Author: Professor Brian Scott-Quinn.
The worlds of "Saving, Lending and Money Transfer" are becoming ever more complex, more competitive and riskier. It's not just the companies operating in these fields that are competing, it's also new digital technologies that are competing against each other. It's the cryptocurrency people who are now encroaching on the banking and payments turf.
We have had cryptocurrencies such as Bitcoin and others such as Tether and Ethereum for some years now. But the problem with these so-called currencies is their volatility. Bitcoin, for example, reached a price of £90,000 for one bitcoin in October 2025 but towards the end of November it was trading at only £63,000!That's quite some volatility despite one of the key selling points of Bitcoin being that the coin issue is limited in numbers ensuring that supply does not race ahead of likely demand.
Crypto coins are definitely not definable as 'money'. Money is something of fixed value and therefore not volatile. But fixed relative to what is still an issue. Certainly relative to the value of the US dollar issued by the US Treasury or by deposit insured commercial banks, crypto is not fixed value. But it certainly has value to those who want to transfer funds without the authorities being able to find out what transfers of value have been made. Narcotics dealers are one of the users of such crypto.
The new kid on the block now is the 'stablecoin'. To overcome the problem that crypto is not really suitable as a payment mechanism, the stablecoin has been developed. Stablecoins are supposed to be backed by low risk assets dollar for dollar, pound for pound or euro for euro i.e. a fixed exchange rate between a stablecoin price and its fiat currency value. This is designed to ensure not only a fixed value but also intended to be a means of maintaining strong liquidity in the coins if a holder of the coins wants to convert back to fiat US dollars, pound sterling or euro, depending on which currency they were originally denominated in. According to Citi, $280bn worth of stablecoins are already outstanding.
The assets backing stablecoin are intended to be mainly government debt, in the US principally US Treasury bills and bonds. If stablecoin company holdings of such assets can be audited regularly, then stablecoins could be relatively safe and not volatile. But given that companies issuing such coins may be based overseas (Tether might want to issue such a coin but it is based in El Salvador) there needs to be a regulatory framework which ensures regular audit. On the other hand, for some governments stablecoins might have a great attraction – these companies would be huge buyers of government debt! This is almost a 'deus ex machina' for a country such as the US which otherwise might soon run out of buyers for its government debt.
The recently passed, and improbably named, GENIUS Act in the US, which establishes a regulatory framework for stablecoins in the United States, prohibits stablecoin issuers from paying interest. However, the prohibition does not apply to exchanges. They can make payments to customers, as some already do, in order to incentivise users to retain assets with them between crypto trades. Thus, the general prohibition is easily evaded. However, regulations may be changed to overcome this bypassing of the will of Congress. The other problem with stablecoins, particularly if they pay interest, is their impact on bank deposits and the availability of bank credit. In effect, 'depositors' with stablecoin accounts would shift from being financiers of economic growth of private companies and domestic mortgages to financing the growth of government.
The way regulators see it, we can now distinguish the following three types of crypto-assets:
Stablecoins
- e-money tokens (crypto-assets that stabilise their value in relation to a single official currency);
- asset-referenced tokens (crypto-assets that stabilise their value in relation to other assets or a basket of assets);
Cryptocurrency (not likely to be stable)
- crypto-assets other than asset-referenced tokens or e-money tokens
The real problem with stablecoins is that it is difficult to know if there is actually a reserve of safe assets to cover all the underlying liabilities of an issuer. One of the early attempts to offer a stablecoin was developed by Mark Zuckerberg. The plan was for the Libra token or Diem as it was later called, to be backed by financial assets. But the outcry from regulators and many others about such a venture was so intense, that Zuckerberg backed-off and abandoned the project. Back then, even President Donald Trump tweeted on July 12, 2019, that "If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations." What a change from today's Trump now with his very own 'stablecoin' issued by World Liberty Financial and called USD1.
Klarna has just launched Klarna USD on a blockchain and would use the digital token for international payments. Klarna's announcement was somewhat unexpected. "OK. I give up" said Sebastian Siemiatkowski, chief executive of Klarna. "Klarna and I will embrace crypto! Last large fintech in the world to embrace it. Someone had to be last. And that's a milestone as well of some sort,"
Klarna said the stablecoin would allow it to dramatically reduce costs for both consumers and merchants. It may cut Klarna's costs but we are doubtful if, on its own, it will reduce the fees charged by them to merchants. The objective seems to be to cut out the Swift network and its associated charges. While the launch was likely to help with Klarna's internal payment infrastructure, it will be offered to merchants and consumer payments companies at some point. When this happens, the question is what happens to other BNPL companies, credit card companies and other consumer lenders who are not using this new technology?
For those of us in the lending and payments business the two questions are how and when will our clients benefit from stablecoins? In the UK, this will soon become clearer. In March 2026, the FCA will hold a two-day "stablecoin sprint' event exploring practical uses in retail payments and remittances. In May 2026, a smaller roundtable will be held focused on use cases for stablecoins in trade payments. The FCA has also announced their new regime for cryptoasset regulation expected to come into force in October 2027.
All this activity feeds into the UK policy on stablecoins. This is indeed a fast moving technology and regulators are hot in pursuit of means to ensure minimum harm ensues from 'bad actors' in the business. In Europe, it is likely that regulators will also provide frameworks which minimise the risk of financial contagion if something goes wrong. In the US we are less sure. What we are sure of is: when our customers are ready to benefit from using stablecoins, the Madiston platform is ready to provide.