Stablecoins have become a cornerstone of the cryptocurrency world, yet there’s a persistent myth that they are eroding bank deposits. Recently, Coinbase addressed this concern, providing a fresh perspective that challenges the prevailing narrative.
In a compelling blog post, Coinbase argued that the fear of stablecoins depleting bank deposits is unfounded. According to the crypto exchange’s analysis, there is no substantial evidence linking the adoption of stablecoins to significant deposit outflows at community banks. Coinbase emphasized that stablecoins are not designed as savings accounts but rather as efficient payment tools. For instance, purchasing stablecoins to pay an overseas supplier represents a choice for a faster, cheaper transaction method rather than reallocating savings.
Stablecoins and the Myth of Deposit Erosion
The idea that stablecoins threaten traditional banking systems is portrayed as a myth by Coinbase. The exchange highlighted a recent US Treasury Borrowing Advisory Committee report that forecasted a potential $6 trillion deposit flight, despite only predicting a $2 trillion market for stablecoins by 2028. Coinbase questioned the mathematics behind these projections, arguing that the numbers simply do not align.
According to Coinbase, most stablecoin transactions occur outside the United States, particularly in regions with fragile financial infrastructures like Asia, Latin America, and Africa. Over $1 trillion of the $2 trillion stablecoin transactions in 2024 happened internationally, reinforcing the dominance of the US dollar rather than diminishing US deposits. Thus, stablecoins are seen as expanding the dollar’s global influence without significantly impacting domestic credit availability.
Stablecoins as a Competitive Edge
Coinbase argues that stablecoins offer a competitive alternative to the banking system’s $187 billion annual swipe-fee windfall. This competition could drive banks to improve their offerings, particularly in terms of interest rates for depositors. Matt Hougan, Bitwise’s investment chief, criticized US banks for focusing on stablecoin competition instead of enhancing their services.
In response to recent legislative discussions, US banking groups have urged Congress to address a loophole in the GENIUS Act that might allow stablecoin issuers to offer yields indirectly through crypto exchanges. Meanwhile, the Crypto Council for Innovation and Blockchain Association have asked lawmakers to reject these proposals, warning that they could favor traditional banks and stifle innovation.
Interestingly, the correlation between bank stock performance and crypto firms like Coinbase and Circle was positive following the GENIUS Act. This suggests that stablecoins and banks can coexist and thrive together, contrary to the belief that they are at odds.
Coinbase’s insights call for a reevaluation of the perceived threats posed by stablecoins, highlighting their potential to foster innovation and enhance the global financial landscape.
