One may argue that each bank probably have been holding back to see what the others would do or what the central banks and regulators would impose as inherently crypto brings in a lot of volatility while challenging the Fiat status quo. In the banking world, becoming a leader in accepting a technological or financial innovation and leading down that lane has always been risky. Unless you are a global bank and a game changer in the market in context and have the muscle to pull through, you would probably wait to see what others are doing and would follow the trend. On the other hand, if you are that elephant in the room, then also you would take careful steps to align with the regulatory bodies and central banks and then strategize your move in adopting the innovation through carefully realized business cases. Thus inherently so far the Banks largely have ended up only forming consortiums and playing with the concept of Crypto and DLT to try it out first.

The Saga of Crypto and the rise of Stablecoins -

Primarily owing to its high volatility, the ride of crypto since it’s inception has been bumpy at times - well at least two major bumps – first around 2013-2014 (hack of popular crypto exchange) and second around 2017-2018 (Bitcoin, Ether etc. crashing from peak). The limitations of Crypto made the business case for Stablecoins (pegged cryptocurrencies to fiat currency like USD, GBP etc. or commodities like Gold) stronger. With the advent of Stablecoins, people started thinking crypto more like means of payment rather than just investments.

The power of Stablecoins -

Stablecoins have gained momentum for instant settlement lately facilitating round the clock liquidity especially for the Merchants who have been typically waiting for days for getting their settlement accounts replenished. On top of that the recent innovations around a touch of open-banking allowing crypto transactions from multiple accounts, automated sweeping across merchant current accounts and settlement accounts, collated invoice payment and reconciliation using stable coins and instant crypto settlement etc. have been gaining momentum.  And then there are those close to science fiction but possible scenarios where smart cars interacting with each other over IoT settle in Stablecoin over DeFi (Decentralized finance) for right of the way on a busy road.

How regulators are reacting to these innovations?

Lately even the Stablecoin has seen its own bumps with certain algorithmic Stablecoins imploding around Q2 2022 ($45 billion of market capitalization wiped out just within a week!). Since the footprint of Crypto and Stablecoins have not been that big yet as Banks globally have not delved into Crypto, the risk exposure for the global market infrastructures have not been that high. But now, as Stablecoin based arrangements are becoming more and more systematically important, the regulators like BIS's Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) are carefully reviewing them and have recently published guidelines for payment clearing and settlement standards even for Stablecoins.

What’s in the future for Crypto in the context of Banks?

Even after the recent turmoil in the Stablecoin world, it holds a lot of promise by the nature of the decentralized design which can support a numerous advanced use cases. Regulated crypto coupled with emerging concepts and innovations is destined to grasp more and more market share eventually. Several possibilities within the Metaverse or a numerous use cases in an Open-banking environment or even innovations using DeFi in Cross-Border trade space is inevitable. With the push for CBDC from BIS, at least for CPMI countries, Crypto will be a major means of transaction for Banks and PSPs (Payment Service Providers) in the years to come.