Introduction to Stablecoins and Banking System
Banks have been warning that stablecoins, particularly those that offer yield, could potentially pull deposits out of the traditional banking system. However, policy and finance experts argue that there is currently little evidence to support this claim. Major US bank Standard Chartered recently released a research note estimating that the growth of stablecoins could lead to a decrease in bank deposits, with a potential reduction of one-third of the stablecoin market cap, which currently stands at $308.15 billion according to DeFiLlama data.
The debate surrounding stablecoins has intensified as US lawmakers consider whether to prohibit interest on stablecoin holdings under a proposed version of the crypto market structure bill, or CLARITY Act. The bill has been met with resistance from the crypto industry, despite receiving support from the banking sector. Banks argue that allowing yield-bearing stablecoins could accelerate deposit flight, while critics claim that the risk remains largely theoretical.
Limited Evidence of Deposit Outflows
Aaron Klein, a senior fellow in Economic Studies at the policy research institution Brookings, stated that stablecoins have primarily been used for crypto-related activities and as a store of value in non-dollar countries. “You will find little evidence that stablecoins have drained bank deposits,” he said. European regulators seem to share a similar view, with a representative of the European Banking Authority (EBA) noting that stablecoins in the European Union are mainly treated as payment instruments within the crypto ecosystem and remain lightly used by consumers.
Total stablecoin market cap chart. Source: DeFiLlama
However, Klein suggested that this could change if stablecoins were to take off as their supporters claim they will. He highlighted that a reduction in bank deposits would reduce capital availability, as “bank deposits support bank lending, so reduced bank deposits reduce the supply of credit available through bank-based products.” The EBA representative also noted that if stablecoin use were to increase significantly, it would give rise to potential “financial stability risks from stablecoins jointly issued by EU and non‑EU entities.”
Stablecoin Proponents Disagree
Colin Butler, head of markets at Mega Matrix, argued that banning compliant stablecoins from offering yield would sideline regulated institutions while accelerating capital migration beyond US oversight and failing to protect the US financial ecosystem. Jeremy Allaire, CEO of the publicly listed stablecoin issuer Circle, recently stated that interest payments on stablecoins do not pose a threat to banks. Speaking on the World Economic Forum stage in Davos, Allaire said that such bank-run concerns are “totally absurd” and that yields “help with stickiness, they help with customer traction,” but cannot undermine monetary policy.
Anthony Scaramucci, founder of asset manager SkyBridge Capital, claimed that banks simply “do not want the competition from the stablecoin issuers, so they’re blocking the yield.” He also pointed out that the People’s Bank of China has allowed commercial banks to pay interest on digital yuan deposits, which could give China an advantage over the US. “In the meantime, the Chinese are issuing yield, so what do you think the emerging countries will choose as a rail system, the one with or without yield?” he said.
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