Coinbase published a comprehensive defense against banking industry claims that stablecoins threaten traditional financial stability, arguing the “deposit erosion” narrative is a “myth” designed to protect banks’ $187 billion annual payment processing monopoly.
The exchange released research titled “Beyond the Deposit Debate,” challenging Treasury estimates of $6 trillion in potential deposit outflows from yield-bearing stablecoins.
Research Challenges Banking Industry’s Deposit Flight Claims
The defense comes as five major U.S. banking trade organizations lobby Congress to tighten GENIUS Act regulations, warning that stablecoin platforms offering competitive yields could trigger mass deposit flight similar to the 1980s money market fund crisis.
Citigroup analysts particularly compared current dynamics to those of the 1980s, when money market funds expanded from $4 billion to $235 billion in seven years, draining traditional bank deposits.
However, Coinbase argues that banks park $3.3 trillion in Federal Reserve reserves, earning $176 billion risk-free annually rather than extending additional loans, contradicting claims of deposit shortages.
The company contends most stablecoin activity occurs internationally, strengthening the U.S. dollar’s global role without significantly affecting domestic deposits.
The stablecoin market has grown from $4 billion in 2020 to over $285 billion today, with projections reaching $1 trillion in annual payment volume by 2030 and potentially comprising 10% of the U.S. money supply.
Banks Fight Innovation While Exploring Stablecoin Opportunities Themselves
Last month, major banking associations, including the American Bankers Association and Bank Policy Institute, urged Congress to close perceived GENIUS Act loopholes allowing crypto exchanges to offer stablecoin yields.
The groups cite Treasury estimates that yield-bearing stablecoins could trigger $6.6 trillion in deposit outflows, fundamentally altering bank funding mechanisms.
The banking lobby warns that joint marketing arrangements between issuers and exchanges could accelerate deposit flight during financial stress, reducing credit supply and raising borrowing costs.
However, platforms like Coinbase and PayPal continue offering stablecoin yields, arguing that prohibitions apply only to issuers rather than intermediaries.
Banking opposition faces contradictions as major institutions simultaneously explore stablecoin opportunities.
Citigroup CEO Jane Fraser confirmed the bank is “looking at the issuance of a Citi stablecoin” while developing tokenized deposit services for corporate clients seeking 24/7 settlement capabilities.
Earlier in June, JPMorgan also launched JPMD deposit tokens for institutional blockchain payments while CEO Jamie Dimon was questioning its use case.
The bank served as lead underwriter for Circle’s IPO, which has climbed over 500% since its $31 offering price.
It also appears that some institutions are showing approval to control stablecoins, as seen in the recent Bank of England’s proposal for strict ownership.
The bank caps between £10,000 and £20,000 for individuals and £10 million for businesses, which triggered widespread backlash.
Critics argue that the approach puts Britain at a disadvantage compared to the U.S. and the European Union, which have embedded stablecoins into their financial systems without such restrictions.
Institutional Adoption Accelerates Despite Regulatory Pressure
Earlier this month, Fireblocks launched a stablecoin payment network with over 40 institutional participants, including Bridge, Circle, and Zerohash, processing $212 billion in monthly volume.
The multi-stablecoin infrastructure supports seamless cross-border transfers and regulatory compliance across different token standards.
Research reveals 90% of financial institutions actively use or explore stablecoin integration, with major corporations including Amazon and Walmart reportedly considering stablecoins to reduce transaction fees.
Similar to Coinbase, Bitwise CIO Matt Hougan criticized banking complaints about competition, arguing banks should offer better deposit rates instead of “abusing depositors as a free source of capital for decades.”
Average U.S. savings accounts yield 0.6% while stablecoin platforms offer up to 5% returns, creating competitive pressure.
Coinbase’s research found no meaningful correlation between stablecoin adoption and deposit flight for community banks over the past five years.
Stock price correlations between major banks and crypto firms like Coinbase and Circle remain positive at 14%, indicating investors view stablecoins as complementary rather than competitive.
Source: Coinbase ReportAccording to a recent Keyrock projection, stablecoins will capture $1 trillion in annual payment volume by 2030, facilitating 12% of global cross-border flows.
Adoption is accelerating globally, with payment giants rushing to adopt crypto payments.
Recently, Visa partnered with Yellow Card Financial for stablecoin payments across 20 African countries, while Mastercard enables 3 billion cardholders to purchase crypto through blockchain integration.
While banks are standing against adoption, Treasury Secretary Scott Bessent supports stablecoin adoption, arguing digital dollars will “expand dollar access globally and increase demand for U.S. Treasuries” as backing assets.
The technology offers payments up to 13 times cheaper than traditional banks, with instant settlement, making it suitable for the next generation of financial services.
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