BIS Paper: Banks Can Slow Stablecoin Growth by Paying Savers More

The Bank for International Settlements published research this week concluding that traditional banks hold a straightforward competitive lever against stablecoin adoption: pay depositors higher interest rates. The finding reframes stablecoin growth not purely as a regulatory problem to be solved, but as a market outcome shaped by monetary policy decisions.

The paper's central argument is that stablecoin adoption is partly a symptom of suppressed savings yields. When banks offer near-zero returns on deposits, consumers and businesses seeking yield migrate toward alternatives, including dollar-pegged stablecoins deployed in lending protocols or simply held for their utility in crypto markets. The BIS concludes that rising bank rates could curb stablecoin growth by making traditional savings accounts meaningfully competitive again, with knock-on implications for monetary policy transmission, regulatory design, and the competitive positioning of banks against digital currencies.

The historical pattern supports this hypothesis. Stablecoin supply expanded dramatically between 2020 and 2021, a period when the Federal Reserve held its benchmark rate near zero and savings accounts across the developed world offered returns that barely registered. Total stablecoin market capitalization grew from roughly $5 billion at the start of 2020 to over $150 billion by early 2022. That same window saw the DeFi yield farming boom, when annualized returns on stablecoin lending routinely reached double digits, creating a stark contrast with the 0.06% average U.S. savings rate at the time. The BIS paper's logic maps cleanly onto that episode: the spread between crypto yields and bank yields was, for a period, enormous, and capital flowed accordingly.

Yet the argument has meaningful limits. Stablecoin adoption is not monolithic. In emerging markets with currency instability, limited banking infrastructure, or capital controls, the calculus has little to do with rate differentials between a U.S. savings account and a DeFi lending pool. A small business owner in Argentina or Nigeria using USDT for cross-border payments is not making a yield-optimization decision. Programmability matters too: stablecoins settle on-chain, around the clock, without correspondent banking delays, and that operational utility is largely rate-insensitive. Institutional adoption for treasury management and settlement is similarly driven by efficiency rather than yield-seeking behavior.

There is also a structural complication. Rising interest rates do not only benefit banks. When the Fed tightens, on-chain lending protocols tend to reprice their rates upward as well, since crypto borrowing demand and collateral dynamics respond to the broader rate environment. The competitive gap may narrow less than the BIS model implies if both sides of the ledger adjust simultaneously.

None of that invalidates the paper's core insight. For retail users in developed markets, particularly those who adopted stablecoins during the low-rate era as a yield-adjacent strategy, higher bank deposit rates genuinely reduce the incentive to hold assets outside the traditional system. That is a real and measurable effect. The BIS, which functions as the central bank for central banks and has historically leaned toward caution on crypto adoption, is here making a more sophisticated argument: that market mechanisms, not prohibition, could organically constrain stablecoin growth under the right monetary conditions.

For regulators, that framing carries practical weight. If stablecoin growth is partly endogenous to monetary policy, then the appropriate policy response is more nuanced than a blanket licensing regime or an outright ban. It suggests that the competitive threat stablecoins pose to deposit-taking banks fluctuates with the rate cycle, peaking during easing periods and compressing during tightening ones. Central banks designing stablecoin frameworks would do well to model that dynamic explicitly, rather than treating stablecoin adoption as a fixed structural trend independent of the broader macro environment.

The BIS paper does not settle the debate. Stablecoins have accumulated too many non-yield use cases, from cross-border remittances to on-chain settlement infrastructure, to be explained away by deposit rate spreads alone. But as a partial explanation for the retail adoption surge of 2020-2021, and as a policy signal for what monetary tightening can accomplish without direct regulatory intervention, the research adds a useful dimension to a conversation that too often defaults to binary outcomes.