The blurry regulations on stablecoins could have a greater impact on traditional banks than on crypto companies. With crypto exchanges offering higher yields than traditional banks, there is a high tendency that traders could transfer their funds into stablecoins to capture the higher yields.
Analyst Lavneet Bansal stated that once users shift money into stablecoins quickly, banks start facing pressure on the deposit base and the interest income tied to it.
Traditional banks take the brunt of blurry regulations
As uncertainty looms around stablecoin regulation, executive vice president of capital markets at Mega Matrix, Colin Butler, stated that traditional banks will take a bigger hit than crypto companies.
Once users can shift money into stablecoins quickly, banks start facing pressure on the deposit base and the interest income tied to it. So the current pushback is not only about safety or consumer protection; it is also about defending core bank margins.
Analyst Lavneet Bansal
When it comes to yields that the two entities, traditional banks and crypto exchanges, offer, they are poles apart. Exchanges often offer between 4% and 5% on stablecoin balances, while the average US savings account yields less than 0.5%.
Depositors fancy higher yields
Historic traders’ behavior shows that depositors quickly shifted to higher yields—back in 1970, when traders fancied money market funds, they had higher returns. Butler thinks this could happen faster, as transferring funds from banks to stablecoin takes just a matter of minutes and traders would do
In the meantime, the capital expenditure of banks on blockchain infrastructure is still not justifiable, as banks need clear regulations to adopt this technology.
Butler stated that although some of the banks have developed the infrastructure needed to adopt stablecoins, they can’t go ahead with adopting them, as there is no clarity on stablecoin regulations.
“Their general counsels are telling their boards that you cannot justify the capital expenditure until you know whether stablecoins will be treated as deposits, securities, or a distinct payment instrument,” said Butler while speaking to a prominent crypto media.
Symphonizing with Butler, Bansal stated that stablecoin uncertainty is harder on banks because they cannot deploy at scale without clear rules, while crypto firms are used to operating ahead of regulation. However, “the deeper concern is deposit flight,” said Bansal.
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