Eliminating the Biggest Myths About Stablecoins, Banking, and Credit.

As crypto market structure legislation inches forward in Washington, one issue has come to dominate the debate: whether stablecoin issuers should be allowed to share their economic upside with users or third parties.

The banking lobby has labeled this a “stablecoin loophole.” Congress, however, was explicit in the Genius Act about its intent on yield. More importantly, it is difficult to justify calling a consumer benefit a loophole—especially when it puts more money directly into the hands of ordinary Americans.

Unfortunately, much of the discussion around stablecoins and banking has been derailed by exaggerated fears and shaky assumptions. Below are five of the most common myths—and why they don’t hold up under scrutiny.

Myth #1: Stablecoin Growth Will Drain Bank Deposits

Reality: Stablecoins may actually increase U.S. bank deposits.

The assumption that stablecoins and bank deposits are always substitutes is incorrect. In practice, stablecoin growth has so far added to the U.S. banking system, not depleted it.

Here’s why:

Most stablecoin demand comes from abroad, where access to U.S. dollars is limited.

Major stablecoin issuers back their tokens with bank deposits and Treasury bills, a requirement that the Genius Act would further formalize.

When foreign users demand stablecoins, issuers must increase reserves—much of which end up as deposits in U.S. banks. Even the Treasury portion of reserves supports banking activity, since buying, selling, repo financing, FX settlement, and custody all require bank balance sheets.

In short, every additional dollar of stablecoin issuance today tends to create more banking activity, not less.

Moreover, yield-bearing stablecoins would likely increase demand further, especially internationally. More global dollar adoption means more dollars flowing back into the U.S. financial system.

Bottom line: Stablecoins expand global dollar demand. For the foreseeable future, that is more likely to support bank deposits than undermine them.

Myth #2: Stablecoins Will Reduce Banks’ Ability to Lend

Reality: Deposit competition affects bank profits—not credit availability.

Competition for deposits does not automatically reduce lending. It reduces margins.

U.S. banking is currently one of the most profitable industries in the economy:

Bank stocks have performed exceptionally well

Net interest margins are near historic highs

The industry captured roughly $1 trillion in excess net-interest profits over a recent two-year period

Banks have multiple tools to respond to deposit competition:

Pay savers more interest, as competitive industries routinely do

Reduce excess reserves held at the Federal Reserve, which currently total close to $3 trillion—far above regulatory requirements

These reserves earn banks a risk-free return but are economically idle. They can easily be redeployed to support lending if deposits decline at the margin.

Protecting bank profitability is not the same thing as protecting credit creation. Congress should not confuse the two.

Bottom line: Banks can compete for deposits without reducing lending. Stablecoins threaten margins, not credit.

Myth #3: Banks Are the Backbone of U.S. Credit and Must Be Shielded

Reality: Banks provide only a minority of U.S. credit.

Banks account for roughly 20% of total credit to households and businesses in the U.S. Most lending comes from:

Mortgage securitization markets

Money market funds

Insurance companies

Private credit funds and non-bank lenders

Even for small businesses, a substantial share of lending already comes from outside the traditional banking system.

This matters because even in a worst-case scenario—where stablecoins reduce bank deposits and banks fail to respond competitively—the impact on overall credit conditions would likely be modest.

In fact, stablecoin adoption could lower borrowing costs:

Stablecoins increase demand for U.S. Treasuries

Treasury yields serve as benchmarks for most non-bank credit

Lower government borrowing costs can translate into cheaper mortgages and business loans

Bottom line: The U.S. credit system does not hinge on bank deposits. Stablecoins could coexist with—or even improve—credit conditions.

Myth #4: Community Banks Are the Most at Risk

Reality: Large “money-center” banks face greater competitive pressure.

Stablecoins are primarily payment instruments, not relationship-based lending tools. As such, they compete more directly with:

Wire transfers

Cross-border payments

Large-scale transaction banking

These services are dominated by large global banks, not community institutions.

Community banks:

Already pay higher deposit rates

Serve older, relationship-driven customer bases

Focus on localized lending (e.g., agriculture, small-town mortgages)

It defies common sense to assume that a rural depositor will abandon a trusted local bank for a crypto-native payment product.

This myth persists largely because it serves two interest groups:

Large banks seeking regulatory protection

Crypto firms trying to sell infrastructure to smaller banks

Bottom line: If stablecoins disrupt anyone, it is far more likely to be large payments-focused banks than community lenders.

Myth #5: Borrowers Matter, Savers Don’t

Reality: Lending is a two-sided market—and savers matter deeply.

Restricting stablecoin issuers from sharing yield is effectively a policy choice to protect bank shareholders at the expense of savers.

That is a strange priority.

Saving is not a nuisance—it is the foundation of financial resilience. Many Americans, particularly retirees, rely on interest income. Yield-bearing stablecoins simply offer another option, not a mandate.

It is also worth noting that stablecoin yields largely originate from U.S. Treasury interest, which ultimately comes from taxpayers. There is no principled reason why this income should flow exclusively to bank equity holders rather than to households.

Competition that benefits savers is not a loophole—it is how markets are supposed to work.

Bottom line: Savers and borrowers both matter. Innovation that improves outcomes for savers should not be reflexively blocked.

Conclusion: Banking Will Be Fine—Progress Should Continue

If Apple tried to ban better smartphones instead of improving its own, we’d laugh. If legacy automakers tried to outlaw EVs instead of building better cars, we’d object.

Digital dollars are no different.

Most of the fears surrounding stablecoins are speculative, unproven, and rooted in protecting incumbent profits rather than consumers or financial stability. The Genius Act already addressed the core policy questions around stablecoins. Prolonging the debate serves little purpose.

The U.S. banking system is robust, profitable, and adaptable. It does not need protection from competition—it needs incentives to evolve.

Stablecoins are not a threat to American finance. They are part of its next chapter.