Hi folks,

I'm Marc Palet, a fintech venture capitalist based in Singapore, and focused primarily on emerging market payments and digital assets.

If you're building in fintech and want to reach out, drop me a message via Linkedin or to marc.palet@omvc.co - I'd love to connect.

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-Marc

Earlier this month, we flew out to Hong Kong for Consensus, where we hosted our very first Stable Salon in the city. Hong Kong, long defined by its relationship with China, is now making a serious push — and a fairly successful one, I must say — to establish itself as a digital asset hub. I wrote a post on this a few weeks ago. 

I was pretty surprised by the sheer number of side events that were happening throughout the week. But what struck me most this year was how many side events were centered around stablecoins and real-world asset tokenization. Definitely much more than in previous editions. For years, the conversation was driven by shallow narratives that would come and go — so it's encouraging to see attention finally settling around the use cases that actually create value.

During the Salon, we hosted a panel on the current state of stablecoins in Southeast Asia. We had a strong mix of payment founders, regulators, and bankers on stage, which made for a constructively adversarial discussion. Almost every point was met with a counterargument from a different angle.  

I thought it was an excellent debate. Given the panelists’ backgrounds, part of the discussion focused on regulation and why it’s essential for banks to participate in this industry. It’s a topic that doesn’t get nearly enough attention, yet it's arguably one of the most critical pieces of the puzzle.

I’ll touch on it today. 

Hardly a week goes by without another major company planting a flag in digital assets. It's hardly a niche anymore. The better question now might be: who’s still on the sidelines?

Well, most banks are.

Sure, you’ve seen the JP Morgan headlines. Standard Chartered has been in the game for years. Citigroup, BNY Mellon, BofA — they’ve all gotten involved. It increasingly feels like every major bank is leaning in. And banking conferences these days feel like digital asset summits, with stables dominating the conversation.

Yes, the headlines are loud. But look closer. Most of the news is coming from the largest banks. That’s not random.

First, scale matters. Stablecoins touch payments, custody, compliance, treasury, etc. That requires serious infrastructure. Only the biggest banks have the balance sheets, tech budgets, and legal teams to experiment comfortably without taking much risk.

Second, most of these banks are in developed markets. In the U.S., while the framework is still evolving, there is at least an active conversation. The SEC, the Fed, the OCC — they may disagree, but they are engaged. Banks can build with the expectation that rules will eventually crystallize. Regulatory uncertainty is uncomfortable. But regulatory silence is worse.

In most emerging markets, that silence is exactly the problem.

It’s easy to blame banks for being slow or resistant to new technology. But many times, their hands are tied. In many countries, banks are legally restricted from holding or transacting in digital assets. Even if they want to improve cross-border payments, regulations prevent them from holding stablecoins on their balance sheets.

And many regulators just haven’t provided clear guidance on stablecoins. Local banks are curious: they’ll meet with providers, speak to experts, and try to understand the space, but they’re not ready to commit. Fintechs targeting banks often end up playing educator as much as vendor. Yet progress remains slow. Banks hesitate to move beyond conversations and pilots, largely because regulatory frameworks are still unclear.

Banks need to be able to transact with stablecoins. If we want real adoption, they have to be part of the system — for several reasons:

We need bank liquidity to bring down on/ off-ramping costs.

Stablecoins are objectively a better technology. They run 24/7 and settle in seconds. They’re programmable. They remove layers of intermediaries. But in many corridors, they’re still not cheaper than traditional rails. 

The main constraint is liquidity. 

Today, on-chain liquidity in many emerging market currencies is thin. That means market makers charge wider spreads to manage risk. If commercial banks were to bring their balance sheets on-chain, spreads would compress significantly. 

Instead, much of the on/off-ramping is currently handled by local crypto exchanges. These exchanges are capturing highly lucrative FX margins on billions in volume.

Ironically, banks are structurally better positioned to win this business. They already sit on deep pools of local fiat liquidity. They can price FX more efficiently, and they can guarantee instant payouts because they control settlement accounts directly. Exchanges, by contrast, often run short on local currency, and settlements sometimes get delayed to T+1.

Stablecoin adoption today is still bottom-up, not top-down.

Most of the real usage is coming from SMEs working with stablecoin providers rather than from large enterprises working through banks.

We’re seeing import/export companies rely on stablecoins to pay suppliers in USD across difficult corridors. Remittance providers use them to speed up settlement. Other businesses are adopting them for treasury management and cross-border flows when traditional rails are slow or require heavy pre-funding in volatile currencies. Online merchants benefit from stablecoins as a single global payment method, allowing them to accept payments worldwide without stitching together dozens of local integrations.

But volume isn’t coming from big enterprises. Large corporates simply require much stricter compliance, controls, and approvals before moving money. They’re unlikely to route significant treasury or supplier payments through lightly regulated crypto providers.

Banks participating in stablecoin settlement, custody, and on-chain treasury workflows changes the equation. It unlocks adoption from large corporates. The infrastructure is largely ready, and the demand is there. But until banks participate, adoption will remain concentrated among SMEs.

Banks are systemically trusted institutions for moving fiat, and stablecoins rely on fiat infrastructure.

The narrative for a while was that SWIFT was broken and stablecoins would replace banks. This was largely incorrect. 

If people were comfortable holding stablecoins directly, and if spending them were seamless everywhere, that would be a different conversation. But in reality, most payments are still expected to be fiat-to-fiat — the classic stablecoin sandwich. 

In that model, stablecoins act as a connective layer between fragmented systems. They help move value faster, improve access to dollars, and bypass the inefficiencies of correspondent banking in exotic corridors. But the money still needs to enter and exit in fiat. Funds must be cleared locally at both ends of the transaction.

That means traditional rails still matter. And banks remain the most trusted institutions for first- and last-mile settlement.

Stablecoins aren’t replacing banks. They rely on fiat infrastructure. When banks integrate them properly, stablecoins become an upgrade to the financial system, not a threat to it.

If banks adopt stablecoins, it would be a game changer. It is also in their own interest to do so. In fact, stablecoins could make correspondent banking more efficient. 

Today, banks support cross-border payments by pre-positioning funds in overseas nostro accounts. That capital often sits idle and is expensive to manage. With stablecoins, they could move liquidity across borders instantly and fund those positions more efficiently, instead of pre-funding multiple accounts. More efficient liquidity management on the backend would translate into faster and cheaper cross-border payments for retail customers on the frontend.

But as we’ve discussed, for banks to come onboard, regulators need to play their part. And until recently, that hasn’t really been the case.

Regulators don’t operate in isolation. While each jurisdiction ultimately makes its own decisions, they closely watch one another and often coordinate through international bodies. One of the most influential is the Basel Committee on Banking Supervision (BCBS), a global forum of central banks and banking regulators that sets prudential standards for banks. Basel standards are not laws, but they strongly shape how national regulators design and implement their own frameworks.

The core principle Basel sets is that banks must hold a certain amount of capital (their own equity) against the assets on their balance sheets. The safer the asset, the lower the capital requirement, and the other way around. When an asset carries a high capital charge, it becomes costly for a bank to hold because more of its own equity must be tied up against that exposure.

Banks determine how much they can lend (which is the core of their business model) based on how much capital they are required to set aside. The more capital tied up against an asset, the less room they have to extend loans and generate returns. So, how regulators classify stablecoins determines whether banks can economically use them. If stablecoins are treated as high risk, banks will have to hold large amounts of capital against them. 

In its crypto framework, Basel initially proposed highly punitive capital treatment for stablecoins, effectively placing them in the same bucket as the riskiest cryptocurrencies because they are issued on permissionless blockchains. In practice, this would have made holding them prohibitively expensive for banks. 

However, the US and the UK didn’t implement the framework by its intended implementation date, and the Basel Committee has recently said they were revisiting the rules. 

Meanwhile, earlier this week the SEC made a quiet but important move for the industry. It revised its broker-dealer guidance, allowing firms to apply just a 2% haircut to payment stablecoin holdings when calculating net capital. Under the previous treatment, the economics were punishing. A broker-dealer effectively needed $2 million in capital to hold $1 million in stablecoins. Every dollar of exposure consumed two dollars of balance sheet capacity. Now, holding $1 million in stablecoins just requires $20,000 in capital. 

(Notice I specifically mentioned payment stablecoins. Not all stablecoins qualify, only those that meet the GENIUS Act’s strict reserve requirements.)

The SEC isn’t a banking regulator, but it does signal the broader direction of regulatory thinking.

Most regulators wait for the major jurisdictions to set the tone. So this matters. If the U.S. makes it straightforward for banks to hold stablecoins, there’s a strong chance other countries will follow.

The path forward is clear. We need regulatory engagement to enable banks to work with digital assets. Ultimately, it comes down to empowering every single regulator in their respective jurisdictions to distinguish between high-quality, low-risk assets and stablecoins, versus others that should receive punitive treatment. 

Project Guardian — a joint initiative focused on enabling settlement through tokenised bank liabilities and well-regulated stablecoins — shows what the future could look like: policymakers and financial institutions building the on-chain financial system together, not fighting it.

Stablecoins don’t need to replace banks to win. They need banks to participate. And banks need regulatory clarity to do so responsibly.

Now it's a matter of alignment.

If regulators create the right frameworks, banks will bring liquidity on-chain. And when that happens, stablecoins stop being a nascent payment rail and start becoming core financial infrastructure.

If you’re at a fintech start-up, scale-up, or even a tradfi multinational and want to get a room full of leads for your business, feel free to reach out. We’ll be hosting Stable Salons and other fintech events across Asia for the rest of 2025, so there will always be sponsorship opportunities.