Faryar Shirzad, the Chief Policy Officer at Coinbase, has pushed back against assertions from the U.S. banking sector regarding the risks that stablecoins pose to bank deposits. In a recent blog post, he argued that claims of stablecoins leading to a significant withdrawal of deposits do not stand up to scrutiny and appear to be motivated by banks’ desire to protect their revenues.
Shirzad emphasized that there is no substantial evidence linking the rise of stablecoins to a decline in deposits at community or larger banks. He stated, “The central claim — that stablecoins will cause a mass outflow of bank deposits — simply doesn’t hold up.” Recent analyses indicate that community banks have not experienced any alarming deposit flight correlated with stablecoin adoption. This perspective suggests that larger financial institutions, which continue to maintain trillions of dollars at the Federal Reserve, are not facing any imminent threat to their deposit bases.
According to Shirzad, if deposits were genuinely at risk, larger banks would be competing more aggressively for customer funds, potentially offering higher interest rates instead of relying on the Federal Reserve to hold their cash. He pointed out that the reluctance of banks to embrace stablecoins stems from their lucrative payments sector. Stablecoins, which are digital currencies anchored to real-world assets like the U.S. dollar, provide a quicker and more affordable way for transactions. This development could jeopardize significant revenue streams—estimated at $187 billion annually—associated with traditional banking systems and payment networks.
Shirzad made a historical comparison, noting that pushbacks against innovations such as ATMs and online banking similarly stemmed from entrenched financial institutions striving to preserve their profits while raising concerns about potential systemic risks. He argued that the banking industry’s current resistance to stablecoins mirrors these past instances, where the focus was more on safeguarding existing business models than genuinely considering public welfare.
In addressing predictions concerning potential outflows into stablecoins, Shirzad dismissed such forecasts, highlighting that the total market capitalization of stablecoins is approximately $290 billion, a figure he suggested is not indicative of a long-term savings solution. Instead, stablecoins are primarily deployed as payment methods—for activities like trading cryptocurrencies or remitting funds internationally—rather than being a vehicle for individuals to transfer money out of savings accounts.
For example, when a business opts to use a stablecoin for transactions with overseas suppliers, they are simply choosing a more efficient means of payment rather than abandoning their traditional banking relationships.
The Coinbase policy chief advocated for banks to adapt to the evolving financial landscape spearheaded by stablecoins rather than resist it. Embracing these technologies could lead to improved settlement times, a reduction in costs associated with correspondent banking, and continuous payment capabilities, which would ultimately benefit financial institutions willing to innovate.
Across the Atlantic, similar concerns regarding stablecoins are emerging in the U.K. The Financial Times reported that the Bank of England is contemplating establishing limits on the amount of ‘systemic’ stablecoins that individuals and businesses can hold, potentially setting thresholds as low as £10,000 ($13,600) for individuals and £10 million for businesses. These limits aim to mitigate the risks of sudden deposit outflows that could undermine lending activities and financial stability.
As discussions surrounding stablecoins continue to unfold, it remains clear that a dialogue between traditional banking systems and emerging digital finance is crucial for navigating the future of the financial industry.
