Stablecoins Don't Risk Financial System: Coinbase CPO Debunks Banking Industry Myths and Urges Adaptation

Faryar Shirzad, Coinbase’s Chief Policy Officer Advocates for Stablecoins Coinbase’s Chief Policy Officer, Faryar Shirzad, contends that stablecoins do not endanger the financial system. His assertion is a marked departure from the narrative peddled by the U.S. banking industry. According to Shirzad, banks’ revenue protection drives their fears, not the inherent risks of stablecoins.

Dispelling the Stablecoin-Induced Bank Deposit Erosion Myth

Shirzad, in a thoughtful Tuesday blog post, sought to debunk the central bank claim that the proliferation of stablecoins will lead to a significant decrease in bank deposits. His point of view is informed by a recent analysis that showed no significant connection between the adoption of stablecoins and a decrease in deposits for community banks, suggesting that major banks would likely see similar results. The concern, as some suggest, that deposits may be under threat doesn’t stand up to scrutiny. Major banks still hold trillions of dollars at the Federal Reserve. If deposits were indeed at risk, these banks would be aggressively competing for customer funds. They would offer higher interest rates to attract deposits instead of parking cash at the central bank.

Rethinking How Stablecoins Threaten the Banking Sector

Shirzad argues that the banking opposition to stablecoins is rooted in their fear of losing control of the lucrative payments’ business. As opposed to the traditional banking system, stablecoins facilitate faster and more cost-effective money transfers. This puts into real threat an estimated $187 billion of annual revenue earned by banks and card networks from swipe fees. Shirzad likens the current resistance against stablecoins to the initial backlash against the introduction of ATMs and online banking. Banks warned of systemic dangers then, but they were merely protecting their profits. He dismisses the apprehensions around potential outflows from deposits into stablecoins, considering their total market cap stands at approximately $290 billion, as per CoinGecko data.

Stablecoins: Payment Tools or Deposit Outflows?

Stablecoins are primarily used as payment tools rather than long-term savings options, according to Shirzad. Whether for trading digital assets or for transferring funds overseas, stablecoins are becoming a preferred way of completing transactions. If someone chooses to use stablecoins for settling a transaction with an overseas supplier, they are opting for efficiency over tradition.

Embracing Stablecoins for Improved Service Delivery

Instead of resisting this digital innovation, Shirzad encourages banks to embrace the stablecoin technology. He points out that stablecoins can reduce settlement times, lower banking costs, and provide 24/7 access to payments. Financial institutions that are willing to adapt would benefit significantly from this trend, he suggests.

Stablecoins in the U.K: Regulations and Concerns

The U.K. is also grappling with the impact of stablecoins on its financial sector. A recent report by the Bank of England suggests considering caps on the systemic stablecoins to prevent possible lending and financial stability issues arising from sudden deposit outflows. Regulators categorize systemic stablecoins as those commonly used for UK-wide payments or those expected to gain popularity. Proposals to limit the number of systemic stablecoins that individuals and businesses can hold are already on the table. Thresholds of as low as 10,000 pounds for individuals and approximately 10 million pounds for businesses have been suggested.

Conclusion

In conclusion, while the emergence of stablecoins may pose a challenge to traditional banking, there may also be opportunities for those willing to innovate and adapt. As with any disruptive technology, banks and financial institutions should continue to approach cryptocurrencies and stablecoins with an informed perspective. A combination of sound understanding, progressive thinking, and appropriate regulation can help steer us towards a future where digital currencies contribute positively to our financial systems.