Whale Effect? Stablecoins are Not Really the Enemy of Bank Deposits

Original Title: How Banks Learned To Stop Worrying And Love Stablecoins
Original Author: Christian Catalini, Forbes
Translation: Peggy, BlockBeats

Editor's Note: Whether stablecoins will impact the banking system has been one of the core debates in recent years. However, as data, research, and regulatory frameworks have gradually become clearer, the answer is becoming more sober: stablecoins have not triggered large-scale deposit outflows. Instead, under the real-world constraints of "deposit stickiness," they have become a competitive force driving banks to improve interest rates and efficiency.

This article, from a banking perspective, reinterprets stablecoins. They may not necessarily be a threat but are more likely a catalyst forcing the financial system to self-renew.

The following is the original text:

In 1983, a dollar sign flashes on an IBM computer monitor.

Fast forward to 2019, when we announced the launch of Libra, the global financial system's reaction was, without exaggeration, quite intense. The near-existential fear was: once stablecoins can be instantly used by billions of people, will banks' control over the deposit and payment system be completely shattered? If you can hold a "digital dollar" in your phone that can be instantly transferred, why would you keep your money in a zero-interest, fee-laden, weekend-"shutdown" checking account?

At that time, this was a completely reasonable question. For years, the mainstream narrative has always believed that stablecoins were "stealing banks' lunch." People were worried about an imminent "deposit run."

Once consumers realize that they can directly hold a digital cash backed by assets at the level of government bonds, the foundation that provides low-cost funding to the U.S. banking system will quickly crumble.

But a recent rigorous research paper by Cornell University's Professor Will Cong suggests that the industry may have jumped the gun into panic. By examining real evidence rather than emotional judgment, Cong puts forward a counterintuitive conclusion: under appropriate regulation, stablecoins are not the destroyers of bank deposits but rather a complementary presence to the traditional banking system.

Theory of "Deposit Stickiness"

The traditional banking model is fundamentally a bet built on "friction."

Due to the fact that a checking account is the central hub where funds truly achieve interoperability, almost any value transfer action between external services must go through the bank. The design logic of the entire system is this: as long as you don't use a checking account, operations will become more cumbersome — the bank controls the only bridge that connects the "islands" of your fragmented financial life.

Consumers are willing to accept this "toll road" not because a checking account itself is superior, but because of the power of the "bundling effect." You put your money in a checking account not because it is the best place for your funds, but because it is a central node: mortgage payments, credit cards, direct deposits — all come together and operate cohesively here.

If the assertion that "banks are about to disappear" were true, we should have already seen a significant amount of bank deposits flow into stablecoins. However, reality shows otherwise. As Cong pointed out, despite the explosive growth of stablecoin market capitalization, "existing empirical research has found little explicit link between the emergence of stablecoins and a significant outflow of bank deposits." Friction mechanisms are still effective. So far, the mainstream adoption of stablecoins has not substantially drained traditional bank deposits.

In fact, warnings about "massive outflows of deposits" are mostly exaggerated by existing stakeholders in a panic about their own positions, overlooking the most basic economic "laws of physics" in the real world. The stickiness of deposits is an extremely powerful force. For most users, the convenience value of an all-in-one service is too high to justify moving their life savings to a digital wallet just for a few extra basis points of yield.

Competition is a Feature, Not a Systemic Flaw

But real change is indeed happening here. Stablecoins may not "kill banks," but it is almost certain that they will make banks uneasy and compel them to improve. This study from Cornell University points out that even the mere existence of stablecoins constitutes a form of discipline that forces banks to no longer rely solely on user inertia but to start offering higher deposit rates and a more efficient, more sophisticated operational system.

When banks truly face a credible alternative, the costs of inertia will quickly rise. They can no longer take for granted that your funds are "locked up" but are forced to attract deposits with more competitive pricing.

In this framework, stablecoins will not "eat the small cake" but instead will drive "more credit allocation and broader financial intermediary activities, ultimately enhancing consumer welfare." As Professor Cong puts it: "Stablecoins are not meant to replace traditional intermediaries but can serve as a complementary tool to expand the business boundaries that banks are already good at."

In fact, the "Exit Threat" itself is a powerful force that drives existing institutions to improve their services.

Regulatory "Unlock"

Of course, regulators have good reason to be concerned about the so-called "bank run risk" — that is, once market confidence wavers, the reserve assets behind a stablecoin may be forced into a fire sale, triggering a systemic crisis.

However, as the paper points out, this is not some unprecedented new risk but a standard risk form long present in financial intermediation, highly similar in nature to the risks other financial institutions face. We already have a mature set of responses for liquidity management and operational risks. The real challenge is not to "invent new physical laws" but to apply existing financial engineering correctly to a new technological form.

This is where the "GENIUS Act" plays a key role. By explicitly requiring stablecoins to be fully reserved by cash, short-term U.S. treasuries, or deposits held at a depository institution, this act provides a hard rule for safety at the institutional level. As the paper states, these regulatory guardrails "seem to cover the identified core vulnerabilities in academic research, including bank run risk and liquidity risk."

The legislation sets a minimum legal standard for the industry — full reserves and enforceable redemption rights, while the specific operational details will be implemented by banking regulatory agencies. Next, the Federal Reserve and the Office of the Comptroller of the Currency (OCC) will be responsible for translating these principles into actionable regulatory rules to ensure that stablecoin issuers fully account for operational risks, the possibility of custodial failure, and the unique complexities of large-scale reserve management and integration with blockchain systems.

On July 18, 2025 (Friday), U.S. President Donald Trump displayed the just-signed "GENIUS Act" at a signing ceremony held in the East Room of the White House in Washington.

Efficiency Dividend

Once we move beyond a defensive mindset regarding "deposit disintermediation," the true upside will come into view: the "underlying plumbing" of the financial system has reached a stage where it must be rebuilt.

The true value of tokenization lies not only in 24/7 availability but in "atomic-level settlement" — achieving instant cross-border value transfer without counterparty risk, a long-standing problem the current financial system has been unable to solve.

The current cross-border payment system is costly and slow, with funds often needing to flow through multiple intermediaries for several days before final settlement. Stablecoins compress this process into a single on-chain, final, irreversible transaction.

This has profound implications for global fund management: funds no longer need to be stranded in transit for days but can be transferred across borders instantly, unlocking the liquidity currently tied up by the correspondent banking system. In the domestic market, the same efficiency improvement also promises a lower-cost, faster merchant payment method. For the banking industry, this is a rare opportunity to update the traditional clearing infrastructure that has long relied on tape and COBOL to barely hold together.

The Dollar's Upgrade

Ultimately, the United States faces a binary choice: either lead the development of this technology or watch as the future of finance takes shape in offshore jurisdictions. The dollar remains the world's most popular financial product, but the "rails" that support its operation are visibly aging.

The GENIUS Act provides a truly competitive institutional framework. It "domesticates" this field by bringing stablecoins into the regulatory fold, transforming the inherent risks of the shadow banking system into a transparent, robust "global dollar upgrade plan." It turns a novel offshore entity into a core part of the domestic financial infrastructure.

Banks should no longer be entangled in competition itself but should start thinking about how to turn this technology into their advantage. Just as the music industry was forced to move from the CD era to the streaming era - initially resisting but eventually discovering a gold mine - banks are resisting a transformation that will ultimately save them. When they realize they can charge for "speed" rather than rely on "delay" for profit, they will truly learn to embrace this change.

A New York University student in New York downloading music files from the Napster website. On September 8, 2003, the Recording Industry Association of America (RIAA) filed lawsuits against 261 file sharers who downloaded music files over the internet; additionally, the RIAA issued over 1,500 subpoenas to Internet service providers.

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