Coinbase is hitting back against banks warning that dollar-pegged tokens will hollow out their deposit base and choke credit.
In a new paper, Faryar Shirzad, Coinbase’s chief policy officer, argued against the American Bankers Association, the Bank Policy Institute, and others who fear that stablecoins could drain over $6 trillion of deposits away from banks.
“Deposit erosion is a myth,” Shirzad wrote, suggesting that those financial institutions are simply trying to protect their “$187 billion annual swipe-fee windfall.”
“If banks were short on deposits, they’d raise rates, not park $3.3 trillion at the Fed. This is about protecting profit margins from competition,” the Coinbase executive said, suggesting that there is “no meaningful link” between stablecoin growth and deposit flight.
The new paper highlights the growing tension between crypto companies and traditional financial institutions. While some members of those camps are teaming up to mix digital assets and old school money, others are erecting crenellations to protect themselves against outside terrors.
And, as the war of words between Coinbase and the banks illustrates, stablecoins have become the latest battlefield.
Growing market
Stablecoins are absolutely exploding on a wave of bullishness linked to new crypto laws and initial public offferings such as stablecoin Circle’s public float.
DefiLlama data shows that it has surged to become a market worth just under $290 billion.
Even though some Wall Street heavyweights — such as Bank of America and JPMorgan Chase — are said to be exploring launching stablecoins of their own, others see dollar-pegged cryptocurrencies as a threat.
In August, a smattering of lobby groups warned lawmakers that a loophole in the Genius Act will give crypto exchanges an unfair advantage.
US President Donald Trump signed the Genius Act in July, marking the US’ first stablecoin law. The law requires stablecoins to hold 100% reserves in dollars or Treasuries and make monthly disclosures.
Supporters say the law locks in consumer protections while strengthening the dollar’s role as the world’s reserve currency.
Yet, the banking groups say the law is unfair. They lament that, while lenders will be allowed to issue new stablecoins, they’ll be barred from paying any interest to holders. Crypto exchanges had no such rule holding them back, they said.
They also point to a US Treasury Department report that forecasts that over $6 trillion in deposits could be drained from banks, which risks destabilising balance sheets and undermining their ability to lend.
Shirzad rejects that notion.
Stablecoin are being used for settlement, trading, and cross-border payments, not as savings accounts, he said.
“Someone buying stablecoins to pay an overseas supplier isn’t raiding their savings,” Shirzad said. “They’re choosing a faster, cheaper option than a wire transfer.”
The International Monetary Fund seemingly backs that point. Of $2 trillion in stablecoin transactions in 2024, most occurred outside the US — $633 billion in North America, $519 billion in Asia — showing stablecoins reinforce rather than weaken the dollar’s global role.
Crypto market movers
Bitcoin is up 0.4% over the past 24 hours to trade at $115,448.
Ethereum is down 0.7% over the past 24 hours trading at $4,504.
