"Ultimately, all banks will be drained"...Stablecoins threaten to collapse traditional finance

▲ Banks, Stablecoins/AI-generated image

While stablecoins may not immediately shake the deposit base of traditional banks, a warning has been issued that, in the long term, they could erode financial market share and weaken banks' lending functions.

According to cryptocurrency media outlet Cointelegraph on April 20 (local time), Abhi Srivastava, Vice President of Moody's Investor Services Digital Economy Group, assessed that the impact of stablecoins on the banking system is currently limited. He cited the prohibition of interest payments on stablecoins in the US regulatory environment as a key reason. Due to these structural constraints, it is not easy to replace bank deposits in the short term. Additionally, the fact that payment infrastructure within the US is already fast, cheap, and highly reliable is also cited as a factor limiting the spread of stablecoins.

However, the mid-to-long-term trend is different. The stablecoin market is rapidly growing, with its market capitalization exceeding $300 billion as of the end of last year. Vice President Srivastava assessed that the role of stablecoins is expanding in payments, cross-border transactions, and on-chain finance. In particular, if the tokenization of real-world assets accelerates, banks are likely to face pressure from deposit outflows. This is a structural risk that could ultimately reduce banks' lending capacity and lead to a weakening of the traditional financial system as a whole.

Currently, the competition for dominance surrounding stablecoins is intensifying in the regulatory sphere. The US Congress is discussing the CLARITY Act (US Crypto Market Structure Bill), but it has made no progress due to conflicts of interest. In particular, the allowance of interest-bearing stablecoins has emerged as a key issue. Banks are concerned that if such a model is introduced, their deposit base could be severely shaken, and they are demanding strong regulations.

On the other hand, major virtual asset companies, including Coinbase, are clearly opposing the bill, pointing out issues such as the prohibition of interest payments and the lack of protection for open-source developers in the draft. Politicians are seeking a compromise, but a concrete agreement has yet to be reached. This has led to growing concerns that if regulatory uncertainty prolongs, the entire industry could be exposed to policy risks.

Stablecoins are in a transitional period, seeking a balance between innovation and regulation. If the point where technological maturity and regulatory frameworks align arrives, their influence within the financial market is highly likely to expand significantly beyond current levels. Analysis suggests that whether traditional banks can defend their deposit base amidst the spread of digital assets depends on future legislative directions.

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