Higher US bank deposit rates are linked to slower stablecoin market growth, according to a new research paper. Researchers found that stronger returns on bank deposits may reduce demand for dollar-backed digital tokens. Circle’s USDC showed greater sensitivity to deposit rate changes than Tether’s USDT. However, the findings do not establish that stablecoins have reduced overall bank deposits or lending.
BIS research links rising bank deposit rates to slower stablecoin growth, with USDC reacting more strongly than USDT.
Higher Deposit Rates Linked to Slower Stablecoin Growth
The Bank for International Settlements (BIS) published the working paper “Are Stablecoins and Bank Deposits Substitutes?” Their analysis covered 339 weekly observations and focused on reserve-backed stablecoins, including USDT and USDC. Researchers compared changes in deposit rates with changes in stablecoin market capitalization over subsequent weeks.
Results showed that a one-basis-point increase in deposit rates predicted slower stablecoin growth over ten weeks. Under the baseline model, cumulative growth fell by approximately three percentage points, from an average 15% to 12%.
A basis point equals 0.01 percentage point. Importantly, the estimate describes slower growth, not a three-percent decline in existing stablecoin market value. Researchers controlled for Bitcoin prices, Treasury yields, federal funds rates, dollar movements, and wider financial market volatility. Such controls helped distinguish deposit pricing from other conditions affecting demand for stablecoins.
USDC Shows Stronger Response Than USDT
Separate estimates found that USDC reacted more strongly than USDT when bank deposit rates increased. At the ten-week mark, the baseline estimates indicated reductions of approximately 4.8 percentage points for USDC. USDT’s corresponding estimate was about 1.9 percentage points. Authors linked the difference to each token’s user base. USDC has closer ties to US institutions and decentralized finance activity. USDT, meanwhile, has wider use in offshore markets and developing economies.
An alternative statistical approach produced a larger estimated effect for the overall stablecoin market. It suggested roughly nine percentage points slower ten-week growth following a one-basis-point increase. Still, that estimate depends on additional statistical assumptions. A comparison with non-stablecoin cryptocurrencies found no statistically significant matching response to deposit rate changes.
Researchers also examined differences between deposit products and assessed periods surrounding major crypto market disruptions. Findings remained broadly consistent across several checks, including adjustments for decentralized finance lending yields.
Researchers Caution Against Claims of Bank Deposit Losses
Despite evidence of competition, the paper did not measure withdrawals from banks caused by stablecoin adoption. Its market-level data cannot identify which customers moved funds or which banks were affected.
Stablecoin issuers may also reinvest reserves within the banking system. As a result, changing stablecoin balances could redistribute deposits without reducing total deposits. Another limitation concerns the study period. Available data covered only one prolonged high-interest-rate episode, leaving uncertainty about other monetary conditions.
Authors also warned that yield-bearing stablecoins could change how holders respond to deposit rates. Their findings mainly reflect a market where stablecoins generally paid no interest directly to holders. For banks and policymakers, the research suggests deposit pricing can influence demand for stablecoins. The paper represents its authors’ views, not necessarily those of the BIS or its member central banks.
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