In my most recent Economic Outlook, I looked at stablecoins, a digital asset intended to combine the stability of a traditional currency while adding the trading efficiencies of crypto assets. Currently, stablecoins are mainly used for settling other crypto and tokenized assets, but future use could migrate into payment systems and more normal remittances, among other possible use cases.

If or when that happens, stablecoins could represent both an opportunity, and potential threats, to community banks. Here’s how.

What are some of the opportunities? The adaptation of stablecoins could serve as a motivator for modernizing payment systems, provide a platform to compete with financial technology providers and reduce dependence on traditional systems like ACH or Fedwire. Community banks may also be able to act as custodians holding the reserves that back stablecoins issued by various other groups.

Providing conversion infrastructure for fiat-to-digital currency services to small business and retail customers may also be an opportunity. If providing these services directly is not a viable option, community banks could partner with fintech firms and act as an intermediary for bank customers that want to incorporate stablecoins into their payment system options.

What are some of the threats? On the other hand, stablecoins could also pose threats to community banks. For example, customers using established stablecoin platforms directly could result in banks holding fewer deposits in traditional accounts and eroding a source of funding. Stablecoins’ nature of bypassing traditional payment systems like credit cards, ACH and wires could result in declining bank fees.

Additionally, the evolving regulatory environment suggests that implementing a stablecoin process or feature today may need to change frequently to meet updated guidelines. New skills and blockchain solutions may be something community banks are not yet equipped to handle.

The Clarity for Payment Stablecoins Act looks to require issuers to hold 100% cash or short-term U.S. Treasury securities in reserve and could allow state or federally regulated banks to issue their own stablecoins. Regulators are also exploring how stablecoins fit within broader payment systems and what role banks can play.

The development of the stablecoin environment has the potential to move in unpredictable 54+9+ways. Keeping up with progress will require more than passive attention.