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

Editor's Note: Whether stablecoins will impact the banking system was one of the core debates in the past few years. However, as data, research, and regulatory frameworks gradually become clearer, the answer is becoming more sober: stablecoins have not triggered massive deposit outflows. Instead, under the reality of "deposit stickiness" constraints, they have become a competitive force that drives banks to improve their interest rates and efficiency.

This article, starting from a banking perspective, reinterprets stablecoins. It may not necessarily be a threat but is more likely a catalyst forcing the financial system to self-renew.

The following is the original article:

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

Fast forward to 2019, when we announced the launch of Libra, the global financial system's reaction was, without exaggeration, quite intense. The almost existential fear was this: once stablecoins could be instantly used by billions of people, would banks' control over the deposit and payment system be completely shattered? If you could hold a "digital dollar" that can be instantly transferred in your phone, why would you keep your money in a zero-interest, heavily fee-laden, weekend-"closed" savings account?

At that time, this was a completely reasonable question. For years, the mainstream narrative has always believed that stablecoins were "eating banks' lunch." People were worried about an imminent "deposit drain."

Once consumers realize that they can directly hold a digital cash backed by assets at the treasury level, the foundation that provides low-cost funding for the U.S. banking system will quickly crumble.

However, a recent rigorous research paper by Cornell University's Professor Will Cong suggests that the industry may have entered panic mode too early. By examining real evidence rather than emotional judgments, Cong puts forward a counterintuitive conclusion: under appropriate regulation, stablecoins are not the destroyers of bank deposits but a complementary presence to the traditional banking system.

"Stickiness of Deposits" Theory

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

Due to the checking account being the central hub where funds truly achieve interoperability, almost any value transfer activity between external services must go through the bank. The design logic of the whole system is: as long as you don't use a checking account, operations will become more cumbersome—banks control the only bridge that connects the "islands" of your fragmented financial life.

Consumers are willing to accept this "toll road" not because the checking account itself is superior, but because of the power of the "bundling effect." You put money in a checking account not because it's the best place for funds, but because it's a central node: mortgage payments, credit cards, direct deposits—all interconnect and operate here.

If the argument that "banks are about to disappear" were true, we should have already seen a large amount of bank deposits flow into stablecoins. But reality proves otherwise. As Cong pointed out, despite the explosive growth in stablecoin market value, "existing empirical research has found little evidence of a clear link between the emergence of stablecoins and a loss of bank deposits." Friction mechanisms are still effective. So far, the mainstream adoption of stablecoins has not substantially drained traditional bank deposits.

In fact, warnings about "massive deposit flight" are more of a panic-induced rendering from existing vested interests, overlooking the most basic economic "laws of physics" in the real world. Deposit stickiness is an extremely powerful force. For most users, the convenience value of an "all-in-one package service" is too high to simply move their life savings to a digital wallet for the sake of a few extra basis points of yield.

Competition is a Feature, Not a Systemic Flaw

However, real change is also 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 points out that even the existence of stablecoins alone constitutes a form of discipline constraint, compelling banks to no longer rely solely on user inertia, but to start offering higher deposit rates, as well as a more efficient and sophisticated operational system.

When banks truly face a credible alternative, the cost of conservatism will quickly rise. They can no longer take for granted that your funds are "locked up" but are forced to attract deposits at a more competitive price.

In this framework, stablecoins will not "eat a small cake," but will instead drive "more credit deployment and broader financial intermediation activities, ultimately enhancing consumer welfare." As Professor Cong said: "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."

Indeed, the "Exit Threat" itself is a powerful force driving existing institutions to improve their services.

Regulatory "Unlocking"

Of course, regulatory agencies have ample reason to be concerned about the so-called "bank run risk" — that is, once market confidence is shaken, the reserve assets behind a stablecoin may be forced into a fire sale, triggering a systemic crisis.

But as the paper points out, this is not some unprecedented new risk, but a standard risk form long present in financial intermediation, highly similar in nature to the risks faced by other financial institutions. We already have a mature set of response 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 crucial role. By explicitly requiring stablecoins to be fully reserved by cash, short-term U.S. treasuries, or reserves held at banks, the act provides a regulatory requirement for security at the institutional level. As the paper states, these regulatory guardrails "seem to already cover the core vulnerabilities identified in academic research, including bank run risk and liquidity risk."

The legislation sets the minimum legal standard for the industry — full reserves and enforceable redemption rights, with the specific operational details to be implemented by banking regulatory agencies. Next, the Federal Reserve and the Office of the Comptroller of the Currency (OCC) will be responsible for translating these principles into actionable regulatory rules to ensure stablecoin issuers take into account operational risks, the potential for custodial failure, and the unique complexities of large-scale reserve management and integration with blockchain systems.

On Friday, July 18, 2025, U.S. President Donald Trump displayed the just-signed "GENIUS Act" at a signing ceremony in the East Hall of the White House in Washington.

Efficiency Dividend

Once we move beyond a defensive mindset against "deposit flight," the true upside will be revealed: the "underlying pipes" of the financial system are at a stage where they must be restructured.

The tokenization of real value is not just about 24/7 availability, but "atomic-level settlement" — achieving instant cross-border value transfer without counterparty risk, a long-standing challenge of the current financial system.

The current cross-border payment system is costly and slow, with funds often needing to flow through 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 stuck in transit for days but can be transferred cross-border instantly, unlocking the liquidity currently tied up by the correspondent banking system. In domestic markets, the same efficiency improvement also heralds lower-cost, 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 Dollar's Upgrade

Ultimately, the United States faces an either-or choice: either lead the development of this technology or watch as the future of finance takes shape in offshore jurisdictions. The US dollar remains the world's most popular financial product, but the "rails" that support its operation are clearly outdated.

The "GENIUS Act" provides a genuinely competitive institutional framework. It "domesticates" this field: by bringing stablecoins within the regulatory perimeter, the US transforms the inherent instability of the shadow banking system into a transparent, robust "global dollar upgrade plan," turning an offshore novelty into a core part of domestic financial infrastructure.

Banks should no longer be fixated on competition itself but should start thinking about how to leverage this technology to their advantage. Just as the music industry was forced to transition from the CD era to the streaming era—initially resistant but ultimately finding it to be a gold mine—banks are resisting a transformation that will ultimately save them. When they realize they can charge for "speed" instead of relying on "delay" for profits, they will truly learn to embrace this change.

A New York University student downloading music files from the Napster website in New York. On September 8, 2003, the Recording Industry Association of America (RIAA) sued 261 file-sharers who downloaded music files via the internet; in addition, the RIAA sent over 1,500 subpoenas to internet service providers

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