Catfish Effect? Stablecoins are really not the enemy of bank deposits

Original Title: How Banks Learned To Stop Worrying And Love Stablecoins
Original Author: Christian Catalini, Forbes
Translated by: Peggy, BlockBeats

Editor’s Note: Whether stablecoins will impact the banking system has been one of the most central debates in recent years. However, as data, research, and regulatory frameworks become clearer, the answer is becoming more measured: stablecoins have not triggered a massive outflow of deposits; instead, under the real-world constraints of "deposit stickiness," they have become a competitive force that compels banks to improve interest rates and efficiency.

This article reinterprets stablecoins from the perspective of banks. They may not be a threat but rather a catalyst that forces the financial system to renew itself.

Here is the original text:

In 1983, a dollar sign flashed on an IBM computer monitor.

Back in 2019, when we announced the launch of Libra, the global financial system's reaction was, to say the least, quite intense. The fear of an almost existential crisis stemmed from the question: once stablecoins can be used instantly by billions, will banks' control over deposits and payment systems be completely shattered? If you can hold a "digital dollar" that can be transferred instantly on your phone, why would you keep your money in a checking account that offers zero interest, has numerous fees, and essentially "pauses" on weekends?

At that time, this was a perfectly reasonable question. For years, the mainstream narrative has maintained that stablecoins are "taking away banks' business." People feared that "deposit flight" was imminent.

Once consumers realize they can directly hold a form of digital cash backed by government-grade assets, the foundation that provides low-cost funding to the U.S. banking system would quickly collapse.

However, a recent rigorous research paper by Professor Will Cong of Cornell University shows that the industry may have panicked too early. By examining real evidence rather than emotional judgments, Cong presents an intuitive conclusion: under appropriate regulation, stablecoins are not destroyers that hollow out bank deposits but rather complementary to the traditional banking system.

The Theory of "Sticky Deposits"

The traditional banking model is essentially a bet built on "friction."

Since checking accounts are the only true hub for fund interoperability, any transfer of value between external services must almost always go through the bank. The design logic of the entire system is that as long as you don't use a checking account, operations become more cumbersome—banks control the only bridge connecting the isolated "islands" in your financial life.

Consumers are willing to accept this "toll" not because checking accounts are superior, but because of the power of the "bundling effect." You put your money in a checking account not because it is the best place for funds, but because it is a central node: mortgages, credit cards, and direct salary deposits all connect and operate here.

If the assertion that "banks are about to disappear" were true, we should have already seen a massive outflow of bank deposits to stablecoins. But that is not the case. As Cong points out, despite the explosive growth in the market value of stablecoins, "existing empirical studies have found almost no significant correlation between the emergence of stablecoins and the outflow of bank deposits." The friction mechanism remains effective. So far, the popularity of stablecoins has not caused substantial outflows from traditional bank deposits.

It turns out that warnings about "massive deposit flight" are more about panic from vested interests, ignoring the most basic economic "physical laws" in the real world. The stickiness of deposits is an extremely powerful force. For most users, the convenience value of "bundled services" is too high—so high that they would not transfer their life savings to a digital wallet just for a few extra basis points of return.

Competition as a Feature, Not a System Flaw

But real change is happening here. Stablecoins may not "kill banks," but it is almost certain that they will make banks uneasy and force them to improve. This research from Cornell University indicates that even the mere existence of stablecoins constitutes a disciplinary constraint, compelling banks to no longer rely solely on user inertia but to start offering higher deposit rates and more efficient, refined operational systems.

When banks truly face a credible alternative, the cost of sticking to old ways will rise rapidly. They can no longer assume that your funds are "locked in" but must attract deposits at more competitive prices.

In this framework, stablecoins will not "make the pie smaller"; instead, they will drive "more credit issuance and broader financial intermediation, ultimately enhancing consumer welfare." As Professor Cong states: "Stablecoins are not meant to replace traditional intermediaries but can serve as a complementary tool to expand the business boundaries that banks are already good at."

It has been proven that the "threat of exit" itself is a powerful motivator for existing institutions to improve their services.

Regulatory "Unlocking"

Of course, regulators have ample reason to worry about the so-called "run risk"—that is, once market confidence wavers, the reserve assets backing stablecoins may be forced to be sold off, triggering a systemic crisis.

However, as the paper points out, this is not a new risk that has never been seen before; it is a standard risk form that has long existed in financial intermediation activities and is fundamentally similar to the risks faced by other financial institutions. We already have a complete set of mature frameworks for liquidity management and operational risk. The real challenge is not to "invent new physical laws" but to correctly apply existing financial engineering to a new technological form.

This is where the GENIUS Act plays a key role. By explicitly requiring that stablecoins must be fully backed by cash, short-term U.S. Treasury securities, or safeguarded deposits, the act establishes hard regulations for safety at the institutional level. As the paper states, these regulatory safeguards "appear to cover the core vulnerabilities identified in academic research, including run risks and liquidity risks."

This legislation sets minimum statutory standards for the industry—adequate reserves and enforceable redemption rights—but the specific operational details are left to banking regulators to implement. Next, the Federal Reserve and the Office of the Comptroller of the Currency (OCC) will be responsible for translating these principles into enforceable regulatory rules, ensuring that stablecoin issuers fully account for operational risks, the possibility of custody failures, and the unique complexities involved in large-scale reserve management and blockchain system integration.

On July 18, 2025 (Friday), U.S. President Donald Trump displays the recently signed GENIUS Act during a signing ceremony in the East Room of the White House.

Efficiency Dividend

Once we move beyond a defensive mindset of "deposit diversion," real upside potential will emerge: the "underlying pipeline" of the financial system is already at a stage where it must be restructured.

The true value of tokenization lies not just in 24/7 availability but in "atomic settlement"—achieving instant cross-border value transfer without counterparty risk, which is a long-standing problem that the current financial system has been unable to solve.

The current cross-border payment system is costly and slow, often requiring funds to circulate among multiple intermediaries for days before final settlement. Stablecoins compress this process into a single on-chain, irrevocable transaction.

This has profound implications for global fund management: funds no longer need to be trapped for days "in transit" but can be allocated cross-border instantly, releasing liquidity that has long been occupied by the correspondent banking system. In domestic markets, the same efficiency improvements also signal lower costs and faster merchant payment methods. For the banking industry, this is a rare opportunity to update the traditional clearing infrastructure that has long relied on tape and COBOL.

The Upgrade of the Dollar

Ultimately, the U.S. faces an either-or choice: either lead the development of this technology or watch the future of finance take shape in offshore jurisdictions. The dollar remains the world's most popular financial product, but the "track" supporting its operation has clearly aged.

The GENIUS Act provides a truly competitive institutional framework. It localizes this field: by bringing stablecoins within the regulatory boundary, the U.S. transforms the uncertainties that originally belonged to the shadow banking system into a transparent and robust "global dollar upgrade plan," turning an offshore novelty into a core component of domestic financial infrastructure.

Banks should no longer be entangled in the competition itself but should begin to think about how to transform this technology into their own advantage. Just as the music industry was forced to transition from the CD era to the streaming era—initially resistant but ultimately discovering it was a gold mine—banks are resisting a transformation that will ultimately save them. When they realize they can charge for "speed" rather than relying on "delay" for profit, they will truly learn to embrace this change.

A New York University student downloads music files from the Napster website in New York. On September 8, 2003, the Recording Industry Association of America (RIAA) filed lawsuits against 261 file sharers who downloaded music files over the internet; additionally, the RIAA issued over 1,500 subpoenas to internet service providers.

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