Are stablecoins competitors to bank deposits? Empirical data says "no"

With the emergence of Libra in 2019, the global financial system was shaken by existential concerns: will stablecoins cause a massive outflow of capital from traditional banks? If billions of people gain access to digital dollars on their smartphones—cash that can be transferred instantly—why would they keep cash in a zero-yield checking account with fees?

The topic of stablecoins ignited heated debates. Analysts predicted a “catastrophic deposit withdrawal.” Regulators prepared for a systemic crisis. Media envisioned themselves on the brink of a revolution that would overhaul the banking system. But a recent comprehensive study by Professor Will Cong from Cornell University tells a different story—one that is more consistent and less panicked.

Deposit Stickiness as the Foundation of the Banking System

The core of the traditional banking model relies on a principle economists call “system resistance.” When a checking account becomes the sole true hub of your finances—your mortgage, credit card, salary, bill payments—all connect to this one node. You don’t keep money in that account because it’s the most profitable. You keep money there because it encompasses your entire financial universe.

This “system linkage effect” proves to be extremely powerful. People pay an almost “toll” for the convenience of a centralized hub, even when it yields minimal returns. That’s why traditional banks have been able to attract cheap deposits for centuries—not because of attractive interest rates, but due to a lack of alternatives.

When stablecoins started gaining momentum, many experts assumed this node would break apart. If people could hold digital assets outside the banking system, a withdrawal would be inevitable. But the facts tell a different story. Despite the exponential growth in stablecoin market capitalization, empirical research has found little to no dependence between the rise of these digital assets and actual deposit outflows from banks.

“Panic predictions proved premature,” notes Cong’s study. Deposit stickiness remains one of the most resilient forces in finance. The friction system still works. People are not willing to overhaul their financial universe for a few extra basis points of yield, no matter how attractive stablecoins are marketed.

Competition as a Catalyst, Not a Threat

Here’s the paradox: even if stablecoins didn’t drain bank deposits, they still changed the game. Just not in the way critics predicted.

Cong’s research shows that the mere presence of stablecoins as an alternative has become a motivating factor. Banks can no longer rely solely on inertia and systemic linkage. Competition forces them to raise deposit rates, implement more efficient operational systems, and at least try to offer users advantages rather than trap them.

This is a mindset shift: stablecoins don’t shrink the size of the financial pie—they expand it. The “threat of exit” becomes a powerful incentive for improvement. Banks are compelled to compete on service quality, not just on monopoly. Research indicates that this environment can lead to “broader credit provision and wider financial intermediation, ultimately benefiting consumers.”

Professor Cong emphasizes that stablecoins are not intended to replace traditional financial intermediaries but to expand the ecosystem in which these intermediaries already operate. They push banks toward innovation—something that wouldn’t happen without external pressure.

Regulatory Safeguards: From Panic to Structured Security

Of course, risks exist. Regulators had reason to worry about the so-called “bank run” scenario—where loss of confidence in the reserves backing stablecoins could trigger a panic sell-off and systemic crisis. But this is not a new problem. It’s a standard financial risk that has been addressed for over a century through proper regulation and liquidity management.

The turning point came with the passage of the GENIUS Act, signed into law by U.S. President Donald Trump on July 18, 2025. This legislation provides a clear roadmap: stablecoins must be fully backed by cash, short-term U.S. Treasury bonds, or insured bank deposits. It’s not a revolution in regulation—it’s applying proven financial principles to a new technological form.

The GENIUS Act creates a comprehensive framework: the Federal Reserve and the Office of the Comptroller of the Currency (OCC) are mandated to develop detailed rules covering operational risks, custodial asset storage, reserve management, and blockchain integration. As the study notes, these regulatory mechanisms “already address the main vulnerabilities identified by academic research,” including bank run and liquidity risks.

The result: stablecoins gain legislative security, and institutions understand the rules of the game. This transforms volatile digital assets into a stable class of financial instruments.

The Real Revolution: Atomic Clearing and Global Liquidity

When concerns about deposit competition recede, the true value of stablecoins emerges. And it’s not about attracting your savings. It’s about reconstructing the fundamental infrastructure of the financial system.

Traditional international payments are among the least efficient operations globally. Money travels through a network of correspondent banks, often taking days at each step. Fees are levied at every level. Counterparty risk exists at every transfer. For large institutions, it becomes an expensive maze.

Stablecoins offer something revolutionary: “atomic clearing.” One blockchain transaction. Final and irreversible. Money moves globally almost instantly. This frees up enormous amounts of liquidity that traditionally “hang” in settlement systems.

For businesses, this means cheaper, faster payments. For banks, a rare opportunity to modernize their decades-old clearing infrastructure built on outdated code and obsolete protocols. Stablecoins do not change the dynamics of deposits—they transform the geometry of global liquidity.

The Dollar as a Technological Platform

Finally, it’s about geopolitical positioning. Financial technology develops regardless of whether governments want it to. If the U.S. does not actively participate in developing stablecoins within its jurisdiction, innovation will simply shift offshore to jurisdictions with laxer regulation and weaker oversight.

The GENIUS Act is a geopolitical move. It doesn’t ban stablecoins; it captures them. By bringing these digital assets into the regulatory fold of the U.S., American authorities turn the risks associated with the shadow banking system into transparent, manageable infrastructure. The U.S. dollar remains the world’s most popular financial product. But the technological platform supporting it is outdated.

Stablecoins are an opportunity to “upgrade” the dollar. A chance to maintain its dominance in the era of digital assets by integrating blockchain as a core element of American financial infrastructure.

From Resistance to Adoption

The history of the music industry shows the way forward. When streaming began threatening physical media, the industry initially resisted. The RIAA sued, manufacturers feared losing control, artists worried. But over time, the industry realized: streaming didn’t kill music—it transformed the revenue model. The city that once earned from scarcity and delays learned to profit from speed and access.

Banks face a similar choice with stablecoins. They can cling to conservatism—resist, debate, delay—or see stablecoins as tools to rethink their value. When they understand they can profit not from delays but from payment speed, settlement efficiency, and service quality—then true transformation will happen.

Cong’s research and the passage of the GENIUS law demonstrate: stablecoins won’t kill traditional banking. They will compel it to evolve. What started as a panic over deposits has become a catalyst for modernization. Banks just need to accept reality and shift from resistance to adaptation—otherwise, they risk becoming obsolete.