[Deloitte] 2025 – the year of payment stablecoins

How do you want to engage?

Companies will encounter multiple opportunities to engage with PSCs and must continuously assess which part of the value chain to participate in. Some entities will aggressively seize market share with a first-mover strategy, while others will react when external use of PSCs demands their involvement. Executives need to evaluate market conditions, competitive positioning, and long-term objectives to navigate this evolving landscape effectively. Firms should begin taking into consideration which role(s) to play:

Issuance of PSCs:

• Issuer: Organizations can create and distribute PSCs, assuming responsibility for their issuance and redemption as well as managing the strategy of reserve asset allocation.
• Transaction bank: Facilitate ongoing collection and disbursement of fiat related to mints and redemption of PSCs.
• Reserve bank: Entities can function as reserve banks, holding and managing reserve assets that back PSCs.

Enabling the Ecosystem:

• Custodian of PSCs: Firms can safeguard PSCs on behalf of clients and users, providing secure storage and the ability to use PSCs on platforms that allow their use.
• Building platforms for use: Companies can act as the platform which builds the interface enabling the use of PSCs for settlement, processing, and integration.
• Providing ecosystem services: Businesses can offer a range of support services to the PSC ecosystem, including technology solutions, compliance assistance, and advisory services.

Opportunities

PSCs offer specific advantages by allowing instant settlement at reduced costs across borders and entities. They incentivize users to transition from traditional financial systems (and payment rails) to blockchain networks, all while avoiding the volatility associated with non-fiat-backed cryptocurrencies (ex. bitcoin). As market capitalization of PSCs has grown to over $200 billion, more business are creating platforms to enable payments using PSCs.8 The growing demand in PSCs by the market presents significant opportunities for prospective issuers.

To date, PSC issuance has primarily been done by non-banking entities and crypto native companies outside of a U.S. federal legal or regulatory regime. The competitive landscape, however, is shifting as the likelihood of a U.S. national regulatory framework for PSCs increases. A clear and consistent U.S. legal and regulatory framework will support entities exploring PSC issuance.

Risks

Cybersecurity and data protection: Issuers should safeguard their digital infrastructure against cyber-attacks, which could lead to the theft of PSCs and loss of private keys. Such breaches can result in significant financial losses, legal liabilities, and erosion of user trust.

Anti-money laundering: Issuers should comply with stringent regulations related to anti-money laundering (AML), know-yourcustomer (KYC), and applicable state laws. Failure to comply can result in enforcement actions by regulatory bodies, which may include fines, restrictions on operations, and even the required cessation of business activities. Non-compliance can also lead to reputational damage and loss of customer trust.

Blockchain and smart contract risk: The reliance on blockchain technology and smart contracts introduces unique risks. Smart contracts can contain vulnerabilities or bugs that may be exploited by malicious actors. Additionally, the underlying blockchain network may experience forks, congestion, or other technical problems that can impact the performance of transaction on the network. Such issues can lead to delays, failures, and potential financial losses.

Depegging of stablecoin: The primary risk associated with PSCs is the potential for depegging, where the units of the PSC in circulation diverge from its intended peg (e.g., 1:1 dollar value to its underlying fiat reserves). Depegging can occur due to on-chain factors, including minting and burning operations and reserve management.

Tax considerations: While stablecoins may be used as a means of payment and carry a value similar to fiat currency, they may not be considered money or currency for US income tax purposes. Rather, stablecoins may be considered general property or even a debt obligations for tax purposes depending on the structure of the stablecoin and interpretations of existing US treasury regulations developed prior to the advent of blockchains and digital assets.

Accounting considerations: From an accounting perspective, holders of stablecoins will need to assess the terms to identify whether those stablecoins represent financial assets or intangible assets, which will impact classification, subsequent measurement, and the accounting for subsequent transfers.

Operational and market risks: Issuers also face operational risks, such as the potential for human error, fraud, or internal misconduct, which can affect the stability and reliability of PSC operations. Additionally, market risks, including fluctuations in the value of reserve assets, can affect the stability and value of PSCs. These risks can lead to financial losses, operational disruptions, and erosion of user trust.

Regulatory non-compliance: The regulatory landscape for PSCs is complex and continuously evolving. Non-compliance with relevant laws and regulations can lead to severe penalties, legal actions, customer harm, and reputational damage, significantly affecting the issuer’s operations and financial stability.