BIS Research Links Bank Deposit Rates to Stablecoin Growth Slowdown
TREE NEWS reports: A new working paper from the Bank for International Settlements (BIS) provides the first rigorous empirical evidence that stablecoins and bank deposits function as substitutes, with rising deposit rates predicting a measurable deceleration in stablecoin market capitalization growth. The study, authored by BIS economist Iñaki Aldasoro and Rashad Ahmed of the Andersen Institute for Finance and Economics, analyzed U.S. weekly data from January 2019 through June 2025 using local projection methods.
The Numbers Behind the Substitution Effect
The findings are striking. Against a baseline of 15% average ten-week stablecoin growth, ordinary least squares estimates suggest that every 1 basis point increase in deposit rates reduces growth by roughly 3 percentage points, bringing it down to about 12%. To address endogeneity concerns, the researchers employed a nonlinearity in bank deposit pricing—where institutions become more aggressive in setting rates once the federal funds rate exceeds approximately 3%—as an instrumental variable. This approach amplifies the estimated effect to roughly 9 percentage points, cutting growth to around 6%.
Crucially, placebo tests on non-stablecoin crypto assets found no comparable sensitivity to deposit rates, reinforcing the thesis that stablecoins compete directly with traditional savings products rather than with speculative crypto assets.
USDC vs. USDT: Different Investor Bases, Different Sensitivities
The research carries significant implications for the competitive dynamics between the two dominant stablecoins. USDC, issued by Circle, tends to attract a more institutional and U.S.-centric user base that is more attuned to yield differentials between on-chain dollars and bank deposits. USDT, by contrast, serves a large offshore and emerging-market constituency where access to competitive bank deposit rates is limited, making it structurally less sensitive to Federal Reserve policy cycles. This suggests that in a prolonged higher-for-longer rate environment, USDC’s growth could face more pronounced headwinds than USDT’s.
Implications for DeFi and the Broader Crypto Economy
The substitution effect matters far beyond stablecoin issuers’ balance sheets. Stablecoins are the foundational liquidity layer for decentralized finance—used as collateral, trading pairs, and settlement rails. Slower stablecoin growth in a high-rate environment could constrain DeFi’s total value locked and reduce on-chain liquidity depth. It also complicates the narrative that stablecoins will inevitably cannibalize traditional banking deposits; the relationship appears bidirectional and rate-dependent.
For policymakers, the study underscores that stablecoin demand is not immune to monetary policy. As central banks debate CBDC designs and stablecoin regulation, the BIS findings suggest that the competitive landscape between public and private digital money will be shaped as much by interest rate cycles as by technological innovation.
Forward-Looking Perspective
With the Federal Reserve’s rate path uncertain, stablecoin issuers may need to innovate on yield-bearing products to retain users during high-rate periods. Circle’s recent moves toward tokenized money market funds and interest-sharing arrangements with partners reflect this imperative. The BIS paper effectively formalizes what market participants have long suspected: stablecoins are not just crypto infrastructure—they are monetary instruments competing in the same arena as bank deposits, and their fortunes will rise and fall with the cost of traditional money.
