins legislation.”
³ DefiLlama, “Stablecoins circulating,” accessed March 11, 2025.