Stablecoins are just the "catfish" of banks, not the "terminator".

Original Title: How Banks Learned To Stop Worrying And Love Stablecoins

Original author: Christian Catalini, Forbes

Compiled by: 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 become clearer, the answer is becoming more measured: stablecoins have not triggered large-scale deposit outflows; rather, under the real constraint of “deposit stickiness,” they have become a competitive force that pressures banks to improve interest rates and efficiency.

This article reinterprets stablecoins from the perspective of banks. It may not be a threat, but rather a catalyst that compels the financial system to renew itself.

The following is the original text:

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

Back in 2019, when we announced the launch of Libra, the reaction from the global financial system was, to say the least, quite intense. The fear of an almost existential crisis lay in the question: Once stablecoins can be instantly used by billions, will banks' control over deposits and payment systems be completely shattered? If you can hold a “digital dollar” that can be transferred instantly on your phone, why would you keep your money in a checking account with zero interest, numerous fees, and essentially “shut down” on weekends?

At that time, it was a completely reasonable question. For years, the mainstream narrative has always believed that stablecoins are “taking away the banks' business.” People are worried that “deposit loss” is imminent.

Once consumers realize that they can directly hold a digital cash backed by government bond-level assets, the foundation that provides low-cost funds to the U.S. banking system will quickly collapse.

However, a rigorous research paper recently published by Professor Will Cong of Cornell University shows that the industry may have panicked too early. By examining real evidence rather than emotional judgments, Cong presents an counterintuitive conclusion: under the premise of proper regulation, stablecoins are not destroyers that deplete bank deposits, but rather a complementary existence to the traditional banking system.

“Sticky Deposit” Theory

The traditional banking model is essentially a bet built on “friction.”

Since checking accounts are the only true hub for fund interoperability, any action to transfer value between external services almost always has to go through the bank. The design logic of the entire system is that as long as you do not use a checking account, operations will become more cumbersome—banks control that unique bridge that connects the isolated “islands” in your financial life.

Consumers are willing to accept this “toll” not because the demand deposit account itself is superior, but because of the power of the “bundling effect.” You put your money in a demand deposit account not because it's the best place for your funds, but because it is a central node: mortgage loans, credit cards, and direct salary deposits all connect and operate in coordination here.

If the assertion that “banks are about to disappear” is indeed valid, we should have already seen a large amount of bank deposits flowing into stablecoins. But the reality is not so. As Cong pointed out, despite the explosive growth of the stablecoin market, “existing empirical research has found almost no significant correlation between the emergence of stablecoins and the loss of bank deposits.” The friction mechanism remains effective. So far, the adoption of stablecoins has not caused substantial outflows from traditional bank deposits.

It has been proven that warnings about “large-scale capital outflows” are more a reflection of the panic of existing stakeholders due to their positions, ignoring the most basic economic “physical laws” in the real world. The stickiness of deposits is an extremely powerful force. For most users, the convenience value of a “package of services” is too high, so high that they would not simply transfer their life savings to a digital wallet for just a few more basis points of return.

Competition is a characteristic, not a system defect.

But real change is happening here. Stablecoins may not “kill banks,” but it is almost certain that they will make banks uneasy and force them to improve. This study from Cornell University points out that even the mere existence of stablecoins constitutes a form of disciplinary constraint, forcing banks to no longer rely solely on user inertia, but to start offering higher deposit rates, as well as more efficient and refined operational systems.

When banks are truly confronted with a credible alternative, the cost of conservatism will quickly rise. They can no longer take for granted that your funds are “locked in,” but are forced to attract deposits at more competitive rates.

Under this framework, stablecoins do not “shrink the pie”, but instead promote “more credit allocation and broader financial intermediation activities, ultimately enhancing consumer welfare.” As Professor Cong stated: “Stablecoins are not meant to replace traditional intermediaries, but can serve as a complementary tool to expand the boundaries of business that banks are already good at.”

It has been proven that the “threat of exit” itself is a powerful driving force for existing institutions to improve their services.

regulatory “unlocking”

Of course, regulators have ample reason to be concerned about the so-called “run risk”—which means that once market confidence is shaken, the reserve assets backing stablecoins may be forced to be sold off, leading to a systemic crisis.

However, as the paper points out, this is not a new risk that has never been seen before, but rather a standard risk pattern that has long existed in financial intermediation activities, and is essentially highly similar to the risks faced by other financial institutions. We already have a complete and mature response framework for liquidity management and operational risk. The real challenge is not to “invent new physical laws,” but to correctly apply existing financial engineering to a new technological form.

This is precisely where the “GENIUS Act” plays a key role. By explicitly requiring that stablecoins must be fully backed by cash, short-term U.S. Treasury securities, or reserve deposits, the Act establishes stringent provisions for safety at the institutional level. As stated in the paper, these regulatory safeguards “appear to be able to cover the core vulnerabilities identified in academic research, including the risks of runs and liquidity.”

The legislation sets minimum statutory standards for the industry—adequate reserves and enforceable redemption rights—but the specific operational details will be implemented by banking regulatory agencies. Moving forward, the Federal Reserve and the Office of the Comptroller of the Currency (OCC) will be responsible for translating these principles into enforceable regulatory rules, ensuring that stablecoin issuers fully account for operational risks, the possibility of custody failures, and the complexities unique to large-scale reserve management and integration with blockchain systems.

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

efficiency dividend

Once we move beyond the defensive mindset of “deposits being diverted,” the real upside potential will become apparent: the “underlying infrastructure” of the financial system is now at a stage that requires reconstruction.

The real value of tokenization is not just 24/7 availability, but “atomic-level settlement” — achieving instant cross-border value transfer without counterparty risk, which is a long-standing issue that the current financial system has been unable to solve.

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

This has far-reaching implications for global fund management: funds no longer need to be stuck for days “in transit” but can be allocated across borders instantly, releasing liquidity that is currently tied up for long periods in the correspondent banking system. In the domestic market, the same efficiency improvements also herald lower costs and faster merchant payment methods. 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 maintain itself.

upgrade of dollars

Ultimately, the United States faces a binary choice: either lead the development of this technology or watch the future of finance take shape in offshore jurisdictions. The dollar remains the most popular financial product globally, but the “tracks” supporting its operation have clearly aged.

The “GENIUS Act” provides a truly competitive institutional framework. It localizes the field: by bringing stablecoins under regulatory boundaries, the U.S. transforms the uncertainties that originally belonged to the shadow banking system into a transparent and robust “global dollar upgrade plan,” shaping an offshore novelty into a core component of domestic financial infrastructure.

Banks should no longer be entangled in the competition itself, but should start thinking about how to turn this technology into their own advantage. Just like the music industry was forced to transition from the CD era to the streaming era—initially resistant, but ultimately discovering it was a gold mine—banks are resisting a transformation that will ultimately save them. When they realize that they can charge for “speed” instead of relying on profits from “delay,” they will truly learn to embrace this change.

A New York University student downloaded music files from the Napster website in New York. 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.