BIS paper finds stablecoins compete directly with bank deposits
DeFi & Yields ·
A Bank for International Settlements working paper concludes that stablecoins and bank deposits function as interchangeable holdings for investors, with deposit rate changes directly shaping stablecoin demand.
Using U.S. data, the researchers calculate that a mere 1 basis point increase in what banks pay on deposits is enough to curb stablecoin market capitalization expansion over a 10-week window by about 3 percentage points, according to wublockchain.xyz. When the authors apply an instrumental variable approach to the same relationship, that drag widens to as much as 9 percentage points, suggesting the baseline estimate may understate how tightly the two asset types are linked.
The paper does not treat all stablecoins the same way. USDC, which the authors tie more closely to onshore, domestic markets, shows a sharper response to rising deposit rates, with growth falling by 4.8%. USDT, described as more offshore-centric, is comparatively insulated, declining by only 1.9% under similar conditions. That gap points to differing investor bases: USDC holders appear more willing to shift funds back toward traditional bank accounts once those accounts become more attractive, while USDT demand is less tethered to U.S. deposit pricing.
The substitution pattern is not limited to standard deposit rates. The researchers find the same dynamic holds when comparing stablecoin growth against bank certificate of deposit rates and against yields available through DeFi lending markets, reinforcing the idea that stablecoins sit within a broader competitive set of yield-bearing alternatives rather than existing in isolation from conventional finance.
A separate summary of the same findings, published by defiprime.com, likewise frames higher deposit rates as a factor that slows stablecoin adoption over the same ten-week horizon, lending additional confirmation to the core result.
What remains unaddressed is how this substitution effect might behave outside the U.S. rate environment studied, or whether the gap between USDC and USDT sensitivity persists if offshore demand patterns shift. The paper's instrumental variable estimate also leaves open a wide range, from roughly 3 to 9 percentage points, that future work would need to narrow before the size of the deposit-rate drag on stablecoin growth can be considered settled.