The Breakdown - The Big Bank Stablecoin Consortium

Episode Date: May 29, 2025

America’s biggest banks are planning a joint stablecoin, signaling a new phase of institutional crypto adoption — but it’s happening just as political backlash intensifies. NLW breaks down the Wall Street consortium’s ambitions, the implications for the U.S. financial system, and how Trump’s meme coin controversy is complicating stablecoin legislation in Washington. Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/@TheBreakdownBW Subscribe to the newsletter: ⁠⁠⁠⁠⁠⁠https://blockworks.co/newsletter/thebreakdown⁠⁠⁠⁠⁠⁠ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownBW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Tuesday, May 27th, and today we are talking about a new bank stablecoin consortium. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. All right, friends, hope you had a great Memorial Day weekend if you are in the U.S. And for everyone else, we are back. Quick check-in on price action after a fresh all-time high last Wednesday, Bitcoin's

price was pretty subdued over the long weekend. We saw price action fail to breach 112,000 several times on Thursday afternoon. And on the downside, Bitcoin traded at a weekend low of 106,600 after Trump's brief threat to tariff EU products at 50%. That threat was delayed for a month and seems to have brought EU trade representatives to the negotiation table, leading to a recovery and all at all a very quiet weekend near all-time highs. Bitcoin entered the week around 110,000 and within striking distance of another all-time high. Ultimately, though, not much to report on price. Instead, we are going to focus today on some big developments in institutional adoption as crypto finds

its place in the global financial system. The big news to end last week was that America's largest banks are planning to form a consortium to issue a joint stablecoin. The Wallstrait Journal reports reports that JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, and other large commercial banks are exploring the idea. These banks already collaborate through a joint venture called Early Warning Services, which operates the Zell peer-to-peer payment system and the clearinghouse real-time interbank settlement system. Stablecoin seemingly would be a natural extension of this infrastructure. It would also allow U.S. banks to use stablecoins to build out a real-time settlement standard for cross-border payments. Earlier in the week, NYU professor Austin Campbell flagged that the banking lobby is panicking

over the prospect of yield-bearing stablecoins. That's completely unsurprising, with similar arguments being made about CBDCs and other instruments that compete with bank deposits. This new reporting gives an idea of how banks plan to compete in a world where stablecoins are given the regulatory green light. One of the big questions for stablecoins is how interoperability will be handled. The legislation is completely silent on the issue, giving no mandates for stablecoin issuers to develop a standard. For crypto-native issuers, interoperability has been a bit of a mixed bag. The large stablecoins enjoy strong support for major exchanges, and stablecoin-focused infrastructure like curve ensure good convertability on chain. But for the

dozens of minor stablecoins, support is patchy and often non-existent. Having a consortium of big banks issuing a unified stablecoin is one obvious solution with a ton of big ramifications. No U.S. Bank is accepting tether anytime soon, but until now, it seems plausible that they would integrate U.S.D.C. into their infrastructure. Judging from the reporting, though, it seems the banks want to create their own stablecoin rails that won't necessarily cross over into existing crypto networks. That would have been a tall order for a bank like JPMorgan to do on their own, enforcing the use of JPM coin worldwide like an episode of Mr. Robot. But it's plausible that a universally accepted, banks supported stablecoin could challenge the largest crypto-native rivals.

The first level takes are all fairly obvious but worth repeating. Nate Garassy of the ETF store tweeted, From crypto is all a scam to big banks capitulating. Hope you're paying attention. Tyler Winklevoss commented, first they ignore you, then they laugh at you, then they fight you, then you win, and then they join you. Now, on another level, though, this could be a major restructuring of the U.S. banking system. There's currently around $19 trillion in bank deposits across the country, but only a small fraction of U.S. Treasury is backing them. According to the legislation currently moving through Congress,

all stable coins need to be fully backed by T-bills. Until now, the Fed has been steadfastly against any form of full-reserved narrow banking. They went so far as to aggressively shut out experiments like, custodia bank. This bank issued Stablecoin, though, could represent a narrow bank springing up from within existing institutions. Rather than being a fringe crypto instrument, stablecoins could become a mainstream safe haven for companies and individuals who don't want to be exposed to a bank run. We're still very early in the process. The stablecoin bill is likely weeks away from passing, and this is the first reporting on the bank consortium. Still, news like this has a large impact on

short-term adoption and could end up changing the fundamental structure of U.S. banking. The other side of stablecoin adoption is increased demand for U.S. debt, which the administration is extremely optimistic about. In an interview with CNBC, Cryptozar David Sachs said he expects the passage of stablecoin legislation to drive trillions of dollars in demand for T-bills. When asked for a timeline, he added, I think it'll be immediate. We already have over 200 billion in stable coins. It's just unregulated. I think that if we provide the legal clarity and legal framework for this, we could create trillions of dollars of demand for our treasuries practically overnight, very quickly. While the game plan seems to be using stable coins to make U.S. debt issuance more sustainable,

this could also be a big one-time demand shock. Tether recently claimed they were the seventh largest buyer of U.S. debt last year ranked among nation states. This included tax havens like the Cayman Islands and the city of London, which serve as a pass-through for hedge fund demand. Tether managed this with just $33 billion in purchases. The top six countries were only $420 billion combined, and that was offset by $130 billion in selling from China, Japan, and Brazil. In other words, a trillion dollars in T-bill demand showing up over the next few months would dramatically change the debt issuance of the nation. Even at current pace, the Treasury only issues around $500 billion in net new debt each quarter. Then again, J.P. Morgan analysts are

skeptical that a trillion dollars in stable coins is achievable in the short term. They note that the current legislation prohibits interest from being paid to users, making stable coins an inferior product in some ways to money market funds. As a direct comparison, money market funds that do pay interest, only managed 900 million worth of inflows in 2024. The analysts wrote, The growth of these non-interest-bearing stablecoins over time would mostly depend on two factors, one, on their use in payment systems, and two, on the broader crypto ecosystem's expansion. They continued, the higher the usage of crypto tokens in real-world applications or higher activity in areas such as defy, NFTs, or other applications, would expand the overall

crypto market cap, and with that, the stablecoin universe given its typical 7-8% to 8% share. We find talk about tripling or quadrupling of the stablecoin universe over the coming year or two to be far too optimistic. We also saw a ton of other stablecoin discourse over the weekend, including in New York Times guest essay run under two alternative headlines. The first, crypto is good for Trump, but bad for America. And the second, crypto is a threat to the U.S. financial system, being not exactly the most subtle of headlines.

I'll spare you a recap of the main points, but suffice it to say it's the greatest hits of every anti-crypto argument that's been trotted out over the past decade. Nick Carter noted that the comment section was completely filled with negativity, saying, quote, not a single commenter that understands stable coins, endless misinformation. Galaxy Digital head of research, Alex Thorne, presented a long rebuttal of the piece, explaining the various benefits and safeguards of the legislation.

His big takeaway was simply that stable coins seem inevitable, commenting, if it gets across the finish line, the Genius Act will be one of the most consequential overhauls of the U.S. payments and monetary system in decades, a major bipartisan achievement for the 119th Congress, and a victory for crypto, blockchains, and advocates for innovation. Now, with institutions running headlong into crypto adoption, the big potential snag is, of course,

legislation getting hung up in Congress. To that point, we've had a huge amount of news flow about Trump's crypto activities to end last week, giving fuel to Democrat claims of corruption. There was the meme coin dinner on Thursday night with Justin's son actually setting foot in Washington. Many have tried to argue a connection between Sun's multi-million dollar investment into World Liberty Financial and the Trump meme coin, which happened just before the SEC put his lawsuit on hold. Now, of course, if you've been listening closely, we know that these lawsuits being on hold was pretty much universal policy for the Trump SEC, but the appearance of corruption was certainly enough to ground the reporting. The New York Times also published that the dinner

guests, quote, said they attended the event with the explicit intent of influencing Mr. Trump and U.S. financial regulations, which on the one hand adds fuel to this fire, but on the other hand is, of course, the same that pretty much everyone who's ever been to a White House dinner in a position to influence policy is trying to do. There is also controversy around the use of the presidential seal, despite the White House insisting the event had nothing to do with the administration, which could open the door to all sorts of reporting requirements and potential breaches. The Wall Street Journal published a long expose on World Liberty Financial, insinuating that finance founder, CZ, had aided the company to make business connections in the Middle East. World Liberty co-founder,

Zach Folkman, refuted the allegations. On Monday, the Financial Times claimed that Trump Media Group is planning to raise $3 billion in equity and convertible bonds to buy Bitcoin and other crypto assets, to which the Trump Media Group fired back that, quote, apparently the Financial Times has dumb writers listening to even dumber sources. Now again, we know over here in our part of the world that this is just the opening play for the next micro strategy clone and a fairly normal if unconventional fundraising strategy, but for many people it will read as though Trump is personally taking in $3 billion from outside investors through the company.

Point of all of this is that the wave of headlines provided anti-crypto Democrats with more ammunition to block crypto regulation. During last week's Senate vote on stable coins, there was already a feeling that lawmakers were holding their nose in voting for sensible legislation in spite of the president, but now the narrative has completely taken hold in Washington. We've had a standalone bill proposed in the House to ban the president and other lawmakers from holding substantial positions in crypto. Chuck Schumer is leading an effort to amend the Senate Stablecoin bill to include a ban on the president profiting from stable coins. The proposal only has two other supporters, but Schumer's support means Democrats will need cross-party leadership if they want to pass

the bill as it stands. The margin in the Senate is slim enough that a few Democrats could be needed to get a majority vote. There was also a letter sent to the DOJ by House Democrats insisting that they investigate the president for accepting bribes using his meme coin. Now, as always, this could be just the Democrats getting loud to score political points before the news cycle moves on, but the sheer volume of reporting suggests that this is a resonant issue and could cause problems for keeping crypto policy moving. We're now in a position where Elizabeth Warren agrees with Peter Schiff, which seems like a first. Schiff wrote, It should be illegal for the president of the United States to charge people money to have dinner with him.

Campaign donations are fine, but not direct payments to the president's personal account, nor should a president sell White House tours and pocket the proceeds personally. And again, as much as the listeners of this show might know, the meme coin is a little more nuance than that, it's what the average political reader believes is playing out in Washington right now. Alex Narasta, the VP of Economic Policy at the Libertarian Kato Institute, tweeted, the casual corruption is almost too outrageous. If Hollywood portrayed a GOP president as this corrupt 10 years ago, it would have launched a thousand angry right-wing op-eds complaining about media bias. TLDR is that whatever you think about all of this, it's going to be harder and harder for Democrats

of any stripe to support crypto legislation going forward. And that is not a good thing for anyone. So we will continue to see how the political narrative shakes out. For now that that is going to do it for today's breakdown. Appreciate you listening as always. And until next time, be safe and take care of each other. Peace.