The fintech factor: Stablecoins, CBDCs, and DLT adoption
Regulated fintechs are increasingly recognizing the opportunities that distributed ledger technology (DLT) presents for delivering innovative products and services, and these companies are moving to capitalize on it. Over the past eighteen months, PayPal has launched its own stablecoin, Stripe purchased a stablecoin company, and Visa announced its own platform to assist banks in launching their stablecoins and tokenized deposit schemes. These fintechs and others, now view digital currencies as a means of enhancing their payment ecosystems and offerings, particularly by improving cross-border payment services and reducing costs for users.
While some fear that the entrance of traditional fintech firms into the digital currency space could threaten the position of crypto-native firms, the emergence of more robust and regulated digital currency solutions is a good thing for the industry, as it brings new opportunities for innovation and collaboration—and greater interest and capital.
Crucially, the success of digital products like stablecoins has offered a proven use case for DLT, driving interest in other forms of digital money like Central Bank Digital Currencies (CBDCs) by instilling greater confidence in institutions and governments exploring this technology.
We spoke with David Rutter, CEO of R3, about how regulated innovation and collaboration are driving the adoption of DLT across the financial ecosystem.
New players driving innovation in DeFi and TradFi
Crypto-native firms are facing both a challenge and an opportunity. They have historically been the drivers of innovation and the first to test new technologies that are then adopted at a more cautious pace by traditional financial market players. While the entrance of larger and more commonly known fintech firms into the market can threaten these crypto native players’ positions, it also presents an opportunity for innovation and collaboration.
The majority of traditional finance (TradFi) firms entering the market—whether experimenting with DLT applications to improve upon existing systems and processes or broadening out their client offerings to include access to crypto and digital assets—do not have extensive experience with the industry nor its technical intricacies, and so, there is an opportunity for crypto-native firms to partner with them and help them along their journey.
However, some may see the entrance of larger and more traditional fintech firms into what has historically been a crypto-native market as a threat to decentralization. The DLT industry has evolved significantly since Bitcoin and blockchains first emerged on the scene. Fintechs using crypto and digital assets in new and exciting ways have brought renewed interest to a space that suffered after the collapse of several well-known players like FTX, Genesis, and Celsius.
Furthermore, it’s important to distinguish between the crypto market, the use of crypto in fintech, and the application of DLT in fintech. Neither of the latter two use cases necessarily introduce additional centralization to existing crypto markets, nor do they threaten them. If anything, greater institutional interest—driven by the approval of Bitcoin and Ethereum ETFs in the US, the introduction of Markets in Crypto-Assets (MiCA) Regulation in Europe, the developing regulatory frameworks in APAC, and the election of Donald Trump in the US— has driven the recent crypto bull market and brought valuable investments to the decentralized finance (DeFi) space with new exchanges, service providers, and a variety of new asset classes emerging.
While the integration of crypto in fintech—primarily through regulated crypto instruments like stablecoins and tokenized money market funds—is steering renewed interest in cryptocurrencies, the application of DLT in fintech by enterprise firms is delivering new innovations to address historical pain points and inefficiencies in regulated financial markets. This adoption of DLT by TradFi firms and real-world assets (RWA) tokenization brings more value to the chain and has the potential to increase liquidity on DeFi networks if those networks can comply with the existing regulatory framework for traditional assets.
Stablecoins, tokenized money market funds, and most securities require a certain amount of centralization to meet regulatory requirements. Although DeFi cannot exist in its current form in regulated financial markets due to requirements such as transaction monitoring and reporting obligations and AML/KYC laws, regulated fintechs are helping to bridge these two worlds while protecting market stability and integrity.
Stablecoins as a driver for other types of digital money
Stablecoins have played an important role in driving the exploration and adoption of CBDCs and tokenized deposits. The announcement of Libra in 2019 was a galvanizing moment for both central banks and commercial banks, who have since seized the opportunity to explore the potential benefits of regulated digital money in the emerging digital financial ecosystem and economy, which are being explored through projects like the UK Finance Regulated Liability Network (UK RLN), the EU DLT Pilot Regime, the BIS’ Project Agora and many more.
Stablecoins have helped illustrate the benefit of using a digital currency for safe, secure, and instant value transfer. They have become a valuable tool for crypto native firms to on and off-ramp clients and have proven a tokenization use case.
However, it remains to be seen whether financial markets prefer to use stablecoins issued by a private company for value transfer or a digital currency that is issued and insured by central banks. The choice between stablecoins and CBDCs is also not a binary one, with many commercial banks now exploring tokenized deposits, we’re likely to see a range of regulated payment options from both public and private issuers in the future, and market participants and users will decide which is best for their use case or need.
Ultimately, it is possible for both stablecoins and CBDCs to have a place in future digital markets; CBDCs which are more heavily regulated may be relied on for institutional use cases such as national payment systems, settlement services, and cross-border trade.
In contrast, stablecoins issued by private companies may be favored for retail applications with private companies and the crypto ecosystem leveraging their functionality for things like staking or customer loyalty programs.
Future outlook
Crypto markets are in the early stages of what is widely anticipated to be a significant bull market in 2025 and perhaps even beyond. With positive market sentiment comes greater investment, and so incumbent fintechs may have the impetus to explore the incorporation of crypto and DLT in their commercial strategies while new entrants may come to the market with ready-made stablecoin offerings.
With MiCA having taken effect in the EU and new stablecoin regimes introduced in many jurisdictions, we are already seeing a slew of new issuers enter the market, with the confidence and trust that regulation brings to these assets. In this context, it’s highly likely that many emerging fintech business models will seek to incorporate stablecoins into their products and services, as a means of more efficiently transferring value as well as powering Web 3-native payments solutions.
On the other side of the coin, the crypto-native firms are going to have to be able to prove their chains have the privacy, security, and scalability to meet the needs of regulated financial markets. The success of projects like the UK RLN has showcased the value of uniting multiple forms of digital money on-chain, and we can expect to see these projects continue to gain momentum. While interoperability initiatives remain a key focus for the DLT industry, huge gains are being made to prevent the siloing of digital assets.
R3 is proud to be leading this charge. With the largest collection of live, in-production use cases for regulated financial markets, R3’s open, permissioned Corda platform is driving end-to-end use case development and improving market liquidity for digital assets through partnerships with other industry leaders.
Corda achieved EVM compatibility through its collaboration with Hyperledger on Project Harmonia and in June 2024, Fnality and HQLAX completed the first end-to-end test of a cross-chain intraday repo trade settlement across the Ethereum-based Fnality Payment System (FnPS), and the Corda-based HQLAx Digital Collateral Registry.
Meanwhile, R3’s partnership with Ownera, a leading provider of tokenization interoperability routers, is enabling financial market participants to access tokenized assets across a range of networks, fighting fragmentation to ensure an efficient and resilient digital financial system.
While there is more work to be done in this space, DeFi shouldn’t fear incumbent fintechs’ interest in digital assets. If anything, their interest affirms DLT’s value proposition and stands to lift the sector as a whole.