Big banks are poised to enter and potentially dominate the stablecoin market, overshadowing current leaders like Tether, according to former BitMEX co-founder Arthur Hayes.

In a recent interview with Unchained’s Laura Shin, Hayes said that centralized stablecoins have found a lucrative niche due to the reluctance of traditional banks to engage in similar activities.

However, he foresees a possible disruption, as banks might eventually enter the market with their own digital currencies. Hayes predicted that once banks recognize the profit potential in this domain, they will quickly move to dominate it, leveraging their existing infrastructure and customer trust.

Existential threat for stablecoin issuers

Hayes observed that despite Tether’s success in establishing itself as a leading fiat-collateralized stablecoin, the fundamental business model it employs is one that traditional banks could easily adopt and potentially excel in.

Hayes said that centralized stablecoins like Tether have thrived due to a gap left by traditional banking systems.

Tether, for instance, generates significant profits by exploiting interest rate differentials between dollar deposits and U.S. treasury bills, a business model that banks have refused to engage in due to political or regulatory constraints.

According to Hayes:

“[Stablecoin issuers] don’t have any defensible business because they use banks to custody their funds, which allows them to trade debt instruments.”

However, Hayes predicts a shift where major banks could launch their digital currencies, potentially rendering services like Tether obsolete.

He said that once banks are given the green light to engage with the digital assets sector, they have the necessary comprehensive financial networks and regulatory compliance frameworks to hit the ground running.

He speculated that if banks like JP Morgan Chase were to launch their own stablecoin, they could easily leverage their established reputations and global reach to quickly gain a significant market share, thereby impacting the dominance of current providers such as Tether.

Bitcoin and AI

The conversation also touched on the role of Bitcoin (BTC) as the preferred currency for AI. Hayes argued that money, at its core, is a form of energy transformation.

In his view, Bitcoin, being a direct product of energy expenditure (through mining), represents the purest form of monetary energy. This makes it uniquely suited for AI systems, which prioritize efficient energy management and operate in a purely computational realm.

Hayes further elaborated that AI systems, in their quest for efficiency and autonomy, would naturally gravitate towards a currency that embodies these principles. Bitcoin, with its decentralized, energy-based foundation, fits this criterion perfectly.