Stablecoin Growth Cooled as Deposit Rates Rose, With USDC Most Exposed, Working Paper Says

Introduction

A recent Bank for International Settlements (BIS) working paper examines how changes in U.S. bank deposit rates affect the growth of reserve‑backed stablecoins. Using weekly data from January 2019 through June 2025, the authors—Rashad Ahmed of the Andersen Institute for Finance and Economics and Iñaki Aldasoro of the BIS—identify a measurable slowdown in stablecoin market‑cap expansion when banks raise the interest they pay on deposits. The effect is most pronounced for Circle’s USDC, while Tether’s USDT shows a smaller response.

How Deposit Rates Influence Stablecoin Flows

The study covers 339 weeks of U.S. data, a period during which the total market capitalization of stablecoins rose from under $5 billion to more than $220 billion. The authors estimate that a one‑basis‑point increase in deposit rates is associated with a roughly 12 % reduction in stablecoin growth over the subsequent ten weeks, according to their baseline regression. A second, more nuanced specification—accounting for the larger pass‑through of Fed rate hikes once the federal funds rate exceeds about 3 %—produces a smaller but still significant effect of around 6 %.

USDC vs. USDT

When the authors disaggregate the results, USDC’s ten‑week growth is trimmed by about 5 % per basis‑point rise, compared with roughly 2 % for USDT. They attribute this gap to the differing user bases of the two tokens: USDC is heavily used by U.S. institutions and DeFi participants, whereas USDT sees more activity from offshore users and developing‑economy markets. This distinction suggests that domestic deposit pricing may have a larger impact on stablecoins that are more integrated with the U.S. financial system.

Caveats and Limitations

The paper’s authors stress several important caveats. First, the statistical strength of the second specification falls just short of the conventional benchmark (first‑stage F‑statistic = 9.78), indicating some instrument weakness. Second, the analysis captures only one high‑rate environment—2022‑2025—so the findings may not generalize to periods of lower rates or different macro‑economic conditions. Third, aggregate data cannot identify which specific holders shifted assets or which banks were directly affected. Finally, the study assumes a zero‑yield environment for stablecoins; the emergence of yield‑bearing stablecoins and tokenized money‑market funds could alter the substitution dynamics in the future.

Implications for Policy and the Yield Debate

The timing of the paper coincides with ongoing regulatory discussions about stablecoin rewards. The GENIUS Act, for example, seeks to prohibit issuers from paying interest directly, while the Federal Reserve has proposed treating third‑party yield as presumptively barred. The authors argue that banks retain indirect influence over stablecoin adoption through deposit pricing, suggesting that regulators consider how much of a stablecoin’s reserve pool should sit in bank deposits. Such a requirement could bolster bank funding but also concentrate large uninsured deposits at a few institutions.

Practical Takeaway

For market participants, the research highlights a tangible link between traditional banking incentives and the growth trajectory of stablecoins. When banks become more attractive to savers through higher deposit rates, the incentive to move funds into non‑interest‑bearing stablecoins diminishes, especially for tokens like USDC that are closely tied to U.S. financial infrastructure. Stakeholders should monitor deposit‑rate trends as an indirect gauge of stablecoin demand, while also staying alert to policy shifts that could reshape the rewards landscape.

--- This article was drafted with the assistance of AI tools and reviewed for accuracy by the Unchained editorial team.