Author: Christian Catalini, Forbes
Compiled by: Peggy, BlockBeats
Original Title: The Catfish Effect? Stablecoins Are Truly Not the Enemy of Bank Deposits
Editor's Note: Whether stablecoins would impact the banking system was one of the core 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 improve interest rates and 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, to put it mildly, quite intense. The near-existential fear was: once stablecoins become instantly accessible to billions of people, would the banking system's control over deposits and payment systems be completely broken? If you could hold a "digital dollar" in your phone that transfers instantly, why would you keep your money in a checking account that offers zero interest, charges numerous fees, and essentially shuts down on weekends?
At the time, this was a perfectly reasonable question. For years, the mainstream narrative has been that stablecoins are "stealing the banks' business." There were concerns that "deposit flight" was imminent.
Once consumers realized they could directly hold a form of digital cash backed by Treasury-grade assets, the foundation providing low-cost funding for the U.S. banking system would quickly crumble.
But 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 "Sticky Deposits" Theory
The traditional banking model is essentially a bet built on "friction."
Since the checking account is the only true interoperable hub for funds, almost any transfer of value between external services must go 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 your checking account not because it's the best place for funds, but because it's a central node: mortgages, credit cards, direct deposit salaries all interface and operate together here.
If the assertion that "banks are dying" were true, we should have seen massive bank deposits flowing into stablecoins. But reality is different. As Cong points out, despite the explosive growth in stablecoin market capitalization, "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 adoption of stablecoins has not caused substantial outflows from traditional bank deposits.
It turns out that those warnings about "mass deposit flight" were more panic-driven rhetoric from incumbents based on their own positions, ignoring 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 "bundled service" is too high—too high to move their life savings into a digital wallet just for a few extra basis points of yield.
Competition is a Feature, Not a System Bug
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 points out that even the mere existence of stablecoins already acts as a disciplinary constraint, forcing 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"; instead, they promote "more credit extension 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 good at."
It turns out that the "threat of exit" itself is a powerful motivator for incumbents 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 fire sales, triggering a systemic crisis.
But as the paper points out, this is not some unprecedented new risk; it is a standard risk profile long inherent in financial intermediation, highly similar in nature to the risks faced by other financial institutions. We already have a mature set of frameworks for managing liquidity and operational risks. 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 stablecoins to be fully backed by reserves of cash, short-term U.S. Treasuries, or insured deposits, the act mandates safety at the institutional level. As the paper states, these regulatory guardrails "appear 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 enforceable redemption rights—but leaves the specific operational details to be implemented by bank regulators. Next, the Federal Reserve and the Office of the Comptroller of the Currency (OCC) will be responsible for translating these principles into enforceable rules, ensuring stablecoin issuers adequately account for operational risks, the possibility of custody failures, and the unique challenges involved in large-scale reserve management and integration with blockchain systems.
July 18, 2025 (Friday): U.S. President Donald Trump displays the newly signed GENIUS Act during a signing ceremony in the East Room of the White House in Washington.
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 restructured.
The true value of tokenization is not just 24/7 availability, but "atomic settlement"—the instant transfer of value across borders 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 moved across borders instantly, releasing liquidity currently tied up long-term in 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 held together with tape and COBOL.
The Upgrade of 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" supporting it 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 element of the shadow banking system into a transparent, robust "global dollar upgrade," shaping an offshore novelty into a core component of domestic financial infrastructure.
Banks should stop fixating on competition itself and start thinking about how to leverage 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 goldmine—banks are resisting a transformation that will ultimately save them. When they realize they can charge for "speed" rather than profit from "delay," they will truly learn to embrace this change.
A New York University student downloads 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.
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