Stablecoins as CBDCs, why banks are are moving in this direction

As the cryptocurrency market expand with DeFi, NFTs, the Metaverse, Web3 and AI leading the hype and development circles, stablecoins are closely being targeted by centralized financial institutions like the banks and the reason for this might not be too obvious at first, but it's no other reason but the fact that stablecoins are effectively a significant structure in the cryptocurrency ecosystem and has significant layers that enables stability in the space for many products and services, including DeFi!

Tokenization waves are coming

One thing that's certain is that numerous real world and traditional assets will sooner or later be tokenized and leveraged within the crypto space for diverse reasons. Asset derivatives will populate the space, on one side, this is a good thing given the bridge it forms for the two financial sectors but on the other hand, it is rather a structure that enables these institutions underpin individual financial activities in the space.

If we look at the stablecoin market, it is currently worth over $129 billion collectively and that's bigger than most banks in the world, in fact, Tether alone is bigger than most banks and it has no actual assets other than being a stablecoin insurer so this proves lucrative of institutions outside looking in as though this has been one hell of a successful business model for Tether and now its expanding its services by diving into the mining world with plans to deploy sustainable bitcoin mining operations in Uruguay and also investing in El Salvador "Volcano Energy" Bitcoin mining operations.

Knowing this, it is obvious why the banks would simply love the idea of running its own stablecoins and even native crypto assets, in fact, recently, a Japanese has announced plans to deploy a stablecoin in 2024 that will be widely interoperable with diverse blockchain networks and the issuing institution, supposedly.

The Japanese banking giant Mitsubishi UFJ says it will launch a cross-chain stablecoin issuance and interoperability platform next year.

In an official Mitsubishi UFJ announcement, the firm stated that it would work with a Tokyo-based company named Datachain to “build cross-chain infrastructure for stablecoins.”

The Mitsubishi UFJ-led project is not just for domestic use, the firms claimed.

They spoke of launching a “cross-chain bridge that can be used globally.”

The companies said they were aiming to launch the platform “in the second quarter of 2024.”

And the bank added that the platform would have stablecoin issuance functions.

The companies say the platform will allow for cross-chain swaps, lending, and payments.

The firms also hope to create issuance options for non-fungible tokens (NFTs), as well as security tokens.

Going for maximum profits I'd say. It in part appears that this Japanese bank is looking to bring centralized services to a decentralized world and with doing this, could threaten the dominance of DeFi platforms because looking at the lending markets and all in DeFi, it is pretty much a low-key weak structure and if banks are to jump in and offer same yet better structured services, that would really move some numbers.

That said, stablecoins really just seems like one of the cover names CBDCs will have in the cryptocurrency markets because as we've seen it, unlike other tokens in the space, stablecoins can widely be centrally controlled, looking at Tether, it's quite easy for Tether to freeze a wallet balance or transaction with a touch of a button so with banks targeting this sector, crypto is threatened with centralized factors which will undoubtedly come with a strong wave of deep liquidity to challenge the pre-existing markets, not to mention that addresses interacting with these protocols may be mapped directly(via KYC) or indirectly.

As much as tokenization of traditional assets brings about some value bridges between DeFi and TradeFi, the tokenization of fiat currencies by institutions like this just smells like CBDCs in the works.