Citi Bank Research Report: Stablecoins Welcome the ChatGPT Moment

2025-04-25 11:39:54

Written by: AIMan@Golden Finance

On April 25, 2025, Citi Institute, a part of Citibank, released a research report on the "Digital Dollar." Key points of the report include:

The year 2025 is expected to be the "ChatGPT moment" for the application of blockchain in the financial and public sectors, a trend driven by regulatory changes.
Citibank predicts that by 2030, the total circulating supply of stablecoins may grow to $1.6 trillion under a baseline scenario; in an optimistic scenario, it may grow to $3.7 trillion, while in a pessimistic scenario, it may be around $500 billion.
It is expected that the supply of stablecoins will still be mainly denominated in US dollars (about 90%), while non-U.S. countries will promote the development of their own CBDCs.
The regulatory framework for stablecoins in the United States may drive additional net demand for U.S. Treasury securities, and by 2030, stablecoin issuers could become one of the largest holders of U.S. Treasuries.
Stablecoins pose a certain threat to the traditional banking ecosystem by substituting deposits. However, they may also provide new opportunities for banks and financial institutions to offer services.

As the title of its report "Digital Dollar" suggests, Citigroup is highly optimistic about stablecoins, with a chapter dedicated to explaining that "the ChatGPT moment for stablecoins is coming soon." The section titled "Stablecoins: A ChatGPT Moment?" has been specially translated by AIMan from Golden Finance as follows:

How Do Stablecoins Work?

Stablecoins are a type of cryptocurrency designed to maintain a stable value by pegging the market price to a reference asset. These reference assets can include fiat currencies like the US dollar, commodities like gold, or a basket of financial instruments. Key components of a stablecoin system include:

Issuer of Stablecoins: The entity that issues stablecoins, responsible for maintaining the price peg by holding base assets equivalent to the circulating supply of stablecoins.

Blockchain Ledger: After the issuance of stablecoins, transaction records are kept on the blockchain ledger. This ledger provides transparency and security by tracking the ownership and circulation of stablecoins among users.

Reserves and Collateral: Reserves ensure that each token can be redeemed at its pegged value. For fiat-backed stablecoins, these reserves typically include cash, short-term government securities, and other liquid assets.

Digital Wallet Providers: Provide digital wallets, which can be mobile applications, hardware devices, or software interfaces, allowing stablecoin holders to store, send, and receive their tokens.

How do stablecoins maintain their pegged value?

Stablecoins rely on different mechanisms to ensure their value is consistent with the underlying assets. Fiat-backed stablecoins maintain their peg by guaranteeing that each issued token can be redeemed for an equivalent amount of fiat currency.

major stablecoins

As of April 2025, the total circulating supply of stablecoins has exceeded $230 billion, growing by 54% since April 2024. The top two stablecoins dominate this ecosystem, with a market share of over 90% in terms of value and trading volume, with USDT leading the way, followed by USDC.

Figure 3 Supply of Stablecoins from 2020 to 2025

In recent years, the trading volume of stablecoins has grown rapidly. Adjusted for changes, the monthly trading volume of stablecoins in Q1 2025 is between $650 billion and $700 billion, approximately double the levels seen from the second half of 2021 to the first half of 2024. Supporting the crypto ecosystem is the main application scenario for stablecoins.

The largest stablecoin USDT was launched on the Bitcoin blockchain in 2014 and expanded to the Ethereum blockchain in 2017, enabling its use in DeFi. In 2019, it further expanded to the TRON network, which is widely used in Asia, due to faster speeds and lower costs. USDT largely operates offshore, but times are changing.

Figure 4 Comparison of Stablecoin Transaction Volume with Other Payment Methods (Unit: Billion USD)

We will definitely see more participants (especially banks and traditional institutions) entering the market. Dollar-backed stablecoins will continue to dominate. Ultimately, the number of participants will depend on the number of different products needed to cover major application scenarios, and the number of participants in this market may exceed that of the card network market. — Matt Blumenfeld, Global and U.S. Digital Assets Leader at KPMG

What are the driving factors behind the adoption of stablecoins in the United States and globally?

Forte FinTech Founder Erin McCune:

Practical advantages (speed, low cost, available 24/7): Demand has been created in developed economies (especially in countries where instant payments are not yet widely adopted, small and medium-sized enterprises are not adequately served by existing institutions, and multinational companies seek a more convenient way to transfer funds globally) and emerging economies (regions where cross-border transaction costs are high, banking technology is underdeveloped, and/or financial inclusion is lagging).

Macroeconomic Demand (Hedging Against Inflation, Financial Inclusion): In some regions, stablecoins have become a "lifeline" for people. In countries like Argentina, Turkey, Nigeria, Kenya, and Venezuela, where currency volatility is high, consumers use stablecoins to protect their funds. Nowadays, an increasing amount of remittances is conducted in stablecoin form, and consumers without bank accounts can also use digital dollars.

Support and integration with existing banks and payment providers: This is key to the legitimization of stablecoins (especially for institutional and enterprise users) and can quickly expand their usage and practicality. Mature, large-scale payment networks and core processors can bring transparency and facilitate integration with familiar solutions relied upon by businesses and merchants. Establishing clearing mechanisms between different stablecoins and between banks and non-bank institutions is also crucial for scaling. Technological improvements aimed at consumers (user-friendly wallets) and merchants (integrating stablecoin payment functionality into acquiring platforms via APIs) are eliminating the barriers that once confined stablecoins to the fringes of cryptocurrency.

Long-awaited regulatory clarity: This enables banks and the broader financial services industry to adopt stablecoins in retail and wholesale businesses. Transparency (audit requirements) and consistent liquidity management (reliable pegs) will also simplify operational integration.

Matt Blumenfeld, Global and U.S. Digital Assets Leader at KPMG:

User Experience: The global payment landscape is increasingly shifting towards real-time digital transactions. However, the challenge faced by every new payment method during its promotion lies in customer experience – whether it is intuitive and easy to understand, whether the application scenarios are visible, and whether the value is clear. Any institution that successfully enhances customer experience, whether targeting retail users or institutional users, will stand out in their respective fields. The integration with current payment methods will drive the next wave of payment method adoption. On the retail side, this is reflected in the combination with card payments or penetration in the mobile wallet sector; on the institutional side, it is manifested in more convenient, flexible, and cost-effective settlement methods.
Regulatory Clarity: With the introduction of new stablecoin regulatory policies, we can see to what extent regulatory uncertainty has previously hindered innovation and promotion globally. The launch of the EU's Markets in Crypto-Assets Regulation (MiCA), the clarity of regulations in Hong Kong, and the advancement of stablecoin legislation in the United States have all sparked a wave of activity focused on simplifying the flow of funds for institutions and consumers.
Innovation and Efficiency: Institutions must view stablecoins as a means to achieve more flexible product development, which is not an easy task in the current environment. This means providing a more convenient, creative, and attractive medium to enhance the functionality of traditional bank deposits, such as generating yields, having programmability, and composability.

Potential Market Size of Stablecoins

As pointed out by Erin McCune, the founder of Forte Fintech, any predictions about the potential market size of stablecoins need to be made with a degree of caution. There are many variable factors involved, and our scenario analysis also shows that the range of predictions is quite wide.

We have built a forecast range based on the following factors driving the growth of demand for stablecoins:

A portion of overseas and domestic US dollars is shifting from cash to stablecoins: US dollar cash held overseas is often a safe haven against local market fluctuations, while stablecoins provide a more convenient way to achieve this hedging. Domestically, stablecoins can be used for certain payment functions and are held for this purpose.
Households and businesses in the U.S. and internationally are reallocating some short-term dollar liquidity to stablecoins: This is because stablecoins are convenient to use (such as enabling around-the-clock cross-border transactions), aiding cash management and payment operations. If permitted by regulations, stablecoins may also partially replace yield-bearing assets.
In addition, we assume that the short-term liquidity of euros/pounds held by American households and businesses will also experience a similar reallocation trend as that of short-term dollar liquidity, although on a much smaller scale. Our overall baseline scenario and optimistic scenario for 2030 both assume that the stablecoin market remains dominated by the dollar (accounting for about 90% of the market share).
Growth of the Public Cryptocurrency Market: Stablecoins are used as settlement tools or channels for inflows and outflows. This is partly driven by institutional adoption of public cryptocurrency assets and the widespread application of blockchain technology. In our baseline scenario, we assume that the growth trend of stablecoin issuance continues from 2021 to 2024.
Citigroup Research expects that the baseline scenario for the stablecoin market size in 2030 is $1.6 trillion, the optimistic scenario is $3.7 trillion, and the pessimistic scenario is $0.5 trillion.

Figure 5 Forecast of Stablecoin Market Size in 2030

Figure 6 Stablecoin Market Size in 2030

Note: The total currency supply in 2030 (circulating cash, M0, M1, and M2) is calculated based on nominal GDP growth. The Eurozone and the UK may issue and adopt local stablecoins. China is likely to adopt a sovereign central bank digital currency and is less likely to adopt foreign privately issued stablecoins. It is expected that the scale of non-US dollar stablecoins in bear, base, and bull market scenarios in 2030 will be $21 billion, $103 billion, and $298 billion, respectively.

Stablecoin Market Outlook

Forte Fintech Founder Erin McCune

Question: What is your perspective on the recent optimistic and cautious outlook for the stablecoin market size, as well as the potential factors driving its development trajectory?

Predicting the growth of the global stablecoin market requires a great deal of confidence (or rather, overconfidence), as there are still many unknown factors. With this reminder, here is my scenario analysis of the bull and bear markets:

The most optimistic prediction is that the market will expand by a factor of 5-10 as stablecoins become the daily medium for instant, low-cost, low-friction transactions around the world. In a bull market scenario, the value of stablecoins would grow exponentially from around $200 billion today to $1.5 - $2.0 trillion by 2030, permeating global trade payments, person-to-person remittances, and mainstream banking. This optimistic outlook is based on several key assumptions:

Favorable regulation in key regions: This includes not only Europe and North America but also markets with the highest demand for alternative local fiat currencies, such as Sub-Saharan Africa and Latin America.

The real trust between existing banks and new entrants: as well as the widespread confidence of consumers and businesses in the integrity of stablecoin reserves (for example, 1 dollar stablecoin = 1 dollar equivalent fiat currency).

Income (and savings) on the value chain is intentionally distributed: to promote cooperation.

Widespread adoption of technologies that can connect new and old infrastructure: promoting structural efficiency and scaling up. For example, merchant acquiring institutions have started to use stablecoins. For wholesale payment applications, corporate finance and accounts payable solutions, as well as financial executives, will need to make adjustments. Commercial banks will also need to deploy tokenization and smart contracts.

In a bear market scenario, the use of stablecoins will be limited to the crypto ecosystem and specific cross-border use cases (mainly markets with insufficient currency liquidity, which currently represent a small proportion of global GDP). Geopolitical factors, resistance to digital dollarization, and the widespread adoption of central bank digital currencies will further hinder the growth of stablecoins. In this context, the market capitalization of stablecoins may stagnate between $300 billion and $500 billion, with limited relevance in mainstream economies. The following factors will lead to a more pessimistic scenario:

If one or more major stablecoins experience reserve failures or decoupling events: this will significantly undermine the trust of retail investors and businesses.

Friction and costs of using stablecoins for daily purchases: For example, recipients of remittances cannot easily use them to buy groceries, pay tuition and rent, and businesses cannot easily allocate funds for salaries, inventory, and other expenses.

Retail central bank digital currencies have yet to gain traction: however, in regions where digital cash alternatives provided by the public sector have scaled, the correlation with stablecoins may diminish.

In regions where the development of stablecoins further weakens the correlation with local fiat currencies: central banks may respond by tightening regulation.

If the scale of fully backed stablecoins grows too large: this may "lock in" a significant amount of safe assets as support, potentially limiting credit in the economy.

Q: What are the current and future application scenarios of stablecoins?

Like any other form of payment, the correlation and potential growth of stablecoins must be considered based on specific application scenarios. Some application scenarios have already attracted attention, while others remain at the theoretical stage or are clearly impractical. The following are currently (or recently) significant application scenarios for stablecoins, arranged in order of their contribution to the total addressable market (TAM) from largest to smallest:

Cryptocurrency Trading: Currently, the largest application scenario for stablecoins is in trading digital assets by individuals and institutions, accounting for 90 - 95% of stablecoin trading volume. This activity is mostly driven by algorithmic trading and arbitrage. Given the continued growth of the cryptocurrency market and the reliance on stablecoin liquidity, in the mature stage, trading (retail + decentralized finance activities) may still account for about 50% of stablecoin usage by value.

Business-to-business payments (corporate payments): According to data from the Society for Worldwide Interbank Financial Telecommunication (Swift), the vast majority of transactions in traditional correspondent banking can reach their destination within minutes through the Swift Global Payments Innovation platform. However, this primarily occurs between currency center banks, using highly liquid currencies and during banking hours. Particularly when conducting business with low-income and middle-income countries, there are still many inefficiencies and unpredictability. Businesses using stablecoins to pay overseas suppliers and manage funds may hold a significant share in the stablecoin market. The scale of global business-to-business capital flows reaches trillions of dollars, and in the long term, even if only a small portion shifts to stablecoins, it could account for about 20-25% of the total stablecoin market.

Remittances from Consumers: Although payment methods are steadily shifting from cash to digital payments, and new entrants are making efforts amid regulatory pressure, the cost for overseas workers to remit money to friends and family back home remains high (with an average transaction cost of 5% for a $200 transfer, which is five times the G20 target). Due to lower fees and faster speeds, stablecoins are expected to capture a significant share of the approximately $1 trillion remittance market. If the promised instant settlement and substantial cost reductions can be achieved, this could account for 10 - 20% of the market in a high adoption scenario.

Institutional Trading and Capital Markets: The use cases for stablecoins to settle transactions for professional investors or tokenized securities are expanding. Large-scale capital flows (foreign exchange, securities settlement) may start to use stablecoins to speed up settlements. Stablecoins can also streamline the process of raising funds for retail stock and bond purchases, which is currently typically handled by bulk automated clearing houses. Large asset management companies are already piloting the use of stablecoins for fund settlement, laying the foundation for widespread adoption in the capital market. Given the high volume of payment flows between financial institutions, this use case is likely to account for around 10-15% of the stablecoin market, even if the adoption rate is not high.

Interbank liquidity and fund management: Banks and financial institutions use stablecoins in internal or interbank settlements, although the proportion is relatively small (possibly less than 10% of the total market), the potential impact is significant. Industry-leading companies have launched blockchain projects with daily transaction volumes exceeding $1 billion, indicating its potential, despite regulatory uncertainties. This field may experience significant growth, although it may overlap with the aforementioned institutional use cases.

Stablecoins: Bank Cards, Central Bank Digital Currencies, and Strategic Autonomy

We believe that the usage of stablecoins may increase, and these new opportunities will create space for new entrants. The current dual monopoly structure of issuance may persist in the offshore market, but there may be new participants entering the onshore market of each country. Just like the bank card market that has continuously evolved over the past 10 to 15 years, the stablecoin market will also undergo changes.

Stablecoins share some similarities with the credit card industry or cross-border banking services. All these areas have a high network or platform effect, and there are strong reinforcing loops. More merchants accepting a trusted brand (such as Visa, MasterCard, etc.) will attract more cardholders to choose that card. Stablecoins also have similar usage loops.

In larger jurisdictions, stablecoins are often outside the scope of financial regulation, but this situation is changing with the European Union (the Markets in Crypto-Assets Regulation in 2024) and the United States (where related regulations are being advanced). The demand for stricter financial regulation and the high cost requirements from partners may lead to the centralization of stablecoin issuers, similar to what we see in card networks.

Fundamentally, a small number of stablecoin issuers are beneficial to the broader ecosystem. While one or two major players may appear to be concentrated, too many stablecoins can lead to fragmentation and non-interchangeability of the currency form. Stablecoins can only thrive when they have scale and liquidity. Raj Dhamodharan, Executive Vice President of Blockchain and Digital Assets at Mastercard.

However, the continuously evolving political and technological landscape is increasing the disparity in the bank card market, especially in regions outside of the United States. Will a similar situation arise in the stablecoin sector? Many countries have developed their own national bank card programs, such as Brazil's Elo card (launched in 2011), India's RuPay card (launched in 2012), and so on.

Many of the bank card plans in these countries have been launched out of considerations of national sovereignty, and are driven by local regulatory changes and political encouragement for domestic financial institutions. They also facilitate integration with new national real-time payment systems, such as Brazil's Pix system and India's Unified Payments Interface (UPI).

In recent years, while international card programs have continued to grow, their share has declined in many non-U.S. markets. In many markets, technological changes have led to the rise of digital wallets, account-to-account payments, and super apps, all of which have eroded their market share.

Just like the diffusion of national plans we see in the bank card market, it is likely that jurisdictions outside the United States will continue to focus on developing their own central bank digital currencies (CBDCs) as a tool for national strategic autonomy, especially in the wholesale and corporate payment sectors.

The Official Monetary and Financial Institutions Forum (OMFIF) survey of 34 central banks shows that 75% of central banks still plan to issue central bank digital currencies (CBDCs). The proportion of respondents planning to issue CBDCs within the next three to five years increased from 26% in 2023 to 34% in 2024. Meanwhile, some practical implementation issues have become increasingly evident, with 31% of central banks delaying issuance due to legislative issues and a desire to explore broader solutions.

CBDC began in 2014 when the People's Bank of China started researching digital renminbi. Coincidentally, this is also the year Tether was born. In recent years, stablecoins have rapidly developed driven by private market forces.

In contrast, central bank digital currencies are still largely in the official pilot project stage. The few smaller economies that have launched national central bank digital currency projects have not seen a large number of users using them spontaneously. However, the recent rise in geopolitical tensions is likely to trigger more attention on central bank digital currency projects.

Stablecoins and Banks: Opportunities and Risks

The adoption of stablecoins and digital assets has provided new business opportunities for some banks and financial institutions to drive revenue growth.

The Role of Banks in the Stablecoin Ecosystem ###

Matt Blumenfeld, Global and U.S. Digital Asset Leader at PwC

Banks have many opportunities to participate in the stablecoin space. This can be directly as issuers of stablecoins, or as part of payment solutions, building structured products around stablecoins, or providing more indirect roles such as general liquidity support. Banks will find ways to continue being a medium of exchange for the flow of funds.

As users seek more attractive products and better experiences, we are seeing deposits flowing out of the banking system. With the help of stablecoin technology, banks have the opportunity to create better products and experiences while keeping deposits within the banking system (users generally prefer that their deposits are secured within the banking system), just through new channels.

Figure 7: Banks and Stablecoins: Revenue and Business Opportunities

At the system level, stablecoins may have effects similar to those of 'narrow banks'. For a long time, there has been a debate at the policy level about the advantages and disadvantages of such institutions. The transfer of bank deposits to stablecoins may affect the lending capacity of banks. This decrease in lending capacity may at least suppress economic growth during the transitional period of system adjustment.

Traditional economic policy opposes narrow banking, as summarized in the International Monetary Fund's 2001 report, due to concerns about credit creation and economic growth. The Cato Institute presented the opposite view in 2023, with similar voices arguing that "narrow banking" can reduce systemic risk, while credit and other capital flows will adjust accordingly.

Figure 8: Different Perspectives on Narrow Banks

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The content is for reference only, not a solicitation or offer. No investment, tax, or legal advice provided. See Disclaimer for more risks disclosure.