Citi Warned Stablecoins Could Drain Banks, Now Backs Their Tech

Citigroup has invested in stablecoin infrastructure provider BVNK through Citi Ventures, just months after warning that the cryptos could drain deposits from traditional banks

BVNK’s platform serves as an onramp and offramp for customers to move money between fiat and crypto. It is also backed by US crypto exchange Coinbase and fund manager Tiger Global Management.

The investment underscores TradFi’s shift from caution to participation in the stablecoin ecosystem after the US GENIUS Act provided regulatory clarity over their status.

BVNK Valuation Exceeds $750 Million After Citi Investment

The company has declined to disclose the amount Citi invested or at what valuation. But co-founder Chris Harmse recently confirmed that the investment has pushed its valuation well above the $750 million that was disclosed at its latest funding round.

BVNK currently finds itself in a competitive market alongside newcomers such as Alchemy Pay, TripleA and even the well established Ripple. All of these firms are vying to take the lion’s share of the cross-border digital money market.

Amid the strong competition, Harmse said that BVNK has “dipped in and out of profitability” as the company invested in growth, but said the firm is experiencing momentum, especially in the US. 

The co-founder added that the US has been the company’’s strongest growing market in the past 12-18 months. This growth was spurred by the approval of the GENIUS stablecoin Act, which was signed into law earlier this year by US President Donald Trump.

In August, US Treasury Secretary Scott Bessent expressed support for stablecoin adoption, and said these tokens “will expand dollar access for billions across the globe.” 

Implementing the GENIUS Act is essential to securing American leadership in digital assets.

Stablecoins will expand dollar access for billions across the globe and lead to a surge in demand for U.S. Treasuries, which back stablecoins.

It’s a win-win-win for everyone involved:… https://t.co/p5nRQpBfnw

— Treasury Secretary Scott Bessent (@SecScottBessent) August 18, 2025

The regulatory clarity provided by the GENIUS Act has boosted the capitalization of the stablecoin market in recent months, while multiple financial institutions have since signaled plans to launch their own stablecoins. 

In the past week, the capitalization for the stablecoin sector surged around $4.353 billion, according to DefiLlama data. 

Following the growth in the past seven days, the stablecoin market cap now stands at over $304.163 billion. 

Stablecoin market cap (Source: DefiLlama)

In the past thirty days alone, $5 trillion in stablecoin transactions have taken place as well, according to on-chain analytics from Visa. 

One of the firms that has confirmed stablecoin plans is Citi, whose CEO Jane Fraser said in July, the same month the GENIUS Act was signed into law, that the bank is considering issuing its own stablecoin. She also said that Citigroup is developing custodian services for crypto assets. 

Through those products, Citi aims to deliver “the benefits of advancements in stablecoin and digital assets” to its clients in a safe manner by modernizing its own infrastructure. 

Other firms are also exploring blockchain technology and tokenization. This includes Wall Street giant JPMorgan Chase, which has launched its own stablecoin-like token called JPMD. Meanwhile, Bank of New York Mellon has said that it’s testing tokenized deposits. HSBC has launched its own tokenized deposit service as well.

Citi Had Warned Of Deposit Flight Risk Similar To The 1980s

Citi’s investment in BVNK comes after one of its analyst, Ronit Ghose, warned in August that a rising interest in stablecoin payments presents deposit flight risk for traditional banks, similar to what was seen in the 1980s when money market funds ballooned from $4 billion to $235 billion in seven years.

Major banking groups in the US have already expressed their concerns around yield-bearing stablecoins, and have lobbied for Congress to close what they called a “loophole” in the GENIUS Act.

The act prohibits stablecoin issuers from offering yields directly to token holders, but does not extend this ban to third parties or affiliates. This, according to the banking groups, opens the door for stablecoin issuers to circumvent the restrictions. For example, Coinbase currently offers its users yields on Circle’s USD Coin (USDC) stablecoin.

If that “loophole” remains unaddressed, the banking groups predicted that it could result in up to $6.6 trillion in deposit outflows from the traditional banking system. This could then fundamentally alter how banks fund loans.

However, the crypto industry has pushed back against the banking groups’ claims, with many dismissing them as just an effort by banks to prevent competition. Some, including Stripe CEO Patrick Collison, have also said that stablecoins will now force banks to offer higher yields to customers.

Good post on evolving stablecoin market structure. I would extend it further: yes, I think that stablecoin issuers are going to have to share yield with others, but this is just one instance. Everyone is going to have to share yield. Today, the average interest on US savings… https://t.co/yjjLOzxoOk

— Patrick Collison (@patrickc) October 3, 2025

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