The news: Citi will let merchants that use its payment business accept  stablecoin payments in partnership with Coinbase, per a press release.  

Citi will convert the stablecoins to fiat so merchants don't have to hold or manage crypto themselves. 

Coinbase payment clients can get the opposite—through Citi's banking as a service infrastructure, they can hold and pay with funds in virtual accounts that automatically convert incoming payments into  stablecoins.

Zooming out: Banks are racing to build stablecoin and tokenized deposit infrastructure as new rules take effect.

• Earlier this month, a group of 21 financial firms including Citi and Bank of America said they would form a new company to issue a dollar-pegged stablecoin for wholesale and retail markets.
• Citi already operates Citi Token Services, which uses blockchain to move institutional funds around the clock.
• And Wells Fargo plans to launch tokenized deposits for corporate clients this fall to match that speed.

Fifty-three percent of banks say they're prepared to support blockchain-based tokenized deposits, per Arizent Research and American Banker.

Implications for payment providers: This deal lets Citi capture new stablecoin activity without ceding its role as the settlement layer—maintaining things like compliance and fiat conversation that may be keeping merchants on the sidelines who want to accept their customers’ preferred payment methods but don’t want to deal with managing virtual currencies themselves. 

The arrangement fits a broader defensive pattern among large banks—building a shared stablecoin consortium and expanding tokenized deposits to keep institutional payment volume inside the banking system as crypto matures: We forecast that the number of US crypto payment users will grow by 41.6% this year to 10.7 million users—representing 4% of all US adults.

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