Citi Backs Stablecoin Firm Amid Warming Big Bank Sentiment Towards Crypto

In a move signaling growing institutional adoption of digital assets, Citigroup has made a strategic investment in BVNK, a fintech startup specializing in stablecoin infrastructure, CNBC has learned. This investment underscores the increasing interest from major U.S. banks in the cryptocurrency and broader digital asset landscape.

Stablecoins, a class of cryptocurrencies designed to maintain a stable value relative to a reference asset, typically a fiat currency like the U.S. dollar, have emerged as a critical component of the digital economy. Major stablecoins include USDC and Tether (USDT).

BVNK’s technology provides a payment infrastructure for global stablecoin transactions, enabling seamless movement of capital between fiat currencies and cryptocurrencies. This infrastructure addresses a key bottleneck in the adoption of digital assets by providing a reliable and efficient bridge between traditional finance and the crypto world. Sources familiar with the matter indicate that BVNK is developing APIs that will allow enterprises to integrate stablecoin payments directly into their existing systems, opening up a range of new possibilities for cross-border transactions, supply chain finance, and other applications.

While the specific amount of Citi’s investment and BVNK’s current valuation remain undisclosed, Chris Harmse, co-founder of BVNK, confirmed in an interview with CNBC that the company’s valuation exceeds the $750 million valuation from its previous funding round. This suggests a significant upward trajectory bolstered by increasing demand for stablecoin infrastructure.

The investment was channeled through Citi Ventures, Citigroup’s venture capital arm, highlighting the bank’s commitment to exploring and investing in innovative fintech solutions.

Initially utilized primarily for facilitating rapid trading in other cryptocurrencies like Bitcoin, stablecoins are now gaining traction as a vital tool for streamlined cross-border transactions. Their appeal stems from their rapid transfer speeds, low transaction costs, and the ability to settle transactions 24/7, offering a compelling alternative to traditional international payment systems.

Recent data from Visa estimates that stablecoin transactions reached nearly $9 trillion over the past year. According to Coinmarketcap, the total valuation of all stablecoins currently in circulation surpasses $300 billion, further demonstrating their growing significance in the global financial system. Industry analysts point out that the transparency and programmability of stablecoins could lead to more efficient and automated financial processes, potentially reducing fraud and increasing speed and efficiency across various financial sectors.

Harmse noted that BVNK is experiencing substantial growth, particularly in the U.S., which has emerged as its fastest-growing market over the past 12-18 months. This growth is attributed, in part, to what the crypto industry perceives as a more supportive regulatory environment in the U.S.

The passage of the GENIUS Act aiming to regulate and provide clarity to the stablecoin market has been a significant catalyst. The Act is expected to lay the groundwork for more widespread adoption of stablecoins by providing a clearer legal and regulatory framework for their operation.

“The GENIUS Act is facilitating an explosion of demand for building on top of stablecoin infrastructure,” Harmse told CNBC. “Companies see opportunity to build on this technology now that some clarity has been provided.”

BVNK’s technology facilitates payments to suppliers, contractors, and merchants in various countries. The company aims to broaden its customer base to include digital-only banks and neobanks that may leverage stablecoins for their core checking account services. This ambition points to the potential for stablecoins to disrupt traditional banking models by offering more efficient and cost-effective payment solutions.

Harmse declined to disclose specific details regarding BVNK’s collaboration with Citi, stating that it is “too early to announce.” However, he acknowledged that the Wall Street bank is strengthening its cross-border payment capabilities.

“U.S. banks at the scale of Citi, driven by the GENIUS Act, are strategically investing in leading businesses to remain at the forefront of this technological shift in payments,” Harmse stated.

Citi has been strategically increasing its presence in the crypto space throughout the year. CEO Jane Fraser indicated in June that the company is exploring the issuance of its own stablecoin and is considering providing custodial services for crypto assets. This signals a significant commitment to integrating digital assets into its core financial services.

BVNK has experienced fluctuating profitability as it continues to invest in growth initiatives, according to Harmse, but the company anticipates achieving profitability next year. BVNK also has backing from Coinbase and Tiger Global, two prominent investors in the cryptocurrency and fintech sectors.

The company operates in a competitive landscape with other emerging players like Alchemy Pay and TripleA, along with established companies like Ripple, all vying for a share of the cross-border digital money market. The development of specialized solutions and strategic partnerships will be essential for success in this dynamic environment.

Citi’s foray into digital assets is part of a broader trend among major U.S. banks and financial institutions. JPMorgan Chase, for example, has launched its own stablecoin-like token called JPMD. Furthermore, the bank has permitted clients to invest in Bitcoin, acknowledging the growing client demand for exposure to cryptocurrencies.

Banks are increasingly exploring applications of blockchain technology, originally developed for Bitcoin, to reduce costs and accelerate various types of transactions. A key aspect of this exploration is tokenization, which involves creating digital tokens that represent assets such as deposits. This approach allows for fractional ownership, enhances liquidity, and facilitates automated processes. The analysis of tokenization projects and their potential impact on market structure and efficiency is becoming a crucial area of study for financial institutions.

Bank of New York Mellon is actively researching tokenized deposits, while HSBC has already introduced a tokenized deposit service. These efforts highlight the growing recognition of the potential for tokenization to revolutionize traditional banking practices and unlock new opportunities for innovation.