A significant divergence is emerging within the digital asset industry, separating crypto products that increasingly mimic regulated financial institutions from a traditional banking sector that voices concerns about certain innovations. This tension is particularly evident this week, with JPMorgan cautioning that yield-bearing stablecoins could replicate core banking functions without adequate regulatory safeguards.
Concurrently, Wall Street's involvement in the crypto space continues to expand. Morgan Stanley's exchange-traded fund (ETF) filings are seen by analysts as indicative of the next wave of institutional adoption, potentially compelling other banks to expedite their own crypto strategies.
Crypto-native companies are actively venturing into regulated financial territories. World Liberty Financial, a company linked to Donald Trump, is broadening its USD1 stablecoin's application into crypto lending. Simultaneously, Figure Technology is exploring the reach of blockchain infrastructure into capital markets by facilitating on-chain stock lending tied to actual equity.
This edition of Crypto Biz examines the growing friction between traditional finance and the expanding influence of digital asset markets.
Yield-Bearing Stablecoins Pose Serious Risks, JPMorgan Warns
JPMorgan Chase, while having shown interest in blockchain technology and stablecoins, has identified significant risks associated with yield-bearing stablecoins that could impact the financial system, according to the bank's Chief Financial Officer, Jeremy Barnum.
During JPMorgan's fourth-quarter earnings call, Barnum addressed inquiries about stablecoins amidst renewed lobbying efforts from the banking sector and ongoing congressional review of digital asset legislation.
Barnum expressed concern that interest-bearing stablecoins might replicate essential banking functions without adhering to the same regulatory and prudential standards.
"The creation of a parallel banking system that possesses all the characteristics of banking, including features that closely resemble interest-paying deposits, without the corresponding prudential safeguards developed over centuries of banking regulation, is inherently dangerous and undesirable," he stated.
These concerns help clarify the cautious approach banks have adopted towards yield-bearing stablecoins, a trend that was previously highlighted.
Crypto Enters Next Phase of Institutional Adoption Amidst Market Cycle Debates
While crypto investors continue to debate the significance of the four-year market cycle, Binance Research suggests a more profound shift is underway: the next phase of institutional adoption, potentially spearheaded by Morgan Stanley.
In its recent macro weekly report, Binance Research highlighted a "structural pivot" in digital asset markets. A key development cited is Morgan Stanley's recent S-1 filings for proposed Bitcoin (BTC) and Solana (SOL) exchange-traded funds.
Binance Research posits that Morgan Stanley's actions could compel other major financial institutions, including Goldman Sachs and JPMorgan, to accelerate their crypto strategies to maintain competitiveness as institutional participation in digital assets grows.
World Liberty Financial Targets Crypto Lending Markets
World Liberty Financial is expanding its operations into crypto lending by integrating its $3.4 billion USD1 stablecoin into a new lending and borrowing platform named World Liberty Markets.
The platform allows users to deposit collateral in various cryptocurrencies, such as Ether (ETH), a tokenized version of Bitcoin, and stablecoins USDC (USDC) and USDt (USDT). Loans are issued in USD1, positioning the stablecoin as a central settlement asset within the lending ecosystem.
Zak Folkman, co-founder of World Liberty, informed Bloomberg that additional collateral types, including tokenized real-world assets, are planned for introduction as the platform enhances its lending services.
This lending initiative follows World Liberty's recent application for a national trust bank charter with the U.S. Office of the Comptroller of the Currency. The company stated this charter would support the broader adoption of USD1 for cross-border payments and treasury operations.
Figure Technology Targets Tokenized Stock Lending
Figure Technology Solutions, a company focused on blockchain-based lending and financial infrastructure, has launched a new system for stock lending. This platform enables investors to lend shares directly to one another, bypassing traditional intermediaries.
The platform, known as the On-Chain Public Equity Network (OPEN), permits companies to issue real equity using Figure's Provenance blockchain. Equity issued on OPEN signifies actual ownership rather than synthetic exposure.
Mike Cagney, CEO of Figure, explained that shares can be lent or pledged directly on-chain without the involvement of custodians or other intermediaries. He noted that several companies, including digital asset treasury firms, have already expressed interest in issuing shares on OPEN.