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Banks warn stablecoins could siphon deposits from the banking system, but policy and regulatory experts say there’s little evidence of it happening yet.Banks warn that stablecoins, especially those paying yield, could pull deposits out of the banking system, but policy and finance experts say there’s little evidence of that so far.
that increasing stablecoin adoption could drain bank deposits. The report estimates “that US bank deposits will decrease by one-third of stablecoin market cap,” which stood at $308.15 billion at time of writing, according to DeFiLlamaunder a proposed version of the crypto market structure bill, or CLARITY Act, which has been delayed by protests from inside the crypto industry despite banking sector support.Aaron Klein, a senior fellow in economic studies at the policy research institution Brookings, told Cointelegraph that so far, 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 may share a similar view. A representative of the European Banking Authority said stablecoins in the European Union are mainly treated as payment instruments within the crypto ecosystem and remain lightly used by consumers. “Because of low engagement in use of stablecoins currently within the EU, we do not see current currency substitution, capital flight or dollarisation risks,” they said. Still, Klein suggested that this is subject to change. He highlighted that what can be found are “arguments that if stablecoins take off as their supporters claim they will, then it will likely result in a drain in bank deposits.” Klein said this would reduce capital availability, as “bank deposits support bank lending, so reduced bank deposits reduce the supply of credit available through bank-based products.” Similarly, the EBA representative told Cointelegraph 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.”Those risks would include bank-run risk, cross-border legal frictions, regulatory arbitrage and supervisory challenges. The EBA representative said that dollarization is primarily a concern for emerging markets and that a “shift away from euro‑denominated settlement assets toward US dollar‑backed stablecoins is not foreseen in the EU.” A representative of a major EU central banking organization had a more positive view of stablecoin-related technologies. He suggested that tokenized deposits and well-regulated euro-based stablecoins can strengthen Europe’s strategic autonomy by reducing dependence on third-country stablecoins. Still, he noted that stablecoins may threaten financial stability due to their interconnectedness with traditional finance, but EU regulation aims to mitigate those risks, and the European Central Bank monitors relevant developments. Colin Butler, head of markets at Mega Matrix, said banning compliant stablecoins from offering yield would sideline regulated institutions whileSpeaking on the World Economic Forum stage in Davos, Allaire said that such bank-run concerns are “totally absurd.” He said that yields “help with stickiness, they help with customer traction,” but cannot undermine monetary policy.“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.Cointelegraph is committed to independent, transparent journalism. This news article is produced in accordance with Cointelegraph’s Editorial Policy and aims to provide accurate and timely information. Readers are encouraged to verify information independently. Read our Editorial Policy
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