$6 Trillion Deposit Drain Theory Sends Banking Industry into Panic
The article discusses how the U.S. CLARITY Act, which prohibits crypto exchanges from paying yields on payment stablecoins, is part of a broader effort to protect traditional banks' profitable net interest margins. Large banks like JPMorgan benefit from near-zero deposit rates while earning significantly higher returns by investing in assets like Treasury bills. The banking industry warns that stablecoin yield offerings could lead to $6.6 trillion in deposit outflows, harming lending capacity. However, the article argues that these funds often remain within the traditional financial system, as stablecoin reserves are held in cash and short-term Treasuries. The real concern for banks is competition from higher-yielding alternatives like USDC rewards and DeFi protocols, which force them to offer better rates. This situation mirrors historical debate around Regulation Q and the rise of money market funds in the 1970s. The stablecoin market has grown rapidly, reflecting demand for digital dollars that offer both liquidity and yield. The author suggests that, much like money market funds, stablecoin yields represent a technological shift that benefits consumers and will likely be adopted despite resistance from incumbent institutions.
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