Focus
Stablecoins are digital tokens designed to maintain a stable value, usually against the US dollar. Like bank deposits, they can provide payment and liquidity services, but they generally pay little or no interest. We examine whether stablecoins and bank deposits compete for users’ funds by studying how stablecoin demand responds when banks change the rates they offer on deposits.
Contribution
Using weekly US data from January 2019 to June 2025, we relate changes in bank deposit rates to subsequent changes in the market capitalisation of reserve-backed stablecoins. Our analysis controls for broader interest rate conditions, Treasury yields, exchange rate movements, bitcoin prices, financial market volatility and developments in cryptocurrency markets. It also exploits the non-linear way in which banks pass changes in policy rates through to deposit rates in order to address possible two-way causality.
Findings
Our results provide evidence that stablecoins and bank deposits are partial substitutes. Higher deposit rates are followed by slower stablecoin growth, with the relationship being stronger for USDC than for USDT. The results remain when considering different deposit products and stablecoins supplied to decentralised finance protocols, and are not found for non-stablecoin cryptoassets. These findings suggest that bank deposit pricing may influence the growth of the stablecoin sector and that, if stablecoins become more widely used, they could affect banks’ funding conditions and the transmission of monetary policy. The analysis concerns the allocation of funds between assets and does not establish that stablecoin growth necessarily reduces aggregate bank deposits or lending.
Abstract
We test whether stablecoins and bank deposits act as substitutes by estimating the semi-elasticity of stablecoin market capitalization with respect to deposit rate changes. Using local projections fit to weekly U.S. data from January 2019 to June 2025, we find that deposit rate increases predict slower stablecoin growth. To address endogeneity, we exploit a nonlinearity in deposit rate pass-through. Whereas other money market rates track the federal funds rate roughly linearly, banksreprice deposits more aggressively once it exceeds approximately 3%. Against average ten-week stablecoin growth of 15%, ordinary least squares estimates imply a reduction of roughly 3 percentage points per basis point of deposit repricing, or about 3.75 percentage points per one-standard-deviation move. Instrumental variable estimates are roughly three times larger and pass a placebo test using non-stablecoin cryptocurrencies. Effects are stronger for USDC than for USDT, consistent with the former’s closer ties to U.S. depositors. Cross-sectional variation in repricing across deposit tiers provides independent evidence of substitution. The size of the stablecoin sector therefore depends in part on howbanks price deposits.
