Banks that once questioned the need for stablecoins are now considering launching their own as the tokens become a larger part of payments and financial markets.
More than a dozen financial institutions, including Bank of America, Wells Fargo and Santander, are reportedly moving forward with plans for a stablecoin venture that would initially focus on the dollar before potentially expanding to the euro and other G7 currencies, according to a Wall Street Journal report.
Smaller institutions like the BankChain Alliance, backed by 39 state bankers associations, are also getting involved by developing a blockchain platform expected to launch in the first half of 2027 in support of stablecoins and tokenized deposits.
These developments are happening as companies like Visa, BlackRock, Google, and DoorDash are also entering the market.
This would have several bank-issued digital dollars competing alongside established stablecoins like USDT and USDC. But the growing number of potential issuers could create the very problem of fragmented liquidity that these digital assets helped solve in the first place.
The Stablecoin Liquidity Challenge
Crypto markets rely on deep pools of dollar liquidity that traders can move between exchanges, blockchains, and financial applications. As more banks issue competing stablecoins, that liquidity could become divided across different tokens.
“Having multiple stablecoins creates the same problem we are trying to solve: fragmented liquidity,” says Crypto analyst Vincent Van Code.
Stablecoins also benefit from network effects, and the more traders, exchanges, market makers, and applications use a particular token, the deeper its liquidity becomes. That makes it easier to trade large amounts without significant price impact, attracting even more users.
That effect helped USDT and USDC dominate the market, but a new wave of bank-issued stablecoins could change that concentration, and if different exchanges and platforms support different bank-issued stablecoins, traders may need to convert between tokens before moving capital.
Such conditions would increase the cost of moving money and cause varying prices for tokens that are supposed to be worth one dollar. Arbitrageurs would probably help fill those gaps, but that takes capital, access, and deep enough markets to not get too much slippage.
This could result in a market with more stablecoins, but liquidity spread more thinly among individual tokens. Additionally, the effects may be greater in periods of market stress when such conditions can lead to larger price movements.
What it Could Mean for Crypto Markets
Brookings research shows dollar-backed stablecoins aren’t interchangeable by default, and need exchanges or DeFi liquidity pools to swap between them. The Bank for International Settlements has also warned of the risks of fragmented asset and liquidity pools.
If the bank-issued stablecoins can transfer easily across the market, traders and market makers can concentrate activity where there is the most liquidity and trading is more efficient. But if they are linked to individual financial institutions or closed networks, capital could end up in more isolated pools.
USDC and USDT already have deep liquidity and are widely used across major crypto exchanges, and for bank-issued stablecoins to compete, they’d need to pull in a lot of users and trading volume.
This could leave the market concentrated around a few winners, while others stay tied to specific banks, exchanges, or use cases.
Liquidity comes down to where capital can trade, how easily it moves, and how much market-making activity is available. Banks would therefore need to make their stablecoins easy to use across different platforms if they want to build the same network effects that made USDC and USDT so useful.
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