BIS: Higher Bank Deposit Rates May Curb Stablecoin Expansion

BIS Research Highlights Bank Competition with Stablecoins

A new working paper from the Bank for International Settlements (BIS) indicates that rising interest rates offered by traditional banks could act as a brake on the expansion of the stablecoin market. The analysis focuses on the U.S. market and suggests a direct relationship between bank deposit rates and stablecoin growth.

1bp Rate Increase Impacts Growth

According to the BIS, a 1 basis point (0.01%) increase in U.S. bank deposit rates is predicted to reduce ten-week stablecoin growth by 3 percentage points. Specifically, the research shows a potential drop from 15% growth to 12% with a 1bp rate increase. This suggests that banks can compete with stablecoins by offering more attractive yields on deposits.

Implications for Stablecoin Adoption

The findings are relevant as stablecoins, such as USDC and Tether (USDT), have gained traction as an alternative to traditional banking services. However, if banks respond to the competitive pressure by increasing deposit rates, the appeal of stablecoins as a yield-bearing asset may diminish. The paper does not address the broader use cases of stablecoins beyond yield, such as remittances or DeFi applications.

BIS Focus on Digital Finance

The BIS has been actively researching the implications of digital finance, including central bank digital currencies (CBDCs) and stablecoins, as these innovations challenge the existing financial system. This paper adds to a growing body of work aimed at understanding the potential risks and benefits of these new technologies.

Source: CoinDesk