Bank Deposit Rates Could Temper Stablecoin Expansion, BIS Paper Suggests

Banks may possess a strategic lever to moderate the rapid expansion of stablecoins, such as Tether's USDT and Circle's USDC, by offering more attractive rates to savers. This is according to a recent working paper published by the Bank for International Settlements (BIS).

Researchers Rashad Ahmed and Iñaki Aldasoro analyzed weekly data spanning from January 2019 to June 2025. Their findings indicate that a modest one-week, one basis point (0.01 percentage point) increase in average bank deposit rates correlated with a slower pace of stablecoin growth. This small adjustment was associated with cutting the average ten-week growth in stablecoin market capitalization from approximately 15% to about 12%.

The authors' preferred estimation, which accounts for banks proactively adjusting rates in response to stablecoin growth, suggested an even more pronounced effect, potentially slowing growth to around 6%. However, the researchers acknowledged some methodological limitations with this particular estimate. In both scenarios, stablecoin growth decelerated but did not reverse.

Why it matters

This research adds empirical weight to a significant debate within the financial sector, where traditional institutions have voiced concerns over the increasing popularity of digital assets. Bank of America CEO Brian Moynihan, for instance, warned in January that up to $6 trillion in deposits could potentially shift into stablecoins and related products offering returns. Such a migration could diminish banks' capacity for lending and consequently elevate borrowing costs across the economy.

The dynamic is partly rooted in how stablecoin issuers manage their reserves. As a December Federal Reserve staff analysis explained, funds placed into stablecoins often cycle back into the banking system as deposits held by the issuers themselves. While this might not alter total bank deposits, it fundamentally changes the composition of banks' funding sources.

Specifically, a greater reliance on large, uninsured balances from stablecoin issuers could compel banks to maintain higher levels of liquid assets. This, in turn, might reduce the capital available for long-term loans, which are crucial for economic activity. Furthermore, banks that increase deposit rates to retain customers face higher funding costs, potentially impacting profitability. The Fed analysis suggested banks could employ targeted strategies, offering better rates to customers most likely to switch while maintaining lower rates for less mobile depositors.

The BIS paper observed a stronger correlation between deposit rates and growth for USDC compared to USDT. The authors attributed this pattern to USDC's closer ties to U.S. users, suggesting a more direct competitive dynamic with domestic banking products.

What to watch

While the BIS paper highlights banks' influence through deposit pricing, it does not definitively establish actual losses of bank deposits or a direct impact on lending volumes. The study's sample covered only one period characterized by high interest rates, and the evolving landscape of digital finance introduces new variables.

The emergence of yield-bearing stablecoins and tokenized money market funds could alter future dynamics. For example, diversified real-world asset (RWA) stablecoins are now designed to offer yields of 5-7% from real credit, contrasting with a compressed crypto funding yield of approximately 4%. Platforms like GENIUS are pushing yield generation off-chain, indicating a growing market that could reach $4 billion within three years. These innovations may present new challenges for banks seeking to retain depositors solely through traditional interest rates. The ability of banks to adapt their strategies and competitive offerings will be a key area of focus for market observers.