Banks may be able to slow the growth of stablecoins such as Tether's USDT and Circle's USDC — tokens designed to hold a steady value against traditional currencies — by paying savers higher deposit rates, according to a working paper examining whether stablecoins and bank deposits act as substitutes, published by the Bank for International Settlements (BIS), the Basel-based institution often described as the central bank for central banks.

Researchers Rashad Ahmed and Iñaki Aldasoro studied weekly data spanning January 2019 through June 2025, controlling for bitcoin prices, Treasury yields and broader financial conditions. Their analysis found that a one-week, one basis point rise in average bank deposit rates predicted slower stablecoin growth. That increase — just 0.01 percentage points — cut average ten-week growth in stablecoin market capitalization from about 15% to about 12%, the paper found.

Under the authors' preferred estimate, which adjusts for the possibility that banks raise rates in response to stablecoin growth, the effect was roughly three times larger, slowing growth to about 6%, though the authors flagged some weaknesses in that methodology. In both cases, growth slowed but did not reverse. In other words, even marginal adjustments to the rates banks pay on deposits were associated with a measurable drag on how quickly stablecoin supply expanded. The logic is one of substitution: when deposits pay more, the relative appeal of holding dollar tokens rather than interest-bearing deposits diminishes — precisely the relationship the paper was designed to test.

The relationship was stronger for Circle's USDC, the second-largest stablecoin by market capitalization, than for Tether's larger USDT — a pattern the authors said was consistent with USDC's closer ties to U.S. users.

The findings add evidence to a debate that has drawn warnings from bank executives. In January, Bank of America CEO Brian Moynihan warned that as much as $6 trillion in deposits could move into stablecoins and related products offering returns, potentially reducing banks' lending capacity and raising borrowing costs.

The dynamic is partly rooted in where stablecoin issuers hold their reserves. A December analysis by Federal Reserve staff explained that money placed in stablecoins can flow back to banks as issuer deposits, changing who supplies banks' funding even when total deposits remain unchanged. In other words, the composition of bank funding — not necessarily its total size — is what shifts when stablecoin adoption grows.

Larger, uninsured balances could require banks to hold more liquid assets, leaving less room for the long-term loans that financial institutions extend. Paying more to retain customers also raises banks' funding costs. The Fed analysis suggested banks could direct better rates toward customers most likely to switch, while keeping lower rates for less mobile depositors.

The BIS paper does not establish actual losses of bank deposits or lending. In particular, the study measures the pace of stablecoin supply growth rather than documenting realized outflows from individual bank balance sheets. Its sample covers a single high-rate episode, and its conclusions could shift as yield-bearing stablecoins and tokenized money market funds gain ground — products that sit squarely at the intersection of bank deposit pricing and digital-dollar adoption.

Even so, the authors concluded that banks "retain some influence over the pace of that adoption through deposit pricing."

Source: CoinDesk