Stablecoins: A Trillion-Dollar Fuss or Mere Trifle?

Pray, do not be alarmed, dear reader, for the banks have taken to prognosticating a most dire fate-a $6 trillion calamity, no less! Yet, a closer inspection by the astute minds at Reuters reveals such fears to be as substantial as a gossip’s whisper at a tea party.

The banking establishment, ever prone to dramatics, has raised its collective quill in alarm. Mr. Brian Moynihan of Bank of America, with a gravity befitting a novel’s most tragic hero, declares stablecoins a menace capable of siphoning $6 trillion from their coffers. Yet, one must wonder if such proclamations are not merely the hyperbolic musings of a sector loath to relinquish its grip on the purse strings.

Reuters, with a diligence that would impress even the most scrupulous of governesses, has delved into the figures and uncovered a most amusing truth: the money, far from vanishing into the ether, merely changes hands-a financial game of pass-the-parcel, if you will.

The Loophole That Has Banks in a Pother

Stablecoins, those cunning creations, have devised a scheme most ingenious. Take Circle’s USDC, with its $70 billion in circulation, as an example. The Genius Act of 2025, in its wisdom, forbids direct interest payments. Yet, third parties, ever resourceful, have stepped in. Coinbase, with a flourish, offers holders a tidy 3.5% annually, provided they keep their balances on the platform. Circle, you see, pays Coinbase for custody, and thus the interest is subsidized-a financial pas de deux that leaves banks quite out of step.

Banks, predictably, cry foul, declaring this a loophole that violates the spirit of the law. Mr. Aaron Klein, in a moment of high dudgeon, penned that such practices could lead to “massive problems” for retail crypto holders. Yet, a bill to close this loophole met its end in January, much to the relief of Coinbase’s Mr. Armstrong, who opposed it with the fervor of a man defending his last shilling.

Figures That Fail to Compute

Mr. Paul Grewal, Coinbase’s Chief Legal Officer, took to the public forum X to challenge the $6 trillion claim with a wit that would not be amiss in a drawing room. He dismissed the Treasury study as a “bank industry push piece” and likened it to an “ESPN report” predicting the Browns’ Super Bowl victory-a comparison both apt and amusing.

The study, funded by the Treasury Department, has been met with skepticism. Fed economist Jessie Wang, with a more measured tone, suggested $1 trillion as a high-end estimate in December. Standard Chartered, ever the pragmatist, predicted a mere $500 billion by 2028. Circle’s stock, meanwhile, has taken a tumble, dropping 64% over six months-a fall as dramatic as any in a Gothic novel.

The Journey of Money, or Where It Truly Resides

Here lies the crux of the matter, which banks seem to have overlooked in their haste to sound the alarm. When a customer withdraws funds from Bank A to purchase stablecoins, the issuer invests in Treasury bills. The seller of those bills then deposits the proceeds in Bank B. Thus, the money merely shifts from retail deposits at Bank A to wholesale deposits at Bank B-a financial shell game that leaves the total unchanged.

Individual banks may find themselves in a pinch, forced to offer higher rates to retain customers. But a system-wide collapse? Pray, do not be absurd. Breakingviews examined the call reports of 4,088 profitable U.S. banks last year and found that only 174 would suffer losses if deposit costs rose by 1 percentage point-a number as insignificant as a single leaf in autumn.

Small Banks: The True Victims of This Financial Farce

These 174 banks, with their combined $79 billion in deposits, represent less than 0.5% of America’s $19 trillion deposit base. Approximately 2,600 banks currently enjoy a 10% return on equity, a number that would shrink to 1,600 with higher deposit costs. A thousand smaller lenders may need to reinvent themselves or seek buyers, but the U.S. would still boast more banks than most developed nations. The total deposits, however, remain unchanged-a financial status quo that endures.

History Repeats Itself, With a Modern Twist

One cannot help but draw parallels to the 1970s, when money market funds revolutionized savings. Before their advent, savers had but two options: banks or mattresses. MMFs, with their low-risk government debt investments, offered decent yields and accessibility. Banks survived this upheaval, though many smaller regional lenders did not. Savers, however, emerged as the true beneficiaries-a pattern stablecoins may well repeat, according to Reuters’ analysis.

Banks, it seems, have been less than generous with their rate increases, passing on only 40% to retail depositors between March 2022 and March 2024. Business customers fared better, receiving 60% to 80%, depending on the deposit type. Competition from yield-bearing tokens could force banks to reconsider their stinginess-a development that would no doubt benefit the average saver.

What Lies Ahead in This Financial Drama

The White House, ever the mediator, has given banks and crypto firms until the end of February to find common ground. Both sides clamor for restrictions, though their motives differ. Safety concerns are one matter; the interest payment debate is quite another.

If stablecoins are deemed unsafe and prone to runs, prudent regulation is indeed warranted. But rules designed to make them less appealing for arbitrary reasons are another matter entirely. Retail giants like Walmart or Amazon may yet enter the fray, lured by the prospect of saving on card fees. Should stablecoin payments gain traction, they would have every incentive to offer competitive yields-a development that could shake the financial landscape to its core.

Public market investors, weary of grandiose forecasts, have grown skeptical. Circle’s stock performance is a testament to this fatigue. The deposit flight argument, it seems, rests on flawed math and a misunderstanding of where money truly goes. Banks have faced competition before and adapted. The system, though bruised, has always endured-a lesson in resilience that even the most dramatic of financial prognosticators would do well to heed.

2026-02-15 22:00