Banks fear stablecoins as yield threatens deposit business: report

According to the analyst, banks can earn up to 28% on loans while paying depositors less than 1%, a stablecoin spread that is challenging.

Popular crypto analyst EGRAG CRYPTO has claimed that banks are fighting stablecoins not because they are risky, but because they allow people to hold, move and potentially earn income on their dollars without relying on traditional bank deposits.

His sentiment comes as U.S. lawmakers continue to negotiate crypto legislation and stablecoin rules, while banks and digital asset advocates clash over whether yield-bearing stablecoins could move deposits out of the banking system.

Exit banks never had to plan

In an analysis published June 1, EGRAG framed the debate around stablecoins not as a regulatory dispute but as a direct threat to the way banks make money.

He explained that when you deposit money into your bank account, you are not storing it, but, legally, you are providing an unsecured loan to that institution. This bank then takes your deposit, lends it out at rates between 6% and 28%, and pays you between 0.1% and 0.5% for the privilege. And this distribution is their core business.

However, according to the analyst, stablecoins break this arrangement by separating three elements that traditional banking has always grouped together: custody, settlement and yield.

With a Treasury-backed stablecoin, a user can hold dollars without a bank account, transfer them instantly without an intermediary, and earn around 5% risk-free.

If people can get returns of 4-6% with full control and without relying on banks, EGRAG argues, they will not see the need to deposit with banks, which would undermine the financing models of these institutions and the power they enjoy.

You might also like:

“This is the real threat and they will start wars and move tanks to stop it,” the analyst said.

EGRAG’s position is not hyperbolic, given that a Standard Chartered analysis earlier this year estimated that American banks could lose around $500 billion in deposits to stablecoins by the end of 2028, with regional banks most exposed.

According to Standard Chartered’s Geoff Kendrick, the two largest stablecoin issuers, Tether (USDT) and Circle (USDC), hold most of their reserves in US Treasuries rather than bank accounts, meaning very little capital is recycled back into the banking system.

What is the legislative fight really about?

During the Senate Banking Committee’s recently concluded deliberations on the CLARITY Act, members of the American Bankers Association sent more than 8,000 letters to Senate offices in less than a week, specifically targeting rules regarding stablecoin yields.

At the time, Senator Bernie Moreno accused banks of trying to “kill the stablecoins that would allow ordinary Americans to earn a real return on their own money.” He also called the industry a “cartel” determined to protect low-interest deposit models.

EGRAG’s analysis interpreted this response as its own type of signal, writing:

“If stablecoins didn’t make sense, banks wouldn’t fight them. Lobbyists wouldn’t panic. Bills wouldn’t stagnate. Narratives wouldn’t change.”

Even a survey released in March by Ripple found that 74% of finance executives view stablecoins as tools to unlock working capital and improve treasury operations, suggesting that institutional interest has moved well beyond the exploratory stage.

And the stablecoin market is growing unabated, with the latest data from DefiLlama showing it now stands at around $320 billion, with USDT holding $188 billion and USDC holding $76 billion.