--- title: "How Banks Learned To Stop Worrying And Love Stablecoins" date: 2025-12-17 outlet: forbes originalUrl: "https://www.forbes.com/sites/christiancatalini/2025/12/17/how-banks-learned-to-stop-worrying-and-love-stablecoins/" canonical: original rights: full tags: [stablecoins-payments] deck: "Banks worry stablecoins will drain deposits. Data says they won’t. The real value is replacing settlement rails built on duct tape and COBOL with a dollar that works." image: "/images/writing/banks-love-stablecoins.jpg" --- Back in 2019, when we announced [Libra](https://www.forbes.com/sites/christiancatalini/2025/09/05/stripes-tempo-and-the-ghost-of-facebooks-libras-past/), the reaction from the global financial establishment was, to put it mildly, energetic. The existential fear was that stablecoins—instantly available to billions of people—would break the control that banks have on deposits and payments. If you could hold a digital dollar on your phone that moved instantly, why would you keep your money in a checking account that pays zero percent, charges fees, and effectively closes for the weekend? It was a reasonable question at the time. For years, the prevailing narrative has been that stablecoins are coming for the banks’ lunch. The concern is that “deposit erosion” is imminent, and that once consumers realize they can access digital cash with T-bill-like backing, the low-cost funding that powers the U.S. banking system will evaporate. But a rigorous [new research paper](https://cornell.app.box.com/s/njs6ovw8mvtyj06slrlzlcrwjij7a0y1) by Professor Will Cong of Cornell University suggests that the industry may have panicked too early. By examining the evidence rather than the sentiment, Cong offers a counter-intuitive take: when properly regulated, stablecoins act as a complement to the traditional banking system rather than a disruptor that drains deposits. ## The Theory of Sticky Deposits The traditional banking model is a bet on friction. Because the checking account is the only true interoperability layer for our funds, any attempt to move value between external services must transit through a bank. The system is designed so that using anything but the checking account adds friction: the bank controls the only bridge connecting the disparate islands of your financial life. Consumers accept this toll because of the power of the bundle. You keep your money in a checking account not because it is the best place for it, but because it is the central hub where your mortgage, credit card, and direct deposit all talk to each other. If the “death of banking” thesis were true, we would expect to see massive outflows from bank deposits into stablecoins already. [We don’t.](https://media.crai.com/wp-content/uploads/2025/07/22152125/Stablecoins-impact-on-community-bank-deposits-July2025.pdf) As Cong writes, despite the meteoric rise in stablecoin market cap, “*empirical studies to date have found little evidence of deposit erosion or outflows linked to the emergence of stablecoins*”. The friction works. To date, stablecoin adoption has not produced meaningful outflows from traditional deposits. It turns out that warnings about deposit flight are mostly incumbent fearmongering that ignores the basic economic physics of the real world. Deposit stickiness is a powerful force. Most customers value the convenience of the bundle too much to move their life savings to a digital wallet just for a few extra basis points. ## Competition as a Feature, Not a Bug But here is where the dynamic shifts. Stablecoins might not kill the banks, but they will almost certainly annoy them into becoming better. The Cornell paper argues that the mere presence of stablecoins acts as a disciplining force, pressuring banks to stop relying on inertia and start offering higher deposit rates and tighter operational efficiency. When banks face a credible alternative, the cost of complacency goes up. They are suddenly incentivized to price their deposits competitively rather than assuming your money is captive. In this model, stablecoins don't shrink the pie, they encourage “*greater lending, and expanded intermediation, ultimately enhancing consumer welfare*”. As Prof. Cong puts it: “*Rather than displacing traditional intermediation, stablecoins can operate as complementary instruments that broaden the scope of what banks already do well*”. The threat of exit, it turns out, is excellent motivation for the incumbents. ## The Regulatory unlock Of course, regulators are right to worry about [“run risk”](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3899499)—the existential dread that a loss of confidence could trigger a fire sale of the assets backing the stablecoin. But as the paper notes, these are not exotic new dangers; they are the standard risks of financial intermediation, broadly comparable to those faced by other institutions. We already have a playbook for liquidity management and operational risk. The challenge isn’t inventing new physics, it is just applying existing engineering to a new technology. This is where the GENIUS Act becomes the essential bridge. By mandating that stablecoins be fully backed by cash, short-term Treasuries, or insured deposits, the Act effectively legislates safety. As the paper notes, these safeguards *“appear poised to address the key vulnerabilities identified in the academic literature, including run and liquidity risk”*.While the legislation sets the statutory floor—full reserves and enforceable redemption rights—it leaves the operational details to the banking regulators. It will be up to the Federal Reserve and the OCC to operationalize these rules, ensuring that issuers account for operational risks, custodial failures, and the specific nuances of managing reserves and blockchain integrations at scale. ## The Efficiency Dividend Once we move past the defensive posture regarding deposits, we can look at the upside: the plumbing itself is due for an overhaul. The real [promise of tokenization](https://assets.ctfassets.net/o10es7wu5gm1/3DPt8YOiYtdVfqUoeuAJdS/33b4c368f7bc6b4ff7173df36c3d00da/Davos_Whitepaper_A4.pdf) is not just 24/7 availability, but atomic settlement—the ability to move value across borders instantly without the counterparty risk that plagues the current model. Today’s cross-border payments are expensive and sluggish, often taking days to settle as they hop between intermediaries. [Stablecoins](https://www.forbes.com/sites/christiancatalini/2025/04/29/the-stablecoin-wars/) collapse this process into a single, final transaction onchain. This has profound implications for global treasury management: instead of capital being trapped in transit for days, it can be rebalanced across borders instantly, freeing up liquidity that is currently stuck in the correspondent banking void. Domestically, this same efficiency hints at cheaper, faster merchant payments. For the banking sector, this is a rare chance to modernize legacy settlement infrastructure that is currently held together by duct tape and COBOL. ## The Dollar Upgrade Ultimately, the U.S. faces a binary choice: it can lead the development of this technology, or it can watch the future of finance get built in offshore jurisdictions. The dollar is the world's most popular financial product, but its delivery rails are showing their age. The GENIUS Act provides a framework to actually compete. It domesticates the sector: by bringing stablecoins inside the regulatory perimeter, the U.S. converts a shadow banking anxiety into a transparent, resilient upgrade for the global dollar. It turns an offshore novelty into a core piece of domestic infrastructure. Banks should stop worrying about the competition and start figuring out how to use the technology to their advantage. Much like the music industry had to be dragged kicking and screaming from CDs to streaming—only to realize streaming was a goldmine—banks are fighting a transition that will ultimately save them. The moment they realize they can charge for the speed rather than the delay, they will learn to love it.