Stablecoins are often described as the future of money. But for banks, businesses and regulators, the reality is more nuanced. While stablecoin networks show significant on-chain volumes, much of that activity remains concentrated in digital asset markets rather than everyday payments.
One of the biggest misconceptions about stablecoins is that they are already operating as mainstream payment rails.
In practice, much of today’s stablecoin volume is tied to crypto markets. For example, a trader may sell Bitcoin and move proceeds into a stablecoin before buying another digital asset. That transaction may appear as stablecoin activity, but it does not necessarily represent real-world payment adoption.
For banks and businesses, the key question is not how large stablecoin volumes appear, but where stablecoins are solving specific business challenges.
Stablecoins are gaining traction where their characteristics create clear value: speed, availability, programmability and the ability to move value across fragmented markets.
Beyond digital asset trading, one of the most compelling areas is institutional treasury and liquidity management. Companies operating across time zones, currencies and business units often face cutoffs, downtime and liquidity gaps. Stablecoins may help move value when traditional payment systems are unavailable.
Cross-border funding is another area of interest. Stablecoins may help organizations manage timing gaps and move liquidity to where it is needed when markets open, or payment networks become available.
At the same time, the movement of a token is only one part of the broader payment process. Liquidity, redemption and settlement remain important considerations.
A central theme of the discussion is the distinction between stablecoins and tokenized deposits. Stablecoins are typically privately issued and represent a claim on the issuer’s reserves or assets. Tokenized deposits are different. They represent money already held on deposit within a regulated bank.
For banks, regulators and corporate clients, that distinction matters. Tokenized deposits can preserve the strengths of regulated bank money while modernizing how it moves. They also offer a clearer connection to existing balance sheets, prudential oversight and trusted banking relationships.
For banks, the opportunity is not simply to issue a new token. It is to modernize the form factor of money while maintaining the trust, governance and regulatory confidence that underpin financial services.
Much of the stablecoin conversation focuses on how quickly tokens can move between wallets. But Hooper points to the off-ramp as one of the most overlooked parts of stablecoin-based payments.
The off-ramp is where a token is converted back into usable fiat currency. That step requires liquidity, access to payment rails and often foreign exchange. Someone must be able to provide the recipient with local currency, then redeem or rebalance the token afterward.
This creates an important role for banks. Banks already manage liquidity, intraday credit, settlement risk, FX and payment network connectivity. As stablecoin models mature, banks may be well positioned to provide the trusted infrastructure needed to make digital money movement reliable and scalable.
The future of payments will not be shaped by tokens alone. It will depend on trust, governance, interoperability and economics.
For banks, the priority is to preserve the strengths of bank money while enabling faster, more programmable and more available forms of value movement. For corporates, the focus should be on practical treasury pain points, including trapped liquidity, cross-border funding and FX exposure. For central banks, the focus is more likely to remain on wholesale settlement and financial stability.
Stablecoins have opened an important conversation about the movement of value. But the next phase will be defined by how well financial institutions can combine speed with trust.
- Chapter 1: Separating stablecoin hype from real-world adoption
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Andy Schmidt:
Hello everyone, my name is Andy Schmidt. I am the global industry lead for banking at CGI, and it's my pleasure to welcome you to another episode of From Transactions to Trust, a financial services podcast. I'm joined today by my colleague and friend David Hooper, and we're going to be talking today about one of the hot topics in financial services right now, which is stablecoin.
David's recently written a paper on stablecoin, and we're going to be focusing on some of the issues that he addresses. But you know, first of all, David, welcome and thank you for joining me today. I want to start off with our first question. You know, stablecoins are often described as the future of money, but your article suggests that the reality is really much more nuanced. So, what is, in your opinion, the biggest misconception that banks and businesses have about stablecoins today?
David Hooper
Yeah. Well, first, thanks for having me, Andy. Always a pleasure to get to hang out with you and talk, you know, in our typical payment geek world. It is a hot topic, and you're right, there are a few misconceptions out there. And I would say probably the biggest one that drives a lot of everyone's attempt is to throw stats at it. It's just this misconception that it's functioning already as a mainstream payment rail or a mainstream payment type, or that it's on the verge of replacing money and cash and cards and wires and all these other things.
When I think the research that we've seen and have been able to get our hands on from others who have done lots of research is that there's no evidence to show that. The volumes look huge when you're, you know, at the headline, but a lot of that activity is internal to crypto markets, right? It's the guy who sold a whole ton of Bitcoin and dropped it into USDC that they're saying, well, this is stablecoin doing it. It's really not. That's a bit more of a parking lot for it.
So, I think that's the biggest misconception, is that it's widespread. I mean there's not a chance my mum's going to have a wallet filled with any sort of crypto asset or digital coin anytime soon. And I think that's the thing that we think is driving it and why it's about to replace every type of payment and every rail known to us, is because everyone thinks it's going to be mainstream soon, and that's just not the case.
- Chapter 2: Where stablecoins are proving useful
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Andy Schmidt
And we've really been having this conversation for a while about, you know, where the use cases are, how widespread the adoption is. So, I mean, just a quick reality check. You point out that while stablecoin networks process huge on-chain volumes, real-world payments are really still just a tiny share of the volume overall. So, and you alluded to it a little earlier, where are stablecoins actually being used today? And where are they not yet proving themselves?
David Hooper
Yeah. Well, they're certainly being used wherever their characteristics are solving a specific problem or, you know, a pain point. And a lot of that's got to do with, I mean, to an extent, speed, but certainly that 24-7 availability. The phrase "programmability" or "programmable money" is coming up more and more.
And the movement of value across what, you know, we'd call fragmented markets, that seems to be the big one. I mean the obvious one is, as we just kind of alluded to, digital asset trading. But outside of that, the main settlement and funding instruments are inside the crypto markets. Like I said, the person selling Bitcoin and wanting to wait until they buy Ethereum, there's that. But in terms of what most of us know, it's really that institutional treasury or even liquidity management.
It's firms operating across, and banks, of course, who provide payments to those firms, them operating across different time zones, different currencies, different business units, when either their own systems are down for scheduled maintenance, or the payment systems are shut down for the day. I mean, they have end-of-day cutoffs, and outside of that your money is parked until the next business day.
So, that's where we're really seeing it being used. And I'd say there's probably, of that sort of ilk, the cross-border seems to be the biggest one, where it can help you manage the timing gaps of your liquidity or moving it around to ensure you've got it when markets open or when payment networks are up and running. That seems to be the big one. So, it's kind of familiar. It's helping out in those areas where we perceive there to be a lot of friction and/or a lot of players. I mean, the thing most people will talk about frequently is the idea of it removing correspondent banking when you get to cross-border funding. So that's where I'd say we're seeing most of the movement and the usage.
- Chapter 3: Why tokenized deposits matter for banks
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Andy Schmidt
Okay. No, that's, I mean, I appreciate the distinction as well. And you know, talking about distinctions and clarification, you know, stablecoins versus tokenized deposits. You know, one of the most important distinctions in the article is the distinction between stablecoin and tokenized deposits. So, why does that distinction matter so much for banks, regulators, and specifically corporate clients?
David Hooper
See how the lights came on as soon as you said that? There are a couple of things there. I think obviously for banks and regulators, it's all tied up to the fact that movement of money in banking is a highly regulated industry. So, it's about policy, it's about risk, it's the implications of investments that are entirely reliant upon timing and payment instruments that can be trusted.
So, for banks, the distinction is really, is it something I get into and I'm issuing these tokens? And let's sort of break it down to that token aspect of it. Is that token being issued out to the general public or to companies? Is it a draw against my assets or my reserves? Which is very different from what we typically review or talk about as tokenized deposits, which are a tokenized form of money that is on deposit within the bank.
So, from a prudential standpoint, it's a very different way you treat it. It is deposited money. I can move it within the bank; I can move it between entities, between my customers, between my own entities. I can cross borders with it, intrabank or even interbank, because it represents a deposit within my bank.
So, that's real money that, you know, it's just a tokenized version of fiat. Whereas with a stablecoin, it may be issued by a bank, but a lot of them are privately issued. And those tokens represent a claim on the assets of the company. That's not a deposit. There's no deposit insurance; it's nothing like that. So, that's the sort of regulatory or prudential way. That means my risk is different from how I treat them. It fits into liquidity.
What are the ratios? What do I have to have in my reserves to cover all of my payment obligations? In the case of a token issued by a fintech or a non-bank entity, I have to have that trust that when I show up with that token, they'll be able to redeem it because they've got enough money held aside. So, I mean that's the top layer of, okay, it's treated differently because it's either deposit or it's my assets that I promise to redeem your token for X amount of money.
You and I have talked about this before. I mean, this is where we get into the whole, it's like going to Vegas, and I bought a bunch of chips, and I can walk around the Bellagio with $10,000 of Bellagio chips, and I can buy dinner, I can get Cirque du Soleil tickets, I can lose some money at the tables, but at the end of the week I cash out. But I know they're good for it.
Whereas with a stablecoin or a token that's been issued by a private entity, that's like me taking the Bellagio chips and walking down the street to the Wynn and going, hey, will you give me 10,000 cash for this chip from the Bellagio? And there's this trust element that larger entities, more sophisticated ones that everyone knows, are probably good for it. But some of the others, it's not their funds that are there because they're smaller entities. They've got VC money or investor money that's sitting there. And you wonder if they're willing to put their money up as, let's call it operational liquidity. Or are they there just for the exit and the share price?
So, there's a number of different things that sort of play into the distinction between the two. But if I had to really break it down, stablecoins are privately issued and are expected to be redeemed against your assets, whereas a tokenized deposit, it's money on deposit already within the institution and it's been covered. Those reserves are in place. And that's where you start to see how it expands into CBDC and central bank money. There's a logical flow.
And while we talk about tokenized deposits as being within the walled garden of the bank, the ultimate goal is, of course, for pick a bank, say a big name here, I will send my token through my customer to wherever, and the bank on the receiving end absolutely knows they can redeem it because, well, we're banks and, you know, we're part of trusted networks, even if it's a tokenized version of money I have on deposit.
- Chapter 4: The role of banks in managing the off-ramp challenge
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Andy Schmidt
It's good money, you're right. It's good money from the get-go. Right. And so, with, you know, payment speed ever-increasing and the expectation that I'll be able to convert funds or have good funds wherever I go, that friction really becomes an issue. And so, you describe the off-ramp as one of the most overlooked parts of stablecoin-based payments.
You know, why is the off-ramp such a critical issue, and what does it reveal about the limits of stablecoins as payment rails or as payment instruments?
David Hooper
I'm still struggling to determine what phrase do I want to use. Is it a new payment rail? Is it a form of currency? Just what is it? So, you know, we'll solve for that one soon enough. But all the articles that you read, and so many of them on LinkedIn and, you know, lots of reputable sources, they refer to a stablecoin sandwich, which really talks about if I want to buy a stablecoin, here's my money, give me a coin, send it across through the ether, through a chain, and it arrives at the other end.
Well, that part is instant: the movement of it. Well, the movement of funds from wallet A to wallet B on a chain is atomic. But then this process of off-ramping. So, the on-ramp is I give you a thousand dollars, you give me a token for a thousand dollars. We move that very, very quickly. But at the other end, someone has to have a thousand dollars to send to me. That's the off-ramp. That's how I cash out that chip. And you've sent me the money, and I'm off to the races, and it all looks fast and speedy to me in real time. This sounds familiar, doesn't it?
But in the meantime, the company that received the token has to have a pool of cash and access to whatever the last leg or last mile of the payment is. So, you know, do they give you the money using FedNow or TCH in the US? Sure, great. I've got the money, but you're sitting on a pool of tokens that you have to go and redeem. And in order to pay me and make it look real-time, you're also sitting on a pool of liquidity. So, you've just actually run into the intraday, you know, credit issue that every bank has been dealing with and knows how to deal with for years, right?
So, the token itself, if you view it just in today's terms, it's a message, and we can move that in real time. The settlement piece is not actually real time, and it's not actually solved for with the stablecoin. You now have a coin that you have to go and redeem from whoever issued it or sold it to you, and there'll be multiple entities in that. I'm happy because I got my money and I'm off to the races.
So that off-ramp is a lot like today. There are third parties or multiple parties that can be in the middle of it. It's not quite correspondent banking where there could be, you know, five or six or seven stops along the way. It's usually one, but someone has to be very well-funded, and they have to build up an inventory of tokens, and they've got to know where to go to cash them out, and they need to have connections to the payment rails to get the money to me.
So, you and I can send money back and forth using stablecoins and a chain relatively quickly, but that off-ramp starts to feel an awful lot like, as I said, granting credit or intraday credit, which to me is a perfect spot for banks to step in. I mean, they're used to having liquidity or money on reserve for these sorts of things. They understand the risk for it; they know the accounting for it. I think it's a big opportunity because it involves not only the redemption, but a whole bunch of it is going to be FX, right?
I mean, when we look at stablecoins, the one we always hear about is USDC. So, it's a US dollar. It could be in any denomination. In Canada, we're going to want to move it in Canadian dollars. In the UK, it's going to be pounds sterling. So, the start point in whatever currency it was initially in, there's not only a liquidity pool, but there's an FX risk, FX margins to be involved, like that off-ramp looks an awful lot like almost everything from a bank to wealth management and trading desk.
- Chapter 5: Building the future of trusted digital money
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Andy Schmidt
That makes sense. And you know, you talked about the FX piece of it and things that banks should be thinking about as they look at stablecoins, but, you know, looking towards the future, if the future of payments will be shaped by trust, governance, interoperability and economics, not just tokens alone, where should banks, corporates and even the central banks focus their innovation efforts over the next few years?
David Hooper
Well, I think a lot of them have already started to focus less on chasing the sort of retail stablecoin use cases and looking more at tokenized deposits. Although most of the banks that we've talked to, they certainly say, well, tokenized deposits is a given. We're interested in stablecoin and I think there is a little bit of that FOMO aspect to it, and there's a little bit of well, this is the bit of the Wild West and we've got legislation certainly in the US that is, if not incentivizing, it's certainly influencing people to jump into that space, and they're all trying to figure out what to do.
So, for banks, the priority's got to be to really preserve the strengths of bank money while modernizing the form factor, right? It can be compelling to have tokenized deposits because you retain your regulated balance sheet. You're enabling new capabilities, which is usually the programmable piece. Settlement, very much, you know, something they're used to doing. And now you have the added bonus of 24-7. Now granted, that's a lot of work to make sure that everything inside a bank can function 24-7, but it's not an unfamiliar world.
And corporates, I mean, they obviously focus on certain treasury pain points. Are they holding excess funds? You know, what's the FX? What are the rates on this? What's the risk? So, between corporates and banks, they start to look a lot more at, how do I introduce speed without introducing additional risk? And then if you look at the central banks, that covers off banks and corporates. They're looking at, well, how do I remove these friction points or the pain points? How do I improve the customer experience, be it as a corporate- what are my clients saying to me- or as a bank- what are my corporates and our customers saying to us?
Central banks are, you know, doing what central banks do. They're looking at wholesale. Wholesale settlement, they're not looking at the retail disruption side of it. And as I said, I don't think the banks should be really looking at disrupting retail. I don't see stablecoins or tokenized deposits replacing cash or credit cards or debit anytime soon. I mean, it sounds a lot like the conversations we have about real-time payments. You just have another set of characteristics that come with this tokenized, let's not say asset, but this tokenized form of existing money and what can I do with it? What does it allow me to do because it's 24-7 or because I can move it so much quicker?
But you still have the need to, you know, buy in and cash out, put the money in, take the money out. And you want to be doing business with entities that know how to do that and do it well. Could they do it better? Absolutely, we could. But I think that's the starting point.
So, for me, I mean I'll wrap it up for you, put a bow on it. The future's probably not about consumers paying for coffee with stablecoins. We haven't seen much of that except for, you know, the odd hemp shop and coffee shops. The opportunity is really modernizing that institutional money movement. And that means for corporates as well as the banks themselves. Keeping that tokenized deposit or that tokenized version of money inside a regulated bank allows that wholesale settlement to take place with the central banks and within the retail and corporate banks doing what they do today.
So, I think a lot of it is: what are the additional use cases that will take advantage of the characteristics of it? And so, to that end, is it a rail? Is it money? It's liquidity.
Andy Schmidt
Fair enough. And it's going to be interesting to see how this all pans out and how we can, you know, reduce that friction and make tokenized deposits much more usable. So, certainly much more to talk about in a future conversation. David, thank you again for joining me. I really appreciate it. And again, my name's Andy Schmidt, and you've listened to another episode of From Transactions to Trust.
Thank you for your time and look forward to talking to you again soon.
David Hooper
Great. Thanks, Andy.
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