Coinbase has issued a robust defense against allegations from the banking sector claiming that stablecoins present a threat to financial stability. This statement comes as major U.S. banking trade organizations are advocating for stricter regulations on stablecoin platforms, particularly targeting the GENIUS Act, which aims to oversee the burgeoning crypto economy. Coinbase’s report, titled “Beyond the Deposit Debate,” contends that the narrative of “deposit erosion” linked to stablecoins is a “myth” devised to safeguard banks’ substantial payment processing monopoly, which is estimated to generate $187 billion annually.
In its findings, Coinbase challenges U.S. Treasury estimates suggesting a potential $6 trillion in deposit outflows prompted by the rise of yield-bearing stablecoins. Analysts from Citigroup have drawn parallels between the current environment and the significant flight of deposits witnessed during the 1980s money market fund crisis, when investments in money market funds surged dramatically, leading to a notable drain of traditional bank deposits.
However, Coinbase presents a contrasting viewpoint, asserting that banks currently hold around $3.3 trillion in reserves at the Federal Reserve, generating approximately $176 billion in risk-free income instead of extending additional loans. This claim directly contradicts assertions of shortages in bank deposits. The exchange argues that the majority of stablecoin transactions occur on an international scale, thereby reinforcing the role of the U.S. dollar globally without having a meaningful impact on domestic deposit levels.
The growth of the stablecoin market has been exponential, rising from $4 billion in 2020 to over $285 billion today, with forecasts indicating that it could reach an annual payment volume of $1 trillion by 2030—potentially accounting for 10% of the U.S. money supply.
Despite pushing for tighter regulations, these banking associations are simultaneously exploring opportunities within the stablecoin space. Prominent institutions, including the American Bankers Association and the Bank Policy Institute, have expressed concerns that the GENIUS Act could create loopholes allowing crypto exchanges to offer attractive yields, potentially leading to massive deposit outflows that could disrupt bank funding models.
The banking lobby also raises alarms over the risks posed by joint marketing initiatives between issuers and exchanges, which they argue could hasten deposit outflows in times of financial distress, thereby limiting credit availability and increasing borrowing costs for consumers. Yet, platforms like Coinbase and PayPal argue that existing prohibitions primarily target issuers and not intermediary exchanges, allowing them to continue offering competitive yields.
Moreover, this criticism from banks finds itself in a contradictory situation, as major players in the banking sector are concurrently investigating stablecoin innovations. For instance, Citigroup has openly recognized its interest in creating a Citi stablecoin and is actively developing tokenized deposit services aimed at corporate clients seeking instant processing capabilities. JPMorgan has also recently launched JPMD deposit tokens for institutional blockchain payments, despite CEO Jamie Dimon’s past skepticism regarding stablecoins.
On the regulatory front, the Bank of England has proposed strict ownership limits on stablecoins, drawing significant backlash from industry advocates who argue that such caps could disadvantage the UK in comparison to the U.S. and the European Union.
Reports indicate that institutional adoption of stablecoins is gaining momentum, with Fireblocks unveiling a stablecoin payment network involving over 40 institutional participants. This network supports substantial monthly volume and facilitates seamless cross-border transfers while adhering to regulatory requirements.
A recent survey showed that 90% of financial institutions are either actively using or exploring stablecoin integration, and major retail corporations like Amazon and Walmart appear to be leaning toward adopting stablecoins to mitigate transaction costs. Overlaying this competitive landscape, critics have highlighted the need for banks to enhance their deposit offerings rather than stifling innovation in financial technology.
As the financial landscape continues to evolve, Treasury Secretary Scott Bessent has expressed support for stablecoin adoption, positing that digital currencies could expand access to the U.S. dollar and bolster demand for U.S. Treasuries as backing assets. The potential for more cost-effective payment solutions, with transaction fees significantly lower than traditional banking fees, positions stablecoins as a viable option for the next generation of financial services, even as the banking industry grapples with the implications of this technological shift.
