The longstanding conflict between crypto and traditional banking systems officially began with the passage of genius acts. The impact of the law is already clear. In two weeks, retail giants like Amazon and Walmart are considering launching their own stubcoin.
Kronos Research CEO Hank Huang told Beincrypto that if more companies are adopting this trend, the banking system needs to adapt quickly, especially as money moves away from traditional deposits. However, switching to retail-backed stubcoins doesn’t have the same protections traditional banks offer.
A new era of crypto integration
The act of genius represents a historical change in how cryptocurrencies, particularly stable, are integrated into the US financial markets. It ensures that stubcoins are subject to strong surveillance, acknowledging the possibility of real assets being supported and innovating payments.
Among the bill’s most important provisions is a clear provision that only insured depository institutions, including banks and credit unions, are permitted to issue certain approved non-banking companies. It also strictly prohibits algorithms or non-backed stubcoins to ensure stability and consumer confidence.
Since the law was passed, several well-known retailers have expressed interest in launching the company’s stubcoin. There are widespread reports that corporate giants like Amazon and Walmart are seriously considering this step.
Perhaps some motivations drive their reasoning.
Motivation of major retailers for Stablecoins
Retailers like Amazon and Walmart boast a huge customer base, generating billions of dollars in daily revenue from purchasing alone. Many customers pay using traditional credit card networks such as Visa and MasterCard.
These networks typically charge 2-3% exchange fees per transaction, but for companies with such large transaction volumes, these fees can accumulate in billions of dollars a year.
Big power companies can bypass these networks by issuing their own Stablecoins and significantly reducing or eliminating these costs.
At the same time, removing payment network intermediaries such as banks will significantly speed up payment times. Stablecoins are built on blockchain technology, allowing them to promote near-instant settlements, and provide far better cash flow and efficiency for businesses and their suppliers.
In the context of international trading, retail support stubcoins offer streamlined, global payments, and provide costly alternatives to traditional cross-border payment methods, often including forex fees. Such a move would essentially expand the retailer’s customer base.
You can also integrate your own Stablecoin into your loyalty and rewards programme to provide your customers with unique incentives and discounts. It also opens the door to the provision of new financial services.
“Friction-free rewards and cost-saving consumer-centric perks drive shifts. With perks of preference and practical utilities, Stablecoins steal the spotlight and earn idle deposits,” Huang told Beincrypto.
Many of these benefits make questions quick and quick about how this new payment traffic will affect traditional banking services.
Disruptive impact of Stablecoins on traditional banking operations
The widespread adoption of retailer-backed stubcoin, primarily by diverting money from traditional deposits, can significantly disrupt traditional banks.
If Amazon or Walmart issues a Stablecoin, consumers may choose to retain purchasing power in these Stablecoins rather than traditional bank accounts. Instead of keeping money in a checking account to pay for groceries and online shopping, consumers may transfer those funds to Amazon or Walmart Stablecoin wallets.
This shift directly reduces the money held as a traditional bank deposit. As these deposits are the lifeblood of banks, significant outflows reduce the funding base. Second, it affects your ability to lend money to existing customers and businesses.
“Consumers look for fast, flexible rails that are seamlessly familiar to Chains from Tradfi. Retail coins drain liquidity from banks into the brand’s crypto network,” says Huang.
In short, their overall economic activity will be significantly reduced.
“The act of genius levels the arena with strict standards of reserves, regulations and issuer eligibility. Banks are based on a trustworthy framework, but non-bank entrants face strict rules.
Recognizing these risks, how do traditional banks adapt their strategies to stay competitive?
How can banks adapt to digital shifts?
To some extent, banks have experienced generalized deposit displacements for some time. Stablecoins could further accelerate that trend. Traditional banks have been actively working to meet the growing demand for digital banking in recent years.
A recent report by Cornerstone Advisors highlights a significant surge in fintech spending across all generations. From 2021 to 2024, spending on Z, Millennials, Gen X and baby boomers collectively jumped 86% from $132.9 billion to $246.9 billion.
Some banks have already made great strides to prepare for the expected retailer-backed stupid stubcoin adoption. For example, JPMorgan Chase has been preparing for this shift for many years.
“Banks like JPMorgan not only protect their deposits, but also leverage trustworthy infrastructure to unlock new revenues and create fast, secure digital dollars that will deepen client profits,” says Huang.
Since launching JPM Coin in 2019, JPMorgan has pioneered the concept of bank-issued digital currency for wholesale payments, leveraging private blockchain technology within the Kinexys unit to increase efficiency and accelerate interbank settlements.
Following the passage of the Genius Act, it has announced the introduction of JPMorgan Dopite Token (JPMD), piloted by Coinbase’s public-based blockchain.
This move is particularly important as JPMD is fully insured for bank deposits and is positioned as a digital representation of particular interest.
This is in direct contrast to the ban on paying interest to non-bank payment genius law holders of payment stability, critics argue that it is a concession to incumbent banks.
JPMD’s ability to provide yields is consistent with the clarity of the new regulations. It offers institutional clients a highly integrated alternative that is compliant with traditional stubcoin for cross-border B2B transfers on the chain.
It also clearly shows how banks can use their existing strengths to maintain their strategic advantage over this new competition.
The key role of FDIC insurance
With existing infrastructure, resources and unique regulatory protections, banks have a strong foundation to adapt to changing financial sectors.
“Tradfi Bank needs to build a bridge between legacy and digital. It deploys deposit tokens, enhances the benefits that blockchain supports, and binds security to seamless convenience. To lock liquidity, banks need to fuse innovation and insurance,” Huang told Beincrypto.
This possibility is especially important given the disparity in consumer protection between traditional banks and stupid non-bank issuers. Traditional banks offer Federal Deposit Insurance Corporation (FDIC) protection, guaranteeing deposits of up to $250,000 per depositor. The US government-backed insurance is the most powerful guarantee available in the financial world.
FDIC insurance does not apply to Stablecoin issuers outside of the banking industry. The Genius Act aims to ensure robust reserves and audits for Stablecoins, but the issuer’s “execution” could lead to operational issues, liquidity issues, or Stablecoin losing $1 PEG. In such cases, recovery depends on the issuer’s solvency and operational integrity.
In contrast, in the event of a bank with FDIC insurance fails, the insured deposits are safe. The FDIC intervene to ensure that the principal is not lost. This is the central purpose of deposit insurance and protects consumers from bank breakdowns.
“Without deposit insurance, consumers will face security risks and liquidity slippage, and the transparency of actual reserves is unknown. During major reimbursements, stubcoin could struggle to stabilize under pressure,” Huang added.
By taking advantage of this huge advantage, banks can maintain a strong appeal to consumers who prioritize guaranteed deposits.
The Future of Finance: Hybrid Systems
The emergence of stubcoins, particularly from large retailers and non-bank entities, indicates a major shift in the financial industry. This development could impact the future of traditional banking models and change the flow of traditional capital.
Each player has their own unique advantages, making the panorama even more competitive. The outcome will likely be a hybrid financial system, but non-bank institutions and bank entities will need to acquire their spots or slowly bleed.
The ultimate winner is the best combination of innovation with trust, security and regulatory compliance.
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