Banks are no longer simply exploring stablecoins. HSBC launched RedCoin in Hong Kong and attracted 50,000 users in just over a week. Meanwhile, major financial institutions are preparing their own digital currencies to compete in a market that has so far been dominated by companies like Tether.

This development deserves closer examination because banks have advantages that many crypto companies cannot easily replicate: millions of customers, payment applications, established business relationships, and direct access to traditional financial systems.

However, the entry of banks does not guarantee that they can displace Tether, particularly in markets where USDT is already one of the main sources of liquidity.

HSBC: The Potential of Bank-Backed Stablecoins

HSBC launched RedCoin on October 23, a stablecoin pegged to the Hong Kong dollar and regulated by the Hong Kong Monetary Authority (HKMA).

The bank integrated the asset into PayMe, an application with more than 3.3 million users that supports payments at over 100,000 merchants.

Its initial adoption was striking. According to the South China Morning Post, HSBC CEO Georges Elhedery confirmed that RedCoin had reached 50,000 users shortly after its launch.

That figure does not prove that all of them regularly use the stablecoin, but it highlights an important advantage: HSBC can distribute a new financial product through an application its customers already know.

To use RedCoin, those customers do not need any experience with cryptocurrency exchanges. They can access the stablecoin through a banking platform they are already familiar with.

This distinction could be decisive for everyday payments. Many users are not interested in learning how stablecoins or blockchain wallets work; they simply want to transfer money quickly and easily.

Banks Are Preparing to Compete

HSBC is not the only institution entering the market. A consortium of 21 financial institutions, including Goldman Sachs, Bank of America, Citi, and Deutsche Bank, is developing a stablecoin pegged to the US dollar.

According to Reuters, the group plans to launch the asset during the first half of 2027 and is also considering issuing currencies pegged to other fiat currencies.

The participation of so many banks could change the competitive landscape. These institutions serve corporate clients that need to make international payments, manage liquidity, and settle financial transactions.

If banks successfully integrate stablecoins into these services, they could capture activity that currently depends on specialized crypto issuers.

Regulation also favors traditional financial institutions. Companies that prioritize regulatory compliance may feel more comfortable using an asset issued by an institution with which they already have an established business relationship.

However, these projects cannot yet be compared with a widely used stablecoin. Banks will need to demonstrate that their products offer sufficient advantages to attract users and liquidity.

Tether Is Difficult to Replace

The main obstacle for new competitors is that USDT already has a substantial presence in the crypto market. Its usefulness depends not only on who backs its reserves, but also on how many platforms accept it and how many traders use it.

Tether has more than $180 billion in circulation, according to DeFiLlama. RedCoin, meanwhile, is pegged to the Hong Kong dollar and initially focuses on payments within that market. It does not compete directly with USDT across all its use cases.

Banks may also struggle to offer the same level of international accessibility. Identity verification requirements, geographic restrictions, and account-opening conditions could limit the reach of their products.

A bank-backed stablecoin may appeal to a company seeking regulated settlement services. But a trader who needs to move funds between international exchanges may continue to prefer USDT because of its liquidity and availability.

For that reason, the growth of bank-backed stablecoins does not necessarily mean Tether will face an immediate decline. Both models can serve different needs, although competition will intensify once banks begin offering dollar-denominated assets that can be used beyond their own applications.

The real challenge for Tether will be maintaining its advantage once banks manage to combine distribution, liquidity, and ease of use.