For thousands of years, banks have stood at the center of the global financial system. From ancient temples in Babylon to modern multinational institutions, the core idea remained unchanged: banks act as trusted intermediaries between people and their money.
But today, stablecoins are challenging this centuries-old model in a way never seen before.
What began as an experiment in digital money has evolved into a serious, regulated alternative to traditional banking. Stablecoins are no longer just tools for crypto traders — they are becoming a parallel financial system capable of transferring value globally, instantly, and at low cost.
This article explores how stablecoins emerged, how they work, and why they now pose an existential challenge to banks.
From Ancient Temples to Modern Banks: A Brief Financial History
Thousands of years ago, in ancient Babylon, temples acted as the first banks in history. People entrusted priests with their grain and livestock because temples were the most secure places available. Transactions were recorded on clay tablets — arguably the first banking receipts ever created.
Centuries later, during the Renaissance, the Medici family in Italy revolutionized banking by creating a pan-European network of financial institutions. They financed kings, funded wars, and shaped entire economies. From that moment on, banks were no longer just vaults — they became power centers that shaped nations and empires.
For centuries, this model remained dominant. Banks were the guardians of wealth and the essential intermediaries of all financial activity. Until 2008.
The 2008 Financial Crisis and the Birth of Bitcoin
In the midst of the global financial crisis of 2008 — a crisis largely caused by banks themselves — an anonymous figure named Satoshi Nakamoto published a nine-page white paper online. This paper introduced a radical idea: a financial system without banks.
That idea became Bitcoin, a decentralized digital currency that allowed people to send and receive money without intermediaries. Soon after, other cryptocurrencies followed, along with a new concept designed to fix crypto’s biggest flaw: extreme volatility.
That concept was stablecoins.
What Are Stablecoins and Why Were They Created?
Stablecoins are digital currencies designed to maintain a stable value, usually pegged to the US dollar. Unlike Bitcoin, which can rise or fall by 10–15% in a single day, stablecoins aim to remain steady at 1 coin = 1 dollar.
They were created to solve a core problem in crypto: volatility. Traders, businesses, and individuals needed a digital asset that could move across blockchains while preserving value.
The first major stablecoin, USDT (Tether), appeared around 2015. It acted as a bridge between traditional fiat currencies and cryptocurrencies like Bitcoin and Ethereum.
How Stablecoins Work: The Three Main Types
1. Fiat-Backed Stablecoins
These are backed by real-world assets such as US dollars or US Treasury bonds. For every stablecoin issued, an equivalent dollar value is held in reserve.
Examples include:
- USDT (Tether)
- USDC (USD Coin)
This is the most relevant and widely used type today.
2. Crypto-Backed Stablecoins
Instead of dollars, these are backed by other cryptocurrencies, usually over-collateralized to reduce risk.
A well-known example is DAI.
3. Algorithmic Stablecoins
These rely on supply-and-demand algorithms rather than real reserves. They are the riskiest type and have proven unstable, as seen in the collapse of Terra/Luna.
In this article, the focus is on fiat-backed stablecoins, as they are the ones reshaping the banking system.
Stablecoins vs Bitcoin: A Fundamental Difference
Bitcoin is a volatile investment asset.
Stablecoins are a medium of exchange and short-term store of value.
Bitcoin is not pegged to anything, making it high-risk but potentially high-reward. Stablecoins, on the other hand, are designed for payments, transfers, and financial infrastructure.
This distinction is critical to understanding why stablecoins are now competing directly with banks.
“Read Also: Long-Term Crypto Investing“
Why People Use Stablecoins
Initially, stablecoins were used mainly for:
- Buying cryptocurrencies without directly interacting with banks
- High-risk financial speculation in decentralized finance (DeFi)
However, a lack of regulation meant users had to trust issuing companies without government verification. This led to major failures, most notably in 2022. Everything changed in July 2025.
The GENIUS Act: A Turning Point for Stablecoins
In July 2025, US President Donald Trump signed the GENIUS Act (Guidance and Establishment of National Innovation for US Stablecoins).
This law officially legalized and regulated fiat-backed stablecoins within the traditional financial system.
What the Law Changed
- Stablecoins can now be used legally for payments and transfers
- Banks can offer stablecoin accounts
- Stablecoins can be converted to debit and credit cards
- Companies can pay salaries and settle invoices using stablecoins
- Only regulated entities can issue stablecoins
This law marked the first time in history that banks faced a legal, regulated competitor outside the traditional system.
“Read Also: Types of Cryptocurrency“
Why Stablecoins Are a Direct Threat to Banks
1. Faster Transfers
International bank transfers take 3–5 days. Stablecoin transfers take minutes.
2. Lower Costs
Traditional international transfer fees average 6.5% globally, and up to 9% in Africa. Stablecoin fees are often just cents.
3. 24/7 Availability
No weekends.
No holidays.
No banking hours.
4. Transparency and Security
Every transaction is recorded on the blockchain. Reserves are legally protected and fully backed.
The Real Danger: Deposit Flight from Banks
Banks make money by:
- Paying low interest on deposits
- Lending that money at higher interest
But stablecoin platforms now offer over 4% annual returns, while many US savings accounts offer close to 0%.
This gap is devastating.
In April 2025, the US Treasury warned that $6.6 trillion — around 36% of all US bank deposits — is at risk of moving to stablecoin platforms. Without deposits, banks cannot lend. Without lending, economies stall.
“Read Also: Cryptocurrency Explained“
Stablecoins and the Collapse of the Traditional Lending Model
If deposits move to stablecoins:
- Fewer loans are issued
- Small businesses lose access to credit
- Prices rise
- Economic growth slows
This domino effect could trigger a severe economic crisis if unmanaged.
DeFi Loans: Banking Without Banks
Through decentralized finance platforms:
- Loans are issued instantly
- No paperwork
- No credit score
- No human approval
Smart contracts automatically manage collateral and repayment. This eliminates entire layers of traditional banking operations.
“Read also: Cryptocurrency Investing“
Will Banks Disappear?
No — but their role will change. Just as Netflix replaced video rental stores, and Uber disrupted taxis, banks must adapt or decline.
The Future of Banking and Stablecoins
In Developing Countries
Stablecoins can bring billions of unbanked people into the global financial system using only smartphones.
In Developed Economies
Banks will be forced to:
- Raise interest rates
- Integrate stablecoins
- Accelerate services
- Reduce bureaucracy
Bank jobs will shift toward technology, risk management, and blockchain integration.
Frequently Asked Questions About Stablecoins
What are stablecoins used for today?
Stablecoins are used for payments, international transfers, savings, trading, and business transactions.
Are stablecoins safe?
Fiat-backed, regulated stablecoins are backed 100% by reserves and protected by law.
Do stablecoins replace banks?
No, but they force banks to evolve and modernize their services.
Why are banks afraid of stablecoins?
Because stablecoins attract deposits, reduce fees, and eliminate intermediaries.
Can stablecoins help developing countries?
Yes, they provide financial access without traditional banking infrastructure.
Conclusion: Stablecoins Are Redefining the Future of Money
The battle between banks and stablecoins has only just begun. This is not about eliminating banks, but about transforming a system that has remained unchanged for centuries.
Banks that embrace stablecoins, blockchain technology, and faster services will survive and thrive. Those that resist change risk becoming irrelevant.
History is clear: financial systems that refuse to evolve do not endure.
Stablecoins are not the future — they are already the present.
