Editor's Note: Whether stablecoins will impact the banking system was one of the most critical debates in recent years. However, as data, research, and regulatory frameworks gradually become clearer, the answer is becoming more measured: stablecoins have not triggered large-scale deposit outflows. Instead, constrained by the reality of 'deposit stickiness,' they have become a competitive force that compels banks to raise interest rates and improve efficiency.

This article reexamines stablecoins from the perspective of banks. They may not be a threat but rather a catalyst forcing the financial system to renew itself.

Below is the original text:

Back in 2019, when we announced the launch of Libra, the global financial system's reaction was, without exaggeration, quite intense. The fear, akin to an existential crisis, was this: once stablecoins become instantly accessible to billions of people, would the banks' control over deposits and payment systems be completely broken? If you could hold a 'digital dollar' in your phone that can be transferred instantly, why would you keep your money in a checking account that offers zero interest, charges numerous fees, and is essentially 'shut down' on weekends?

At the time, this was a perfectly reasonable question. For years, the mainstream narrative has held that stablecoins are 'stealing the banks' business.' People worried that an imminent 'deposit flight' was on the horizon.

Once consumers realized they could directly hold a form of digital cash backed by treasury-grade assets, the very foundation providing low-cost funding for the U.S. banking system would quickly crumble.

However, a rigorous research paper recently published by Professor Will Cong of Cornell University suggests the industry may have panicked too soon. By examining real evidence rather than emotional judgments, Cong presents a counterintuitive conclusion: when properly regulated, stablecoins are not disruptors draining bank deposits but rather a complement to the traditional banking system.

The Theory of 'Sticky Deposits'

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

Because the checking account is the only truly interoperable hub for funds, any transfer of value between external services must almost always pass through the bank. The entire system is designed on the logic that as long as you don't use a checking account, operations become more cumbersome—the bank controls the only bridge connecting the isolated 'islands' of your financial life.

Consumers are willing to accept this 'toll' not because checking accounts are superior but because of the power of the 'bundling effect.' You keep money in a checking account not because it's the best place for funds but because it's a central node: mortgages, credit cards, direct salary deposits all interface and operate in synergy here.

If the assertion that 'banks are dying' were true, we should have already seen a massive flow of bank deposits into stablecoins. But reality is different. As Cong points out, despite the explosive growth in the market value of stablecoins, 'existing empirical research has found little evidence of a clear correlation between the emergence of stablecoins and the outflow of bank deposits.' The friction mechanism remains effective. So far, the popularity of stablecoins has not caused substantial outflows from traditional bank deposits.

It turns out that the warnings about 'mass deposit flight' were more panic-driven rhetoric from vested interests, overlooking the most basic economic 'laws of physics' in the real world. The stickiness of deposits is an incredibly powerful force. For most users, the convenience value of the 'bundle of services' is too high—too high to make them transfer their life savings to a digital wallet just for a few extra basis points of return.

Competition is a Feature, Not a System Flaw

But real change is happening here. Stablecoins may not 'kill banks,' but they will almost certainly make banks uncomfortable and force them to become better. The Cornell study notes that the mere existence of stablecoins itself acts as a disciplinary constraint, compelling banks to no longer rely solely on user inertia but to start offering higher deposit interest rates and more efficient, sophisticated operational systems.

When banks truly face a credible alternative, the cost of sticking to the old ways rises rapidly. They can no longer take it for granted that your funds are 'locked in' but are forced to attract deposits with more competitive pricing.

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

It turns out that the 'threat of exit' itself is a powerful motivator for incumbent institutions to improve their services.

Regulatory 'Unlocking'

Of course, regulators have good reason to worry about so-called 'run risk'—the possibility that if market confidence wavers, the reserve assets backing stablecoins could be forced into a fire sale, triggering a systemic crisis.

But as the paper points out, this is not some unprecedented new risk but a standard form of risk long present in financial intermediation, highly similar in nature to the risks faced by other financial institutions. We already have a mature set of frameworks for dealing with liquidity management and operational risk. The real challenge is not 'inventing new physical laws' but correctly applying existing financial engineering to a new technological form.

This is where the 'GENIUS Act' plays a key role. By explicitly requiring that stablecoins must be fully reserved with cash, short-term U.S. Treasuries, or insured deposits, the act mandates security at the institutional level. As the paper states, these regulatory guardrails 'appear sufficient to cover the core vulnerabilities identified in academic research, including run risk and liquidity risk.'

The legislation sets minimum statutory standards for the industry—full reserve backing and legally enforceable redemption rights—but leaves the specific operational details to banking regulators for implementation. Next, 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 stablecoin issuers adequately account for operational risks, the possibility of custody failures, and the unique complexities involved in large-scale reserve management and integration with blockchain systems.

The Efficiency Dividend

Once we move beyond the defensive mindset of 'deposit diversion,' the real upside becomes apparent: the 'underlying plumbing' of the financial system itself has reached a point where it must be rebuilt.

The true value of tokenization is not just 24/7 availability but 'atomic settlement'—the instant transfer of cross-border value without counterparty risk, a problem the current financial system has long failed to solve.

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

This has profound implications for global cash management: funds are no longer trapped 'in transit' for days but can be transferred across borders instantly, releasing liquidity currently tied up long-term by the correspondent banking system. In domestic markets, the same efficiency gains promise lower-cost, faster merchant payments. For the banking industry, this is a rare opportunity to update the traditional clearing infrastructure that has long been barely held together with tape and COBOL.

Upgrading the Dollar

Ultimately, the U.S. faces a binary choice: either lead the development of this technology or watch the future of finance take shape in offshore jurisdictions. The U.S. dollar remains the world's most popular financial product, but the 'rails' it runs on are clearly aging.

The 'GENIUS Act' provides a truly competitive institutional framework. It 'domesticates' this field: by bringing stablecoins within the regulatory perimeter, the U.S. transforms what was an不安 factor in the shadow banking system into a transparent, robust 'global dollar upgrade plan,' shaping an offshore novelty into a core component of domestic financial infrastructure.

Banks should stop obsessing over competition itself and start thinking about how to turn this technology to their advantage. Just as the music industry was forced to move from the CD era to the streaming era—initially resistant but ultimately discovering a gold mine—banks are resisting a transformation that will eventually save them. When they realize they can charge for 'speed' rather than profiting from 'delay,' they will truly learn to embrace this change.