What happened?
Citigroup’s Ronit Ghose warned that interest payments on stablecoins could lead to a situation similar to the 1980s, where traditional banks face a massive outflow of deposits. During that era, money market funds offered higher returns than banks, resulting in significant deposit withdrawals from banks. Currently, U.S. banking groups are lobbying Congress to close what they describe as a loophole in the GENIUS Act, which allows some cryptocurrency exchanges to offer yields on stablecoins.
Who does this affect?
This situation primarily affects traditional banks, crypto exchanges, and their customers. Banks fear losing deposits to stablecoin platforms that can offer competitive yields, impacting their ability to provide loans and manage liquidity. Consumers and businesses using banks for traditional financial services might experience changes in loan accessibility and interest rates.
Why does this matter?
The market impact of stablecoin yields is significant as it could lead to a fundamental shift in how banks operate and manage funds, potentially increasing credit costs for consumers and businesses. Treasury Department estimates suggest that yield-bearing stablecoins could cause up to $6.6 trillion in deposit outflows from banks. Such a shift could alter the competitive landscape between traditional banking and digital assets, influencing global monetary policy and financial stability.