Why Banks are Upgrading to Stablecoin Rails

Key Takeaways

• Stablecoins allow banks to enable atomic settlement, where payment and final settlement happen simultaneously and instantly, eliminating the traditional T+1 wait times and fragmented banking hours.

• By using stablecoin rails, there is a lowered need for expensive pre-funding, allowing corporate treasuries to remain lean and keep their capital productive.

• Stablecoins are built on code, allowing for programmable payments that execute automatically when specific, verifiable conditions are met. This can reduce operational overhead while providing banks with a way to recapture payment flows currently leaking to non-bank competitors.

The traditional financial ecosystem is continuously evolving to keep pace with the digital asset economy, and payments are a key piece to that evolution. Stablecoins have put a spotlight on issues such as T+1 settlement cycles, high intermediary fees, and fragmented banking hours which create friction for enterprises operating at scale.

By combining the predictability of fiat with the programmability of code, stablecoins are becoming core architecture for corporate treasury and global institutional settlement. While the transition from traditional rails could require additional risk management, the rise of stablecoins provides a massive opportunity for banks to shift toward a programmable, 24/7 financial layer, allowing them to adapt to the increased velocity of global trade, and a way to recapture flows that have leaked to non-bank competitors.

Modern Settlement with Stablecoins

The shift to stablecoins is the move from "message-based" finance to "asset-based" finance. Instead of sending a message using a system like SWIFT and waiting days for the value to move, stablecoins enable payment and settlement to happen simultaneously in what is often referred to as atomic settlement. With that as the base line, stablecoins empower lean treasury operations and robust programmability, which we are now starting to see the benefits of. 

Stablecoins enable:

• Atomic Settlements: By offering stablecoin rails, banks recapture the payment flows, including but not limited to associated deposits, that are currently leaking to payment systems.

• Lean treasury operations: Onchain settlement eliminates some of the need for pre-funding. You can move stablecoins globally within minutes, allowing your treasury to stay lean and your capital to remain productive.

• Programmability: Stablecoins are backed by dollars, but built on code. This means that payments can be programmed to move when specific conditions are met, without the need for manual approvals. Smart contracts ensure that the conditions are verifiable, meaning banks can access trustless transactions to reduce operational overhead.

The “Rails”: Integrating Without the Infrastructure Debt

The term “stablecoin rails” refers to the set of capabilities that are required to transact with stablecoins. Banks wanting to integrate require the following core pieces of infrastructure to build these “rails”: 

• Wallets & Custodians: Digital vaults that serve as the holding place for digital assets.

• On-Ramps & Off-Ramps: Services that convert fiat into stablecoins and vice versa.

• Liquidity Providers: Market makers who ensure there is enough liquidity 

• APIs & Gateways: The software that allows a company’s existing accounting software to "talk" to the blockchain.

Building this stablecoin functionality into a bank stack used to be much more complicated, but modern blockchain integration has advanced significantly. With modular integration options, digital asset infrastructure providers like BitGo make it simple to build stablecoin capabilities onto existing core systems without extensive blockchain development. 

By simply adding infrastructure pieces to their existing stack, banks can begin to facilitate bank-grade stablecoin payments. To get started, banks should make sure to be equipped with the following:

1. Experienced, Qualified Custodian: For the utmost security and regulatory adherence, banks should work with qualified custodians that maintain digital assets in a bankruptcy-remote environment. Technology with proven track-records, like BitGo’s battle-tested wallet technology, eliminates single points of failure.

2. Regulatory Alignment: Digital asset legislation like the GENIUS Act in the U.S. and MiCA in Europe provide clearer guardrails, paving the way to broad adoption. Fiat-backed stablecoins with transparent, audited reserves have become table stakes in global economies.

3. Simple Integration: A bank’s front-end should remain user-friendly, and provide a similar experience to their traditional products. Integrating with comprehensive APIs ensures that complex back-end infrastructure can be integrated effectively, while maintaining a seamless experience for the end users.

The BitGo Bottom Line

Stablecoins are leveling up both the banking and payments ecosystems. Banks integrating now will not only be participants in the future form of global settlement, but they also build a moat to maintain deposits and fees.

As a trusted infrastructure provider for financial institutions around the world, BitGo provides the institutional-grade plumbing that allows banks to not only enter the stablecoin landscape, but lay the foundation for the future.