Citibank Research Report: Stablecoins Welcome the ChatGPT Moment

Author: Golden Finance

Reprint: Lawrence, Mars Finance

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

1. The year 2025 is expected to be the "ChatGPT moment" for blockchain applications in the financial and public sectors, driven by regulatory changes.

2. Citibank predicts that the total circulating supply of stablecoins may grow to $1.6 trillion by 2030 in a baseline scenario; in an optimistic scenario, it may grow to $3.7 trillion, while in a pessimistic scenario, it will be around $500 billion.

3. It is expected that the supply of stablecoins will still be mainly denominated in US dollars (about 90%), while non-US countries will promote the development of their own CBDCs.

4. The regulatory framework for stablecoins in the United States may drive new net demand for U.S. Treasury securities, and by 2030, stablecoin issuers could become one of the largest holders of U.S. Treasuries.

5. Stablecoins pose a certain threat to the traditional banking ecosystem by replacing deposits. However, they may also provide opportunities for banks and financial institutions to offer new services.

As implied by the title of its report "Digital Dollar", Citigroup is highly optimistic about stablecoins. The report specifically has a chapter explaining that "the ChatGPT moment for stablecoins is coming soon". Gold Finance AIMan has specially compiled this chapter titled "Stablecoins: A ChatGPT Moment?" as follows:

How do stablecoins work?

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

Stablecoin issuer: The entity that issues stablecoins, responsible for maintaining the price peg by holding underlying assets equivalent to the circulating supply of the 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-collateralized stablecoins, these reserves typically include cash, short-term government securities, and other liquid assets.

Digital wallet providers: offer 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 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, accounting for over 90% of the market share in terms of value and trading volume, with USDT leading the pack, followed by USDC.

Figure 3 Stablecoin Supply from 2020 to 2025

In recent years, the trading volume of stablecoins has grown rapidly. Adjusted, the monthly trading volume of stablecoins in Q1 2025 is expected to be between $650 billion and $700 billion, roughly double the levels seen from the second half of 2021 to the first half of 2024. Supporting the cryptocurrency ecosystem is the primary 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 variety of products needed to cover the main application scenarios, and the number of participants in this market may exceed that of the card network market. -- Matt Blumenfeld, Global and U.S. Head of Digital Assets at KPMG

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

Forte FinTech founder Erin McCune:

Practical advantages (speed, low cost, available around the clock): Demand has been created in developed economies (especially in countries where instant payments are not yet widespread, small and medium enterprises are not adequately served by existing institutions, and multinational companies wish to facilitate global fund transfers) and emerging economies (regions with high cross-border transaction costs, immature banking technology, and/or lagging financial inclusion).

Macroeconomic Demand (Hedging Inflation, Financial Inclusion): In some regions, stablecoins have become a "lifeline" for people. In countries like Argentina, Turkey, Nigeria, Kenya, and Venezuela, where currency fluctuations are significant, consumers use stablecoins to protect their funds. Nowadays, more and more remittances are being made in the form of stablecoins, 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 rapidly expand their usage and practicality. Mature, large-scale payment networks and core processors can bring transparency and facilitate integration with familiar solutions that businesses and merchants rely on. Implementing 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 removing the barriers that previously confined stablecoins to the crypto fringe.

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

Matt Blumenfeld, Head of Global and US Digital Assets, KPMG:

User experience: The global payments landscape is increasingly shifting towards real-time digital transactions. But the challenge with every new payment method is the customer experience – whether it's intuitive, whether it's easy to see, whether it's easy to see, and whether the value is clear. Any organization that successfully elevates the customer experience, whether for retail or institutional users, will make a name for themselves in their respective fields. The integration with the current payment methods will drive the next wave of payment methods to become popular. On the retail side, this manifests itself in the combination of card payments or penetration in the field of mobile wallets; On the institutional side, it is reflected in simpler, more flexible and more cost-effective settlement methods.

Regulatory Clarity: With the introduction of new stablecoin regulatory policies, we can see how much the previous uncertainty in regulation has suppressed global innovation and promotion. The launch of the EU’s Markets in Crypto-Assets Regulation (MiCA), the clarity of regulation in Hong Kong, and the advancement of stablecoin legislation in the United States have sparked a wave of activities 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 easy 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 combinability.

Potential market size of stablecoins

As pointed out by Erin McCune, founder of Forte Fintech, any predictions regarding the potential market size of stablecoins must be approached with caution. There are numerous variable factors, and our scenario analysis also indicates a wide range of predictions.

We have constructed a range of predictions based on the following factors driving the growth of stablecoin demand:

A portion of US dollars overseas and domestically 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 hedge. Domestically, stablecoins can be used to some extent for certain payment functions, and are held for this purpose.

Households and businesses in the US and internationally are reallocating some of their short-term USD liquidity to stablecoins: this is due to the convenience of stablecoins (such as enabling around-the-clock cross-border transactions), which aids in cash management and payment operations. If regulations permit, 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 exhibit a similar reallocation trend as the short-term liquidity of the dollar, although on a much smaller scale. Both our overall baseline scenario and optimistic scenario for 2030 assume that the stablecoin market remains dominated by the dollar (accounting for about 90% of the share).

Growth of the Public Cryptocurrency Market: Stablecoins are used as settlement tools or channels for inflows and outflows. This is driven to some extent by institutional adoption of public cryptocurrency assets and the widespread application of blockchain technology. In our benchmark scenario, we assume that the trend of stablecoin issuance growth from 2021 to 2024 continues.

Citigroup Research expects that the baseline scenario for the stablecoin market size in 2030 will be $1.6 trillion, the optimistic scenario will be $3.7 trillion, and the pessimistic scenario will be $0.5 trillion.

Figure 5 Forecast of Stablecoin Market Size in 2030

Figure 6 The market size of stablecoins in 2030

Note: The total currency supply in 2030 (cash in circulation, 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 by 2030, the scale of non-dollar stablecoins under bearish, baseline, and bullish market conditions will be $21 billion, $103 billion, and $298 billion, respectively.

Stablecoin Market Outlook

Forte Fintech founder Erin McCune

Q: What do you think about the optimistic and cautious outlook for the stablecoin market in the near term, and the underlying factors driving its 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 bull and bear markets:

The most optimistic prediction is that as stablecoins become the everyday medium for global instant, low-cost, low-friction transactions, the market will expand 5 to 10 times. In a bull market scenario, the value of stablecoins will grow exponentially from the current approximately $200 billion to reach $1.5 to $2.0 trillion by 2030, penetrating global trade payments, person-to-person remittances, and mainstream banking. This optimistic expectation is based on several key assumptions:

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

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

Revenue (and savings) on the value chain is intentionally allocated: to promote cooperation.

Widely adopted technologies that can connect new and old infrastructures: promoting structural efficiency and scaling. For example, merchant acquiring institutions have started using stablecoins. For wholesale payment applications, corporate finance and accounts payable solutions, and 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 in markets with insufficient currency liquidity, which currently account for 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 case, the market capitalization of stablecoins may stagnate between 300 billion and 500 billion USD, 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 everyday purchases: For example, remittance recipients cannot use them to buy groceries, pay tuition, and rent, and businesses also cannot easily use the funds for salaries, inventory, and other aspects.

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

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

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

Q: What are the current and future use cases of stablecoins?

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

Cryptocurrency trading: Currently, the use of stablecoins by individuals and institutions to trade digital assets is the largest use case for stablecoins, 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 its reliance on stablecoin liquidity, trading (retail + DeFi activity) is likely to still account for around 50% of stablecoin usage by value at the maturity stage.

Business-to-business payments (corporate payments): According to the Society for Worldwide Interbank Financial Telecommunication (Swift), the vast majority of transaction value in traditional correspondent banking reaches its destination within minutes through the Swift Global Payments Innovation Platform. However, this occurs mainly between money center banks, using more liquid currencies and during the bank's business hours. Especially when it comes to doing business with low- and middle-income countries, there are still a lot of inefficiencies and unpredictability. Businesses that use stablecoins to pay overseas suppliers and manage money operations are likely to capture a significant share of the stablecoin market. Global business-to-business flows are in the trillions of dollars, and in the long run, even a small fraction of the switch to stablecoins could account for around 20-25% of the total final market for stablecoins.

Consumer remittances: Although payment methods are steadily shifting from cash to digital payments, under regulatory pressure, new entrants have also made efforts, the cost of overseas workers remitting money to domestic friends and family remains high (an average transaction cost of 5% for a $200 transfer is five times the G20 target). Due to lower fees and faster speed, stablecoins are expected to capture a significant share of the approximately $1 trillion remittance market. If the promised instant arrival and significant cost reduction can be achieved, this could account for 10-20% of the market with high adoption rates.

Institutional trading and capital markets: The application scenarios for stablecoins in transactions for professional investors or tokenized securities settlement are continuously expanding. Large-scale capital flows (foreign exchange, securities settlement) may start to use stablecoins to accelerate settlement speeds. Stablecoins can also simplify the fundraising process for retail stock and bond purchases, which is currently typically handled through batch automated clearinghouses. Large asset management companies have begun pilot programs using stablecoins for fund settlement, laying the groundwork for widespread use in capital markets. Given the significant payment flows between financial institutions, even if the adoption rate is low, this application scenario could account for about 10-15% of the stablecoin market.

Interbank Liquidity and Money Management: The use of stablecoins by banks and financial institutions in internal or interbank settlements, while a relatively small proportion (perhaps less than 10% of the total market), has a large potential impact. Industry leaders have already launched blockchain projects with a daily trading volume of more than $1 billion, demonstrating its potential, although regulation remains unclear. This area is likely to grow significantly, but it may overlap with the institutional use cases described above.

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 issuance duopoly may persist in the offshore market, but new participants may join the onshore market in each country. Just like the credit card market has continuously evolved over the past 10 - 15 years, the stablecoin market will also change.

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

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

Fundamentally, a few stablecoin issuers are beneficial for the broader ecosystem. While one or two major players may seem concentrated, an excess of stablecoins can lead to fragmentation and non-interchangeability of currency forms. 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 the United States. Will the same situation arise in the stablecoin sector? Many countries have developed their own national bank card schemes, such as Brazil's Elo card (launched in 2011), India's RuPay card (launched in 2012), and so on.

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

In recent years, although international card schemes 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 as we see the diffusion of national plans 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), using them as a tool for national strategic autonomy, particularly in the wholesale and enterprise payment sectors.

A survey by the Official Monetary and Financial Institutions Forum (OMFIF) of 34 central banks shows that 75% of central banks still plan to issue central bank digital currencies. The proportion of respondents expecting to issue central bank digital currencies in the next three to five years has increased from 26% in 2023 to 34% in 2024. At the same time, some practical implementation issues are becoming increasingly apparent, with 31% of central banks delaying issuance due to legislative issues and a desire to explore broader solutions.

CBDCs 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. A few smaller economies that have launched central bank digital currency projects have not seen a large number of users adopting them spontaneously. However, the recent escalation of geopolitical tensions may 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 Assets Leader at PwC

Banks have many participation opportunities in the stablecoin space. This can be as a direct issuer of stablecoins, as part of a payment solution, building structured products around stablecoins, or providing more indirect roles such as general liquidity support. Banks will find ways to continue to be the 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 their deposits to be secured within the banking system), just through new channels.

Figure 7: Banks and Stablecoins: Revenue and Business Opportunities

At the systemic level, stablecoins are likely to have a similar impact to "narrow banks," and the pros and cons of such institutions have long been debated at the policy level. The transfer of bank deposits to stablecoins may affect the bank's ability to lend. This decline in lending capacity is likely to at least dampen economic growth during the transition period of system adjustment.

Traditional economic policy opposes narrow banking, as summarized in the International Monetary Fund's report from 2001, 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 Banking