Faryar Shirzad, Chief Policy Officer at Coinbase, challenges the belief held by the U.S. banking industry that stablecoins jeopardize the financial system. He suggests that this notion is nothing more than a myth, invented by the banks to safeguard their revenues.
The stablecoin myth debunked
In a recent blog post, Shirzad refuted the idea that stablecoins will lead to an enormous outflow of bank deposits. As he pointed out, recent analyses have shown that the rise in stablecoin usage has not negatively impacted deposit numbers at community banks. There is no evidence indicating that larger banks would encounter a different scenario.
In fact, many of these larger banks continue to hold trillions of dollars at the Federal Reserve. If bank deposits were genuinely at risk, Shirzad argues, these banks would be more competitive, vying for customers’ funds by offering higher interest rates rather than leaving their money with the central bank.
The real threat to banks: The payments business
Shirzad goes on to contend that the banking industry’s opposition to stablecoins really stems from concerns about the payments business. Stablecoins, which are digital tokens tethered to a real-life asset such as the dollar, offer more economical and quicker methods to transfer money. In doing so, they threaten an estimated $187 billion in yearly revenue from swipe fees for traditional card networks and banks.
He likens the current resistance to stablecoins to the earlier opposition towards ATMs and online banking. Like their predecessors, the incumbents are warning of systemic dangers, but in reality, they are keen on preserving their existing profit margins.
Debunking the outflow fears
Shirzad has also dismissed predictions intimating at the potential trillions in outflows from deposits into stablecoins, whose total market cap is estimated to be around $290 billion. He underlines how stablecoins are primarily utilized as tools for payments—for trading digital assets or sending funds abroad—and not as long-term savings products. Therefore, an individual purchasing stablecoins for settling with an overseas supplier is opting for an efficient transaction method over their bank, not withdrawing money from a savings account.
Embracing the technological shift
Shirzad encourages banks to welcome this technological evolution rather than resist it. He argues that stablecoin routes can reduce settlement times, cut down on correspondent banking costs, and facilitate around-the-clock payments. Thus, financial institutions willing to adapt can reap benefits from this shifting paradigm.
Concerns from the U.K
However, the U.K. is not immune to concerns about the potential impacts of stablecoins on its financial industry either. Reports suggest that the Bank of England is mulling over setting limits on how many systemic stablecoins individuals and companies can hold, with proposed thresholds as low as 10,000 pounds for individuals and roughly 10 million pounds for businesses.
The authorities classify systemic stablecoins as those that are already extensively utilized for U.K. payments or anticipated to become so. They believe these caps are required to prevent sudden deposit outflows that could potentially weaken lending and financial stability.
