[Digital Today reporter Chi-gyu Hwang (황치규)] An empirical analysis found that stablecoin growth slows when banks raise deposit rates. That suggests stablecoins and bank deposits are substitutes competing for the same money.

The Bank for International Settlements (BIS) said so in an October working paper titled “Are stablecoins and bank deposits substitutes?”

In the working paper, Rashad Ahmed (라샤드 아메드), a researcher at the Anderson Institute for Financial Economics, and BIS economist Iñaki Aldasoro (이냐키 알다소로) analysed weekly U.S. data from January 2019 to June 2025.

The analysis found stablecoins and bank deposits share many similarities. Their value is stable, they are redeemable on demand, they are used for payments, and they pay almost no interest. That is why concerns have persisted that stablecoins could siphon off bank funding that pays little interest.

But there has been little data showing whether that is actually the case, and the working paper effectively confirms it.

During the period, the market capitalisation of dollar reserve-backed stablecoins expanded from less than $5 billion to more than $220 billion. Dollar stablecoins are dominated by Tether's USDT and Circle's USDC.

The researchers estimated that a 1-basis-point rise in deposit rates lowers the average 10-week cumulative stablecoin growth rate by about 3 percentage points, to around 12 percent from 15 percent.

To isolate the interest-rate effect, the researchers also used banks’ distinct rate-setting behaviour. When the policy rate is below 3 percent, banks barely raise deposit rates, but once it exceeds 3 percent they raise them competitively. That differs from government bond yields, which track the policy rate more directly.

Other studies also show that deposit rates follow the policy rate slowly.

When the policy rate rises by 1 percentage point, demand deposit rates rise by an average of only 0.06 to 0.08 percentage points. The researchers focused on the range where the policy rate is above 3 percent and banks start raising deposit rates in earnest to filter out the deposit-rate effect. The decline in stablecoin growth then widened about threefold, to 9 percentage points from 3 percentage points.

Other cryptocurrencies such as bitcoin did not respond like stablecoins in the same analysis. The researchers said that supports the view that the slowdown in stablecoin growth is driven by deposit rates rather than a broader downturn in the coin market.

Differences by issuer were also clear. The decline for USDC was about 5 percent, far larger than USDT's roughly 2 percent. That can be interpreted as USDC, used heavily by U.S. institutions and users of DeFi (decentralised finance), competing more directly with deposits. USDT is mainly used overseas or in emerging markets.

The amount deposited in DeFi lending services to earn interest also fell when deposit rates rose. That suggests earning returns through DeFi does not make it immune from competition with deposits. The result was the same when the analysis was conducted using certificate of deposit (CD) rates instead.

Still, there is a view that the figures do not need to be overinterpreted.

The researchers said deposit rate increases only slowed stablecoin growth and did not reverse it. They also noted significant limitations themselves. Indicators showing the reliability of the analytical method were also slightly below usual standards.

The analysis assumed stablecoins do not pay interest. The competitive landscape could change if interest-bearing stablecoins and tokenised money market funds (MMFs) increase.

The BIS working paper said banks can influence the pace of stablecoin adoption to some extent through deposit rates.

It also said requiring stablecoin reserves to be held partly as bank deposits could reduce bank deposit outflows, but could also create the risk that large uninsured deposits concentrate in a small number of banks. The researchers concluded that where people place their money between deposits and stablecoins depends less on technology than on how much interest each can offer.