Banks Fear Stablecoins as Yield Threatens Deposit Business: Report

Popular crypto analyst EGRAG CRYPTO has claimed that banks are fighting stablecoins not because they are risky, but because they allow people to hold, move, and potentially earn returns on dollars without relying on traditional bank deposits.

His sentiment comes as US lawmakers continue to negotiate crypto legislation and stablecoin rules, while banks and digital asset advocates clash over whether yield-bearing stablecoins could pull deposits away from the banking system.

The Exit Banks Never Had to Plan For

In an analysis posted on June 1, EGRAG framed the debate around stablecoins not as a regulatory dispute but as a direct threat to how banks make money.

He explained that when you deposit money in your bank account, you are not storing it, but, legally, you are making an unsecured loan to that institution. That bank then takes your deposit, lends it out at rates between 6% and 28%, and pays you between 0.1% and 0.5% for the privilege. And that spread is their core business.

However, according to the analyst, stablecoins are breaking that arrangement by separating three things that the traditional banking system has always bundled together: custody, settlement, and yield.

With a stablecoin backed by Treasury bills, a user can hold dollars without a bank account, transfer them instantly without an intermediary, and earn roughly 5% on a risk-free basis.

If people can earn 4% to 6% yields with full control and no dependence on banks, EGRAG argued, they would see no need to deposit with banks, which would undermine these institutions’ funding models and the power they enjoy.

EGRAG’s position is not hyperbolic, given that an analysis by Standard Chartered at the start of the year estimated that US banks could lose around $500 billion in deposits to stablecoins by the end of 2028, with regional banks carrying the most exposure.

According to Standard Chartered’s Geoff Kendrick, the two largest stablecoin issuers, Tether (USDT) and Circle (USDC), hold most of their reserves in US Treasuries rather than in bank accounts, meaning very little capital is recycled back into the banking system.

What the Legislative Fight is Really About

During the recently concluded Senate Banking Committee deliberations on the CLARITY Act, members of the American Bankers Association sent more than 8,000 letters to Senate offices in less than a week, specifically targeting rules around stablecoin yields.

At the time, Senator Bernie Moreno accused banks of trying to “kill stablecoins that would let everyday Americans earn real yield on their own money.” He also called the industry a “cartel” that was hell-bent on protecting low-interest deposit models.

EGRAG’s analysis interpreted that response as its own kind of signal, writing:

Even a survey released in March by Ripple revealed that 74% of finance executives see stablecoins as tools for unlocking working capital and improving treasury operations, suggesting institutional interest is well past the exploratory stage.

And the stablecoin market is growing relentlessly, with the latest data from DefiLlama showing it now sits at about $320 billion, with USDT holding $188 billion and USDC at $76 billion.

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