Compiled & edited by: Web3 Xiaolu
The origins of public blockchain networks can be traced back to the release of the Bitcoin white paper in 2008 and the creation of the Genesis Block in 2009. However, the conceptual foundations of blockchain have actually been gradually built over the decades since the 1970s. Despite this, the scope of blockchain applications in the financial and public sectors has remained relatively limited so far.
The open source and decentralized nature of blockchain is rooted in a core belief that mathematics and code can guarantee privacy and freedom. From its cypherpunk origins, blockchain is not only a technological innovation, it also has a strong political color. It is essentially an anti-establishment philosophy that represents an opposition to existing institutions (whether banks or governments). Cypherpunks are a group of people who advocate the use of encryption and privacy-enhancing technologies to promote social and political change.
Public key cryptography first appeared in the mid-1970s, while hash functions and Merkle trees were born in the late 1970s. At the same time, the development of the modern Internet is also worth noting. In the 1980s, Arpanet began to adopt the TCP/IP protocol, and in the early 1990s, the World Wide Web was officially born. However, during the booming development of the Internet in the 1990s, the important element of "Digital Money" was missing.
The Bitcoin white paper published in 2008 proposed the establishment of a "peer-to-peer electronic cash system", and this concept was gradually put into practice in the following years, and the use of Bitcoin has grown significantly. As of April 2025, Bitcoin is still one of the dominant cryptocurrencies in the crypto ecosystem, with a market share of 64%.
Entering the 2020s, the narrative around blockchain has taken an almost 180-degree turn. What was once an anti-establishment movement has now gradually moved towards the mainstream. In 2023-2024, "Real World Asset Tokenization (RWA)" becomes one of the dominant narratives in the crypto ecosystem. As of the end of March 2025, one of the largest holders of Bitcoin is the US Bitcoin ETF Fund. In addition, other US institutions, including the US government, are also among the top ten holders of Bitcoin. In 2025, a few days before the inauguration of the 47th President of the United States, the $TRUMP meme coin was launched on the Solana blockchain.
As a digital currency based on blockchain network, stablecoin has great development potential. In recent years, the use of stablecoin has shown a rapid growth trend. It is expected that between 2025 and 2030, with the continuous improvement of regulatory transparency (especially in the United States), the use of stablecoin may further increase significantly.
In addition, public blockchains can bring greater transparency and enhanced trust. These characteristics of public blockchains are much needed as public institutions in both rich and poor countries strive to improve their trust index. The adoption of blockchain is advancing with the evolution of regulation and the demand for transparency and accountability.
The above is a review of the history of blockchain in 2025. So how should we look forward to the future of stablecoins and blockchain? Citi GPS’s latest research report “Digital Dollars——Banks and Public Sector Drive Blockchain Adoption” may provide the answer, focusing on two key areas: new financial instruments (such as stablecoins) and modernization of legacy systems.
Therefore, we have compiled it in more detail, and its discussion on the stablecoin GPT moment is very worth learning from.
Coincidentally, two years ago on May Day, we were also compiling Citi GPS's article "Money, Tokens, and Games (Blockchain's Next Billion Users and Trillions in Value)", the subtitle of which was Blockchain's Next Billion Users and Trillions in Value.
In the 2023 report, Citi predicts that by 2030, billions of users will come from: currency, social networking, and games. Looking back from 2025, except for the short-lived SocialFi and GameFi, this gap will be filled by users holding cryptocurrencies or stablecoins, which is the origin of Citi's 2025 stablecoin research report.
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Key Takeaways
1 Driven by regulatory changes, 2025 has the potential to be the “ChatGPT” moment for blockchain applications in the financial and public sectors.
2 By 2030, the total circulating supply of stablecoins could grow to $1.6 trillion in our baseline scenario and to $3.7 trillion in our bullish scenario. Even so, if adoption and integration challenges persist, this figure could be closer to $500 billion.
3 We expect stablecoin supply to remain denominated in USD (~90%), while non-US countries will promote central bank digital currencies (CBDCs) in their own currencies.
4 The U.S. stablecoin regulatory framework could drive net new demand for U.S. Treasuries, making stablecoin issuers one of the largest holders of U.S. Treasuries by 2030.
5 Stablecoins pose a certain threat to the traditional banking ecosystem through deposit substitution. But they may provide new service opportunities for banks/financial institutions.
6 The use of blockchain in the public sector is also gaining traction, fueled by a continued focus on transparency and accountability in public spending, as evidenced by the U.S. government’s DOGE (Department of Government Efficiency) initiative and blockchain pilot projects by central banks and multilateral development banks.
7 Key use cases for public sector blockchains include: expenditure tracking, subsidy distribution, public record management, humanitarian aid operations, asset tokenization, and digital identity.
8 While on-chain transaction volumes in the public sector may initially be small and risks remain high and challenging, increased public sector interest could be an important signal for broader blockchain adoption.
1. Why is it now that blockchain is being widely adopted?
Why is 2025 likely to be the “ChatGPT moment” for blockchain applications in finance and the public sector?
- The supportive stance of U.S. regulators toward blockchain is expected to be a game-changer this year. It could lead to wider adoption of blockchain-based currencies and spur the emergence of other use cases in finance and other areas across the U.S. private and public sectors.
- Another potential catalyst is a continued focus on transparency and accountability in public spending.
These changes build on developments over the past 12-15 months, including the European Union’s regulated Market for Crypto-Assets (MiCA), growing user demand reflected in the issuance of cryptocurrency ETFs, the institutionalization of cryptocurrency trading and custody, and the U.S. government’s establishment of a strategic Bitcoin reserve.
While there has been some growth in blockchain engagement among banks, asset managers, the public sector and government agencies, they still lag behind some of the more optimistic expectations. The reality is that digital finance already exists in consumer and institutional finance, including online banking on proprietary databases and centralized systems. We are now seeing an accelerated convergence of online native technologies, currencies, and blockchain and digital native use cases.
Government adoption of blockchain falls into two categories: enabling new financial instruments and modernizing systems. Systems are upgraded by integrating shared ledgers to enhance data synchronization, transparency, and efficiency.
Stablecoins are now the main holders of U.S. Treasuries and are beginning to influence global financial flows. The growing popularity of stablecoins reflects the continued demand for dollar-denominated assets.
Artem Korenyuk, Digital Assets – Client, Citi
1.1 Stablecoins are on the rise
A major catalyst for wider acceptance of stablecoins, cryptocurrencies pegged to a stable asset such as the U.S. dollar, could be regulatory clarity in the U.S. This could allow stablecoins, and blockchain more broadly, to better integrate into the existing financial system.
Given the dollar’s dominance in international finance, changes in the U.S. approach to stablecoins will impact the broader global system.
The US government appears to be keen to promote the development of the onshore digital asset industry as one of its priorities to increase innovation and efficiency. In January 2025, the US President’s executive order titled “Strengthening American Leadership in Digital Financial Technologies” established a Digital Asset Task Force to develop a federal regulatory framework for the industry.
The increasing integration of digital assets with existing financial institutions in a regulatory-friendly context has laid the foundation for the growth in the use of stablecoins, and macroeconomic factors such as demand for the US dollar in emerging and frontier markets have further supported this trend.
According to DefiLlama data, the total value of stablecoins exceeds $230 billion by the end of March 2025, 30 times that of five years ago. This partly reflects the growth of the total value of cryptocurrencies (up 1,400% in the five years to the end of March 2025) and the growth of institutional demand. Our analysis shows that in the baseline scenario, the total supply of stablecoins could reach $1.6 trillion, with bear and bull scenarios reaching approximately $0.5 trillion to $3.7 trillion, respectively.
US Treasury Demand: Establishing a US stablecoin regulatory framework will support demand for risk-free USD assets both inside and outside the US. Stablecoin issuers must purchase US Treasuries or similar low-risk assets as a measure of their possession of safe underlying collateral. In our baseline scenario, we expect US Treasury purchases to exceed $1 trillion. By 2030, stablecoin issuers could hold more US Treasuries than any one jurisdiction currently holds.
1.2 Future Challenges
The development of stablecoins also faces resistance and challenges. While the dominance of the US dollar may evolve over time, and the euro or other currencies will be promoted by national regulations, many non-US policymakers may see stablecoins as a tool of US dollar hegemony.
The goal of blockchain is to bring money flows in line with the speed of the internet and global commerce. Stablecoins can be a key tool to achieve this goal. The first step is legislative and regulatory clarity. In addition, legal safeguards need to be in place.
Ryan Rugg, Digital Assets – Services, Citi
The geopolitical situation remains volatile. If the world continues to move toward a multipolar system, Chinese and European policymakers are likely to be keen to promote central bank digital currencies (CBDCs) or stablecoins issued in their own currencies. Policymakers in emerging and frontier markets will also be wary of local risks posed by dollarization.
Both stablecoins and central bank digital currencies (CBDCs) are attempts to create digital currencies, but they differ in terms of technical architecture and governance. The issuer of a CBDC is the central bank, while private entities can issue stablecoins. CBDCs are often inspired by blockchain principles, but are not based on a public blockchain. Given the demand for dollars for wholesale and financial transactions, especially in jurisdictions with high currency volatility, stablecoins may play the role of Eurodollar 2.0.
As a result, we expect the stablecoin market to remain dominated by the U.S. dollar in the coming years. In our baseline scenario, we expect about 90% of stablecoin supply to be denominated in U.S. dollars in 2030, although this is down from nearly 100% today.
Stablecoins are at risk of runs and could trigger a contagion effect. In 2023, stablecoins decoupled about 1,900 times, of which about 600 were large stablecoins. Large-scale decoupling events could suppress liquidity in crypto markets, trigger automatic liquidations, weaken the redemption capabilities of trading platforms, and could have a broader contagion effect on the financial system. For example, in March 2023, news of the collapse of Silicon Valley Bank triggered a large-scale redemption of USDC.
A recent report from Galaxy Digital noted that Tether provided about $8 billion, or about 25% of the total crypto lending business, and noted that if Tether used depositors’ funds to make these loans, “it would violate some banking regulations and face serious systemic risks.”
Note: Tokenized deposits are tokenized representations of commercial deposits, with each token backed by a retail or institutional deposit. Deposit tokens are native tokens on the blockchain that directly represent retail or institutional deposits in token form. Most banking projects to date can be categorized as “tokenized deposits.” Deposit tokens are mostly in pilot or early stages, such as the Guardian Project, the Regulated Responsibility Network (RLN), or the Helvetia Project.
1.3 Does the public sector need blockchain?
Trust and transparency are essential to maintaining public support for governments and institutions.
Trust is the new currency for governments, and they need to build confidence and trust with their citizens. Governments can continue to use centralized databases and traditional software solutions, but may miss out on the fundamental changes that blockchain brings.
Saqr Ereiqa, Secretary General, Dubai Digital Asset Association
Blockchain introduces a decentralized approach to public sector data management based on trust. While traditional systems derive trust from an authority – such as a government verifying its own records – blockchain allows for cryptographic proof of authenticity. Trust is built into the technology itself.
The immutability of blockchain ensures that information cannot be changed once recorded, providing a tamper-proof record for sensitive public data such as land registries, voting systems, and financial transactions. While other technologies can also achieve immutability, they usually require a trusted party to enforce it.
Cross-border activities, especially international payments through institutions such as the World Bank or humanitarian aid projects, are important use cases for blockchain. International financial flows can be opaque, making it difficult to effectively verify that resources are reaching the intended recipients. Blockchain can provide transparency to complex transactions, even in remote or unstable areas where financial institutions do not function well.
Building a blockchain where a simple database is sufficient is like driving a Ferrari to the corner store - expensive, inefficient, and unnecessary. A blockchain does not have any real advantage if all inputs and outputs are controlled by a single entity. Its true value only becomes apparent when trust is required to exchange value.
Artem Korenyuk, Digital Assets – Client, Citi
1.4 Expert opinion
A. Digital Trust Revolution
Siim Sikkut was the Chief Information Officer of the Estonian Government (2017-2022) and currently serves as a member of the Digital Advisory Council to the President of Estonia. He is also the Managing Partner of Digital Nation.
Q: What prompted Estonia to adopt blockchain?
Estonia’s digital transformation was born out of necessity. As a small country with a population of just over a million, efficiency and productivity are of paramount importance. In the late 1990s, with the rise of the internet, Estonia began experimenting with digital solutions in government and banking.
These early initiatives demonstrated significant benefits, enabling the country to operate beyond its size and resource constraints. This success led to Estonia’s strategic commitment to digital innovation. Estonia took an iterative approach, testing emerging technologies, determining what worked, and scaling successful solutions. This approach led to groundbreaking initiatives such as online voting and e-residency, both of which began as experimental projects and have since become an integral part of Estonia’s digital infrastructure. Blockchain has followed a similar trajectory. Estonia adopted blockchain not in response to a crisis, but to ensure efficient digital governance.
Q: How is Estonia using blockchain in government operations? Why?
Estonia is primarily using blockchain to ensure data integrity in government systems. The key challenge is maintaining trust—ensuring that citizens can rely on the security and accuracy of their data. While encryption and cybersecurity help address confidentiality and availability issues, the government needs a solution to verify the integrity of its records.
The key question is: How can you trust your system administrators and the log files they provide?
In the early 2000s, Estonia adopted a custom blockchain, KSI (Keyless Signature Infrastructure), as an additional layer of trust, and today it is used for various government databases, including the National Health Registry.
It is important to note that blockchain does not store actual records, but rather metadata that records when and who accessed or modified a record. For example, it does not store an individual’s blood type, but rather records when and by whom that entry was accessed or modified. This approach has two key advantages. First, it ensures user privacy and regulatory compliance. Second, storing large datasets on-chain is impractical in terms of cost and performance.
Q: What potential use cases do you see for blockchain in the future?
One promising area is digital documentation, where blockchain can enhance the security, transparency, and efficiency of benefits, grants, and public sector resource allocation. By providing an immutable ledger, blockchain can reduce fraud, increase accountability, and ensure seamless verification across agencies.
Another potential use is in the management and protection of stored value, especially in government programs that distribute financial aid or subsidies. Tokenization also has potential, especially for government departments involved in financial redistribution.
B. Overall digital policy
Julie Monaco is Global Head of Public Sector Banking at Citibank.
Q: What does a successful national digital policy look like?
A successful national digital policy is not just about technology, but also about vision and goals. It starts with bold leadership and a commitment to building an inclusive, people-centric digital economy. Empowering a digital czar to coordinate priorities in artificial intelligence, data privacy, and cybersecurity is key.
It is estimated that strategic investments in digital ID systems could unlock access for 1.7 billion people, save 110 billion hours of labor, and increase emerging market GDP by 6%. With 3.6 billion people already registered worldwide, momentum is strong, according to Juniper Research. Countries like Estonia, India, and Singapore demonstrate what is possible with policy-led innovation.
Q: What role should blockchain play in achieving accountability, transparency, and efficiency as part of successful digital policy?
Blockchain can definitely play a role in successful digital policy, especially in strengthening accountability, transparency, and efficiency. Its ability to create immutable records and automate audit trails through smart contracts has the potential to reduce fraud, improve regulation, and build trust in public systems. In terms of efficiency, it can streamline services such as taxation or welfare distribution by reducing bureaucracy.
It’s not a panacea, but if used properly, blockchain can be a powerful tool to help governments operate with greater integrity, responsiveness, and efficiency.
2. Stablecoin’s GPT Moment
2.1 How do stablecoins work?
A stablecoin is a cryptocurrency that aims to stabilize its value by pegging its market value to an underlying asset, which can be a fiat currency (such as the U.S. dollar), a commodity (such as gold), or a basket of financial instruments.
The key components of the stablecoin ecosystem include:
- Stablecoin Issuer: The entity that issues the stablecoin and is responsible for managing its underlying assets, typically holding a value equal to the circulating supply of the stablecoin in the underlying assets.
- Blockchain ledger: Once stablecoins are issued to the public, transactions will be recorded on a blockchain ledger, which provides transparency and security by tracking the ownership and movement of stablecoins between users.
- Reserves and collateral: Reserves ensure that each token can be redeemed at its pegged value. For fiat-collateralized stablecoins, these reserves typically include cash, short-term government bonds, and other liquid assets.
- Digital Wallet Providers: Provide digital wallets, which can be mobile applications, hardware devices, or software interfaces, that allow stablecoin holders to store, send, and receive their currencies.
How do stablecoins maintain their pegs?
Stablecoins rely on different mechanisms to ensure that their value remains consistent with the underlying asset. Fiat-backed stablecoins maintain their peg by ensuring that each issued token can be redeemed for an equal amount of fiat currency.
Major stablecoins on the market
As of April 2025, the total stablecoin supply has exceeded $230 billion, up 54% since April 2024. The top two stablecoins dominate the ecosystem, accounting for more than 90% of the market share by value and volume, with Tether (USDT) leading the way, followed by USD Coin (USDC).
In recent years, the transaction volume of stablecoins has grown rapidly. After adjustment by Visa Onchain Analytics, the transaction volume of stablecoins reached 650 billion to 700 billion US dollars per month in the first quarter of 2025, which is about twice the level in the second half of 2021 to the first half of 2024. Supporting transactions in the crypto ecosystem has always been the main use case of stablecoins.
USDT, the largest stablecoin by market capitalization, was launched on the Bitcoin blockchain in 2014 and expanded to the Ethereum blockchain in 2017, enabling its application in decentralized finance (DeFi). In 2019, USDT further expanded to the Tron network, which is widely used in Asia, due to its faster speed and lower costs. USDT mainly operates overseas, but times are changing.
We will definitely see more players (especially banks and traditional players) enter the market. USD-backed stablecoins will continue to dominate. Ultimately, the number of players will depend on how many different products are needed to cover the main use cases - and this market will likely have more players than the credit card network market.
Matt Blumenfeld, Global And US Digital Assets Lead, PWC
2.2 Drivers of Stablecoin Adoption
According to Erin McCune, Founder & Principal Consultant, Forte FinTech, the channel factors of stablecoins are as follows:
- The practical advantages of stablecoins (speed, low cost, 24/7 availability) are creating demand in both developed and emerging economies. This is especially true in countries where instant payments are not yet widely available, where small and medium-sized businesses (SMBs) are underserved by incumbents, and where multinational corporations want to more easily transfer funds around the world. These countries still have high cross-border transaction costs, immature banking technology, and/or lagging financial inclusion.
- Macro needs (inflation hedging, financial inclusion) are driving stablecoin adoption in regions with high inflation. Consumers in countries such as Argentina, Turkey, Nigeria, Kenya, and Venezuela use stablecoins to protect their funds. Today, more remittances are coming in the form of stablecoins, and consumers without bank accounts can now also use digital dollars.
- Recognition and integration by existing banks and payment providers is key to legitimizing stablecoins (especially for institutional and corporate users) and can rapidly expand their use and applicability. Mature and scaled payment network operators and core processors can increase transparency and facilitate integration with digital solutions that businesses and merchants rely on. Clearing mechanisms between various stablecoins between banks and non-bank institutions are also critical to achieving scale. Technological improvements for consumers (easy-to-use wallets) and merchants (embedded stablecoin acceptance into acquiring platforms accessible via APIs) are removing barriers that once limited stablecoins to the fringe of cryptocurrencies.
- Long-awaited regulatory clarity will allow banks and the wider financial services industry to introduce stablecoins in both the retail and wholesale sectors. Transparency (audit requirements) and consistent liquidity management (reliable par value) will also ease operational integration.
Matt Blumenfeld, Global And US Digital Assets Lead, PWC, said that the channel factors of stablecoins are as follows:
User Experience: The global payments landscape is increasingly shifting to real-time digital transactions. But every new payment method faces challenges in terms of customer experience – is it intuitive, can you see the use case, is the value clear. Any organization that successfully improves the customer experience – whether for retail or institutional users – will stand out as a leader in their respective fields.
Integration with the way we pay today will drive the next wave of adoption. On the retail side, this will be reflected in the proliferation of bank cards or mobile wallets. On the institutional side, this will be reflected in simpler, more flexible and cost-effective settlement.
- Regulatory clarity: Following the introduction of new stablecoin regulations, we can see how regulatory uncertainty is a severe inhibitor to innovation and adoption around the world. The introduction of MiCA regulations, regulatory clarity in Hong Kong, and progress on stablecoin legislation in the United States have sparked a surge in activity aimed at simplifying the flow of funds for institutions and consumers.
- Innovation and efficiency: Institutions must view stablecoins as an enabler for more agile product development, which is difficult to achieve in this era. This means providing a simpler, more creative or more attractive medium that enhances traditional bank deposits in the form of, for example, yield generation, programmability and composability.
2.3 Potential Market of Stablecoins
As Forte Fintech’s Erin McCune points out, any predictions about the potential size of the stablecoin market need to be made with caution. There are many factors that move the market, and our own analysis shows that the market can range widely.
We constructed our forecast range based on the growth in stablecoin demand driven by the following factors:
- Convert some of the U.S. and non-U.S. dollar holdings from paper to stablecoins - U.S. paper holdings overseas are often a hedge against local volatility, and stablecoins are a more convenient way to obtain such a hedge. In the U.S., stablecoins can be partially used for certain payment functions and held for this purpose.
- Reconfigure some of the short-term U.S. dollar liquidity held by U.S. and international households and businesses into stablecoins to support cash management and payment operations. Because stablecoins are easy to use (e.g., 24/7 cross-border payments, etc.), and if regulations allow, stablecoins may partially replace yield assets.
- Furthermore, we assume that trends in short-term liquidity substitution for EUR/GBP are similar to those for USD short-term liquidity held by domestic households and businesses, albeit on a much smaller scale. In our baseline scenario, our optimistic scenario for 2030 sees the stablecoin market still largely driven by USD (~90%).
- Growth of public crypto markets, where stablecoins are used as a facilitator for settlement or monetary acceptance; driven in part by growing institutional adoption of public crypto assets and the general use of blockchain technology. In our base case, we assume that the trend of growth in stablecoin issuance will continue from 2021 to 2024.
- Our baseline scenario estimate for the size of the stablecoin market in 2030 is $1.6 trillion, our optimistic scenario is $3.7 trillion, and our pessimistic scenario is $0.5 trillion.
Note: The stock of monetary aggregates (cash in circulation, M0, M1 and M2) in 2030 is calculated using nominal GDP growth rate. The Eurozone and the UK may issue and adopt local currency stablecoins. China may adopt sovereign central bank digital currency (CBDC), and is less likely to adopt foreign privately issued stablecoins. Bearish forecast for non-US dollar stablecoins in 2030: $21 billion; baseline forecast: $103 billion; bullish forecast: $298 billion.
2.4 Stablecoin Market Outlook and Use Cases
Erin McCune is the founder and principal consultant of Forte Fintech. She has over 25 years of consulting experience in the payments space. Her consulting work focuses on commercial payments, cross-border transactions, and the intersection of corporate finance, banking, and enterprise software. Prior to founding Forte Fintech, she was a partner at Bain & Company and Glenbrook Partners.
Q: What are the optimistic and cautious outlooks on the near-term size of the stablecoin market and the potential factors driving its development?
Predicting the growth of the global stablecoin market requires a great deal of confidence (or arrogance) as there are still many unknowns. Based on this, I offer the following optimistic and pessimistic predictions:
The most optimistic forecast is that the market will expand 5-10 times as stablecoins become an everyday medium for instant, low-cost, and low-friction transactions around the world. A relatively optimistic forecast is that by 2030, the value of stablecoins will grow exponentially from the current approximately $200 billion to $1.5 trillion-2.0 trillion, and will penetrate global trade payments, P2P remittances, and mainstream banking.
This optimism relies on several key assumptions:
- Regulatory laxity in key regions — not just Europe and North America, but also markets where demand for local fiat alternatives is greatest, such as Sub-Saharan Africa and Latin America.
- Build genuine trust between incumbent banks and new entrants, as well as widespread trust among consumers and businesses in the integrity of stablecoin reserves (e.g., $1 of stablecoin = $1 of equivalent value in preferred fiat currency)
- Reasonable income distribution throughout the value chain to promote cooperation; and
- Widespread adoption of technologies that can bridge new and legacy infrastructures, thereby promoting structural efficiency and scale. For example, merchant acquirers have already begun using stablecoins. For wholesale payment applications, corporate treasury and accounts payable (AP) solutions, as well as commercial banks, need to adapt. Commercial banks will need to deploy tokenization and smart contracts.
In the pessimistic scenario, the use of stablecoins remains limited to the crypto ecosystem and specific cross-border use cases (mainly illiquid currency markets, which currently account for only a small part of global GDP). Geopolitical factors, resistance to digital dollarization, and widespread adoption of CBDCs will further hinder the growth of stablecoins. In this scenario, the market value of stablecoins may stabilize at between $300 billion and $500 billion, and have a limited role in the mainstream economy.
The following factors would lead to a more pessimistic scenario:
- If one or more major stablecoins experience a reserve failure or depeg event, this would severely erode trust among retail investors and businesses.
- There are high frictions and costs associated with using stablecoins for everyday purchases — whether it’s remittance recipients being unable to buy groceries, pay tuition and rent, or businesses being unable to easily access funds to pay salaries, inventory, etc.
- Retail CBDCs have yet to gain traction, but stablecoins may be less suitable in regions where public sector digital cash alternatives can scale.
- In regions where stablecoins are gaining traction and the relevance of local fiat currencies is further weakened, central bankers are likely to respond by increasing regulation.
- If fully reserve-backed stablecoins become large enough, this could “tie up” a large amount of safe assets to back them, potentially restricting credit in the economy.
Q: What are the current and future use cases for stablecoins?
As with any other payment method, the relevance and potential growth of stablecoins must be considered based on specific use cases. Some use cases have gained widespread attention, while others remain theoretical or are clearly impractical. Here are the use cases that currently (or in the near future) contribute to stablecoin transaction volume (from largest to smallest):
Cryptocurrency trading: Individuals and institutions using stablecoins to trade digital assets is currently the largest use case, accounting for 90% to 95% of stablecoin trading volume. This activity is largely driven by algorithmic trading and arbitrage. In the mature stage, given the continued growth of the crypto market and its reliance on stablecoin liquidity, trading (retail + DeFi activities) may still account for about 50% of stablecoin usage.
B2B payments (corporate payments): According to Swift, the vast majority of traditional correspondent banking transaction amounts reach their destination within minutes via Swift GPI. But this mainly occurs between centralized currency banks, between highly liquid currencies, and during banking hours. There are still many inefficiencies and unpredictability issues, especially when doing business in low- and middle-income countries. Businesses that use stablecoins to pay overseas suppliers and manage treasury operations could account for a significant share of the stablecoin market. Given that global B2B capital flows amount to tens of trillions of dollars, even a small portion of them turning to stablecoins could be equivalent to 20% to 25% of the total stablecoin market size in the long run.
Consumer Remittances: Despite a steady shift from cash to digital currencies, pressure from regulators, and focused efforts from new entrants, it remains costly for overseas workers to send money to friends and family back home (5% of average $200 transactions: 5x higher than the G20 target). With lower fees and faster speeds, stablecoins are poised to capture a significant share of the roughly $1 trillion remittance market. If the promised immediacy and dramatically lower costs are realized, stablecoins could capture 10%-20% of the market in a high adoption scenario.
Institutional trading and capital markets: The use cases for stablecoins to settle trades for professional investors or tokenized securities are expanding. Large flows (forex, securities settlement) could start using stablecoins to speed up settlement. Stablecoins could also simplify the financing process for retail purchases of stocks and bonds, which is currently typically done through batch automated clearing house processing. Large asset managers have begun piloting stablecoin settlement for funds, laying the foundation for its widespread use in capital markets. Given the huge payment flows between financial institutions, even modest adoption could account for about 10% to 15% of the stablecoin market.
Interbank liquidity and funding: The use of stablecoins by banks and financial institutions for internal or interbank settlements is small but potentially significant (perhaps less than 10% of the total market size). Leading industry player JP Morgan has launched a blockchain project with over $1 billion in daily transactions, which shows great potential despite the lack of regulatory clarity. This area could grow significantly, although it may overlap with the institutional uses mentioned above.
2.5 Stablecoins: Bank Cards, Central Bank Digital Currency (CBDC) and Strategic Autonomy
We believe that stablecoin usage is likely to grow and these new opportunities will create space for new entrants. The current duopoly of issuers may persist in the offshore market, but the onshore market in each country may provide a platform for new players to join.
Just as the bank card market has evolved over the past 10-15 years, the stablecoin market will also change. Stablecoins have some similarities to the bank card industry or cross-border banking. All of these industries have strong network/platform effects and strong reinforcement loops. More merchants accepting a trusted brand (Visa, Mastercard, etc.) will attract more cardholders to use the card. Stablecoins also have a similar usage cycle.
In larger jurisdictions, stablecoins are generally not subject to financial regulation, but this is changing in the EU (MICA, 2024) and the US (in progress). The need for stricter financial regulation, coupled with high costs for partners, could lead to a concentration of stablecoin issuers, as we have seen with credit card networks.
Ultimately, having a few select stablecoin issuers is good for the broader ecosystem.
While one or two major players may appear concentrated, too many stablecoins will lead to a fragmented, non-fungible form of money. Stablecoins can only thrive if they have scale and liquidity.
Raj Dhamodharan,Executive Vice President, Blockchain & Digital Assets, Mastercard
However, political and technological developments have led to increasing disparity in the credit card market, especially outside the U.S. Could the same thing happen to stablecoins?
Many countries have developed their own national card schemes, such as Elo in Brazil (2011), RuPay in India (2012), and others. Many national card schemes were launched for national sovereignty reasons and driven by local regulatory changes and political encouragement from domestic financial institutions. They also integrate with new national real-time payment systems, such as Pix in Brazil and UPI in India. International card schemes, while continuing to grow in recent years, have lost market share in many non-US markets. In many markets, technological changes have led to the rise of digital wallets, account-to-account payments, and super apps. All of this has led to a decline in the market share of credit cards.
Just as we have seen a proliferation of national-level initiatives in the credit card market, we are likely to see jurisdictions outside the United States continue to focus on developing their own central bank digital currencies (CBDCs) as a tool for national strategic autonomy, particularly in the wholesale and corporate payments sectors.
OMFIF's survey of 34 central banks showed that 75% of central banks still plan to issue CBDC. The proportion of respondents who expect to issue CBDC in the next three to five years has increased from 26% in 2023 to 34% in 2024. At the same time, some practical implementation issues have become increasingly prominent-31% of central banks have postponed the issuance schedule, citing legislation and the desire to explore broader solutions.
The CBDC project began in 2014, when the People's Bank of China (PBoC) began researching the digital yuan. Coincidentally, Tether was also born in the same year. In recent years, stablecoins have developed rapidly, driven by private market forces.
In contrast, CBDCs are still largely in the official pilot phase. The few small economies that have launched national CBDC projects have not seen much organic user growth. However, the recent increase in geopolitical tensions may increase interest in CBDC projects.
2.6 Stablecoins and Banks: Opportunities and Risks
The adoption of stablecoins and digital assets provides some banks and financial institutions with new business opportunities to drive revenue growth:
The role of banks in the stablecoin ecosystem
There are many opportunities for banks to participate in the development of stablecoins and continue to act as a hub for money flows. This could be directly as a stablecoin issuer, as part of a payment collection/payment solution, structured products around stablecoins, general liquidity provision, or in a more indirect way.
We have seen deposits flow out of the banking system as users seek more attractive products and better experiences. With stablecoin technology, banks have the opportunity to create better products and experiences while keeping deposits in the banking system - users generally prefer the safety and security of their deposits in the banking system.
Matt Blumenfeld,Global and US Digital Assets Lead, PwC
At the systemic level, stablecoins could have similar effects to “narrow banks,” and there is a long-standing policy debate about the merits of such institutions. The shift of bank deposits into stablecoins could affect banks’ ability to lend. This reduction in lending capacity could dampen economic growth, at least during the transition period while the system adjusts.
As summarized in IMF Paper No. 9 of 2001, conventional economic policy opposes narrow banking due to concerns about credit creation and growth. The Cato Institute 2023 report and others have also raised objections, arguing that “narrow banking” can reduce systemic risk while credit and other flows adapt.
3. Public Sector Views on Blockchain
Trust and transparency are the core benefits of blockchain in the public sector. Blockchain has great potential to replace existing centralized systems, thereby improving operational efficiency, enhancing data protection and reducing fraud.
While on-chain transaction volumes in the public sector may initially be smaller than those in the private sector, growing interest from the public sector is critical to the widespread adoption of blockchain.
3.1 Public Expenditure and Finance
Blockchain technology has the potential to transform public spending and the finance of government services by increasing transparency, efficiency and accountability, while significantly reducing reliance on manual and paper-based processes. By integrating financial and non-financial reporting between government agencies and external partners, blockchain can track spending in real time.
This should reduce the risk of corruption while strengthening public trust in public institutions. The immutable nature of blockchain records ensures that transactions are traceable and verifiable, thereby simplifying audits and strengthening accountability. Blockchain can also monitor fiscal disbursements in real time and provide data-driven insights to assess the impact of public spending.
The use of smart contracts can make the bidding process more efficient by automating the bidding, evaluation and contract awarding processes. This reduces manual intervention and increases transparency in contract awards, thereby addressing the bias and favoritism common in manual selection. Contract payments can also be phased in by milestones, ensuring that funds are released only when project milestones are achieved.
By integrating blockchain into accounting systems, tax collection and compliance processes can be streamlined, tax calculations can be automated, and remittances to the government can be made. Since all transactions are permanently recorded on the blockchain, tax evasion becomes more difficult, thereby strengthening tax collection.
Blockchain-based digital bonds can also enable faster and more transparent issuance through automated interest payments. It also allows for fractional ownership, thereby expanding investor participation. Real-time tracking of debt instruments over the life of the bond can further improve accountability and investor confidence.
In addition to improving efficiency and accountability, blockchain-based digitization of government services can also reduce the large amount of paper documents used for contracts, records, and transactions each year. For example, Dubai’s “Paperless Strategy” aims to reduce the billions of pieces of paper generated each year by digitizing all services (including visa applications, bill payments, and license renewals), which will now be securely transacted through blockchain technology.
3.2 Disbursement of public sector funds and grants
The traditional government and public sector funding and grant disbursement process often involves a lot of manual work - processing forms, verifying claims, and managing cash flow. Blockchain offers a more efficient alternative that can streamline the process and enhance data security and integrity. Using blockchain can also increase transparency, ensure that funds are distributed fairly, and reduce opportunities for corruption and fraud. Blockchain can also reduce operating costs and improve the efficiency of record keeping and reconciliation.
Cryptographic hash data is integrated into the blockchain system to enhance the integrity of transaction information and avoid unauthorized access. Smart contracts can also automate and protect the allocation process by programming pre-defined conditions, such as verifying eligibility criteria.
Blockchain technology is well suited for cross-border use in many ways, and a good example is the World Bank’s “Money Link” initiative, launched in September 2024. The initiative currently has nine projects underway in Moldova, the Philippines, Kenya, Bangladesh, Mauritius, and Mozambique.
FundsChain — The World Bank’s blockchain for tracking fund disbursements
The World Bank is responsible for disbursing billions of dollars in funding each year and ensuring that the funds are used for their intended purposes. With numerous projects in multiple countries, tracking and verifying the use of funds has traditionally been a time-consuming, manual process. While some tasks have been automated, much of the oversight remains labor-intensive. The FundsChain initiative aims to bring more transparency and efficiency to the fund allocation process.
The World Bank has partnered with EY to develop a blockchain-based platform designed to track the movement and disbursement of funds in real time. FundsChain provides robust tracking of disbursements, enabling stakeholders to see funds in real time, increasing transparency and confidence that funds are actually reaching their intended beneficiaries, ultimately enabling the World Bank to support the anti-corruption reform agenda in client countries.
Tokens are generated when funds are received. These tokens are credited to each entity’s digital wallet. Efficiency is improved by automating transactions through smart contracts, and security and data integrity are further enhanced by storing and notarizing uploaded resources on the blockchain. Consensus algorithms are used to verify transactions and prevent overspending.
Currently, this oversight is achieved through contracts requiring borrowers to submit expenditure reports and collect other supporting documentation. This can be a highly manual, labor-intensive and time-consuming process that requires a lot of coordination, time and cost. With FundsChain, all project stakeholders (including borrowers, suppliers, auditors and end beneficiaries) can see where the funds go, how they are used and when, achieving end-to-end transparency, with all transactions recorded on the chain, allowing stakeholders to monitor the flow of funds in real time.
The World Bank built FundsChain using a private blockchain because they wanted to have control over the platform and its future development. Given the sensitive nature of their public sector mission, they did not want to rely on a third-party vendor. They also wanted to ensure that any platform they used would interoperate with other multilateral development banks’ platforms, allowing for seamless integration.
3.3 Public Records Management
Blockchain technology provides a powerful and secure platform for public record management, ensuring the authenticity, integrity and accessibility of critical data. By utilizing an immutable ledger, blockchain can maintain the integrity, accuracy and tamper-proofness of records, thereby enhancing public trust in government systems.
Unlike traditional databases that store records centrally, data on blockchains is distributed across a network of multiple nodes, making the data accessible even if a single node fails, and reducing the risk of data breaches caused by cyber attacks. Any modifications to records are encrypted and time-stamped, creating an auditable trail that protects citizen data while enhancing accountability. Blockchain also improves the accessibility and usability of records, as records can be easily retrieved and accessed when needed.
Governments are exploring blockchain solutions for public record management. For example, Singapore’s OpenCerts is a blockchain platform that enables educational institutions to issue and verify tamper-proof academic certificates. This helps reduce the risk of document forgery and streamlines credential verification.
Another area where blockchain can drive significant improvements is in land ownership and real estate management. This area is often plagued by fragmented record keeping, outdated processes, and corruption. The risk of fraud is particularly high in countries where public sector corruption is rampant. For example, Georgia has integrated its land title registry system into the Bitcoin blockchain, improving the verification of real estate-related transactions while increasing security and service efficiency.
In countries where institutional integrity is weak, there is an opportunity to increase transparency and restore public trust in public institutions through decentralized ledgers that are auditable, publicly transparent, and maintained by parties that have an incentive not to collude.
Artem Korenyuk,Digital Assets – Client, Citi
3.4 Humanitarian assistance
Effective coordination is critical during crises as multiple entities use different systems to deliver aid for food, healthcare, and shelter. Blockchain can streamline program design, resource allocation, and data sharing by providing a unified, shared ledger, thereby avoiding duplication of effort and ensuring that aid reaches those who need it most. Real-time, verifiable transaction records can also facilitate collaboration between aid agencies, governments, and nongovernmental organizations, thereby reducing overall response times.
Beyond coordination, blockchain has the potential to reinvent crisis crowdfunding, providing a transparent and decentralized mechanism for mobilizing funds. By leveraging digital currencies, blockchain can collect donations and transfer them directly to verified beneficiaries without the need for intermediaries, thereby reducing costs and delays. The use of smart contracts can further automate the disbursement of funds based on predetermined conditions.
Ensuring the integrity of humanitarian supply chains is another key challenge that blockchain could help address. By enabling end-to-end traceability, blockchain enables aid agencies to track the origin, movement, and use of humanitarian supplies. This breaks down data silos, prevents corruption, and ensures that aid reaches affected communities efficiently. It also enables real-time inventory tracking, helping organizations respond more quickly to shortages and avoid logistical bottlenecks.
The United Nations Refugee Agency (UNHCR) is using the Stellar blockchain to distribute humanitarian aid, a striking example of blockchain’s impact in the public sector. UNHCR implemented blockchain technology to streamline the process of distributing financial aid and has successfully used it in Ukraine, Argentina, and other parts of the world. One of the key benefits of blockchain is the significant cost savings achieved through overall digital transformation efforts.
Blockchain also brings greater transparency. In many crisis situations, displaced people may not have access to traditional banking services. By using blockchain-based wallets, aid recipients can receive and use funds without relying on third parties.
Denelle Dixon, CEO and Executive Director, Stellar Development Foundation
3.5 Asset Tokenization
Tokenization has the potential to unlock value and improve efficiency, transparency and accessibility by digitally representing real-world and financial assets through tokens. In the public sector, tokenization can be applied to both financial and physical assets.
Governments can tokenize debt instruments to make bond issuance more efficient and allow a wider range of investors to participate. Similarly, natural resources and infrastructure assets (such as roads, bridges, and utilities) can be represented in the form of digital tokens, making them more efficiently tracked, managed, and financed.
In addition to investment accessibility and fractional ownership models, tokenization can help financial institutions and public institutions streamline operations, reduce inefficiencies and systemic risks. Automation through smart contracts can minimize intermediaries, improve liquidity, and enhance public trust in the management of public assets.
Some institutions have explored the use of blockchain in digital bonds. For example, the European Investment Bank (EIB) issued its first blockchain-based digital bond in 2021, with an amount of 100 million euros. The issuance was in cooperation with the Bank of France, using blockchain for the registration and settlement of digital bonds.
In 2022, the European Investment Bank launched Project Venus, issuing its first euro-denominated digital bond on a private blockchain using central bank money in the form of wholesale CBDC. Similarly, the Swiss city of Lugano completed three bond issuances using distributed ledger technology (DLT)/blockchain technology in 2023-24 using the Swiss National Bank’s wholesale CBDC.
Promissa – Tokenized Promissory Note
Many international financial institutions, including multilateral development banks (MDBs), are funded in part by financial instruments known as promissory notes, most of which still exist in paper form. While the current system framework provides operational control over member countries’ subscriptions and dues to public institutions such as the World Bank, the custody of outstanding promissory notes could be digitized to address operational challenges and further improve efficiency.
The Promissa project was jointly initiated by the BIS Innovation Center, the Swiss National Bank and the World Bank to build a prototype platform for digital tokenized promissory notes. The Promissa project explores the use of distributed ledger technology (DLT) to simplify the management of promissory notes and provide a single source of truth for all counterparties throughout the life cycle of the promissory note. This will enable member central banks to have a comprehensive understanding of their outstanding notes with multilateral development banks and vice versa.
The volume of promissory notes between MDBs is huge: for example, the two largest institutions of the World Bank, the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA), have a large number of promissory notes pledged by member countries since their inception. While Project Promissa aims to reimagine a “single source of truth” platform solution to simplify the management of promissory notes between member countries and MDBs, it can be extended to payments related to such promissory notes in the future through the integration of tokenization or existing payment systems.
3.6 Digital Identity
A single digital identity can serve as a valid proof for public and private transactions, enhancing storage security and convenience. Blockchain-based digital identity (ID) provides a decentralized, tamper-proof authentication mechanism, thereby reducing the risk of fraud and identity theft.
Digital identity extends basic services to underserved communities and those without official documentation, such as displaced people. With nearly 850 million people lacking official identification, digital ID can empower individuals through the use of alternative data such as biometrics and community verification.
The immutable nature of blockchain creates a transparent record of every transaction, creating a verifiable digital audit trail that enhances security and accountability. Its decentralized architecture and strong encryption protocols protect personal data from leaks and fraud.
In addition, self-sovereign identity ensures that individuals have ownership and control over their information and can selectively share data as needed. Advanced technologies such as zero-knowledge proofs can verify identity attributes without revealing sensitive information.
The Swiss city of Zug is an early example of a self-sovereign digital ID based on the Ethereum blockchain that provides residents with a single, verifiable electronic identity that can be used for a variety of applications. Zug's blockchain digital identity project was launched in 2017 and has so far had limited application due to a number of factors, including complexity and limited usability.
Brazil launched a new blockchain-based national ID card in 2023. The new digital ID card can be accessed through mobile devices using facial recognition and QR codes. These ID cards are stored on a private blockchain called b-Cadastros, built by Brazil's state-owned IT services company to improve the security and reliability of data sharing between public institutions.
3.7 Challenges of blockchain applications in the public sector
Blockchain has great potential for government services, bringing many advantages such as transparency, security and efficiency. However, the large-scale application of blockchain also faces major challenges as described below.
Developing standardized protocols and practices will help public blockchains gain wider acceptance and trust among banks and governments. Fostering collaboration between the public and private sectors can drive innovation and ensure that blockchain solutions meet the needs of all stakeholders.
Ricardo Correia, Partner, Bain & Company
- Lack of trust: Many blockchain solutions are still in the experimental stage and untested, which makes it difficult to build trust in the ecosystem. It is necessary to increase awareness and build relevant skills across the ecosystem. This takes time and investment.
- Interoperability and Scalability: If blockchain solutions are to be adopted on a national or global scale, they need to be interoperable and scalable to handle large volumes of transactions. Efforts are underway to develop global standards for blockchain so that it can gain widespread acceptance in different markets.
- Transformation challenges: Overhauling existing infrastructure can be challenging and require significant time and resource investment. New investment is further hampered by weak evidence of actual benefits, the perceived immaturity of blockchain technology, and the existence of complex legacy systems.
- Regulatory issues: The decentralized nature of blockchain poses challenges to large-scale applications, so a regulatory framework needs to be established to recognize the legal nature of blockchain, the validity of stored documents, and the financial instruments issued. Unclear regulation slows down the adoption of blockchain.
- Addressing abuse risks: While it is difficult to quantify the scale of illicit cryptocurrency use, it is estimated that illicit addresses received $51 billion in cryptocurrency in 2024, an 11% increase from the previous year. However, as a percentage of all on-chain transaction volume, this figure is typically less than 1%.
Resistance to change and public perception
Implementing blockchain often means a complete overhaul of existing systems, which could change every aspect of public officials’ jobs, including their daily routines. While some may see blockchain as a positive change to improve administrative processes, many tend to resist it because they view it as a threat.
Public perception also plays a crucial role. Blockchain is sometimes associated with speculative cryptocurrency markets and meme coins, obscuring the real-world benefits of its underlying technology. This can foster skepticism, slowing its mainstream adoption in the public sector.
Saqr Ereiqat, Secretary General, Dubai Digital Asset Association
IV. Appendix
4.1 Stablecoin Regulation: GENIUS Act and STABLE Act
This section focuses on two major pieces of stablecoin legislation currently being considered by the U.S. Congress. Both pieces of legislation seek to establish a regulatory framework to integrate stablecoins into the mainstream financial ecosystem.
The Guiding and Establishing a United States Stablecoin Nation Innovation Act (GENIUS Act) proposes a two-pronged regulatory approach that regulates stablecoin issuers based on their market capitalization level.
Stablecoin issuers with a total market value of less than $10 billion can choose to be regulated by state regulators (if the state regulatory system is substantially similar to the federal regulatory framework). Issuers with a market value above the $10 billion threshold will be subject to federal regulation. Both banks and non-bank institutions can issue stablecoins with regulatory approval.
The Act outlines the obligations of issuers, including 1:1 reserve backing, disclosure and redemption procedures, monthly reserve composition reporting and certification, prudential standards, and a range of consumer protections.
The second piece of legislation is the Stablecoin Transparency and Accountability for a Better Ledger Economy Act of 2025 (STABLE Act). This bill has many similarities to the GENIUS Act in terms of the types of companies that are allowed to issue stablecoins, and has similar requirements for issuers to maintain 1:1 reserves (but different in terms of reserve composition), similar requirements for information disclosure, monthly certifications, etc. Unlike the GENIUS Act, this bill does not distinguish between issuers based on a $10 billion market threshold.
Given that these bills would give certain stablecoin issuers the ability to opt-in to state-level regulatory regimes, they could create a risk of regulatory arbitrage, where some states could introduce less stringent regimes to attract stablecoin issuers. Differences in state-level regulatory regimes could make it difficult for banks to do business with issuers that are subject to multiple different regulatory regimes.
While both bills open the door for banks to offer stablecoin payment services, including providing custody services, private keys, or reserve backing for payment stablecoins, ensuring that legislation provides appropriate illicit financing protections will be key to enabling banks to fully exploit such opportunities.
Both bills will take effect 18 months after enactment (to be determined) or 120 days after the federal banking regulators issue final implementing regulations, whichever comes first. Both bills must go through a reconciliation process, where the full House and Senate vote on the same version of the legislation, before they can be passed into law. During this process, the bills could still be modified in substance.
4.2 Public Chain vs. Private Chain
When exploring blockchain-based infrastructure, it is important to weigh the pros and cons between private and public chains. Public chains are permissionless networks that allow anyone to participate, verify transactions, and access data. This openness makes it a powerful tool for accessibility and transparency, but it also creates challenges in areas such as regulatory enforcement and scalability.
This is similar to the current situation with public cloud computing and hosting. Banks and financial institution regulators were concerned about the security and control of data stored in public clouds. This time, people have similar concerns about public blockchains. Banks need to put in place appropriate controls and risk mitigation measures, develop rulebooks, and educate people about this.
Biser Dimitrov, Digital Assets – Technology, Citi
- Decentralized and not subject to any authority: Public chains tend to operate independently of any single entity, reducing the risk of excessive government intervention, censorship, or unilateral manipulation. Governance is usually decentralized and achieved through consensus mechanisms such as Proof of Work (PoW) or Proof of Stake (PoS).
- Transparency and auditability: Public blockchains ensure that transactions are permanently recorded and publicly accessible. This transparency increases accountability, reduces corruption, and helps foster trust in the financial system.
- Interoperability and open accessibility: Stablecoins issued on public blockchains can be used in a variety of applications and services without the need for custom integration. They also promote global accessibility, and anyone with an internet connection can access and use them.
- Security and Resilience: The decentralized nature of public chains, protected by a vast network of nodes and cryptographic mechanisms, makes them more resistant to single points of failure, network attacks, and centralized attacks than private systems.
On the other hand, public blockchains may not be suitable for all use cases:
- Scalability and transaction throughput: Public blockchains can struggle with transaction throughput, especially when processing large volumes of transactions, which can result in slower transaction processing and higher fees. This makes them less suitable for handling high-volume, real-time financial transactions.
- Lack of privacy and anonymity: Since all transactions are publicly visible, public blockchains may not be ideal for handling sensitive financial or other government data. Anonymity may vary depending on the type of blockchain.
- Regulatory compliance challenges: The anonymity of public blockchains makes it difficult to enforce anti-money laundering (AML) and know-your-customer (KYC) regulations. It may be difficult for governments to track illegal financial activities or effectively enforce financial policies.
- Limited customization: While stablecoins issued on public chains provide a mature framework, they have limited flexibility in customizing solutions for specific use cases.
Policymakers and risk managers may also need to consider other issues: (1) uptime and reliability, and (2) identifying the most trustworthy tokens among those associated with public chains. For some, this is related to the negative perception of cryptocurrency (due to its initial association with illegal activities).
Banks and large institutions, both in the private and public sectors, have traditionally relied on proprietary, on-premises technologies. It will take time for open source and cloud technologies to penetrate these institutions. The integration of public, permissionless blockchains will be a challenge — but change is underway, supported by regulatory and policy changes.
