Banks are facing pressure from Crypto Assets, worried about being replaced by stablecoins?

A silent war over the future of finance is unfolding. On one side is the traditional banking industry, with centuries of history and deep roots; on the other side is the cryptocurrency world, led by stablecoins and advancing rapidly. With the initial establishment of regulatory frameworks and the rapid development of technology, banks are feeling unprecedented pressure. They are not only worried about losing market share but have a deeper fear—will they be replaced by this more efficient and flexible form of digital money?

“Era of Earning Interest”

In July 2025, the United States passed the landmark “GENIUS Act”, which provided a federal-level regulatory framework for stablecoins for the first time. However, this bill, aimed at regulating the market, has planted a “time bomb” in the eyes of the banking industry. The bill explicitly prohibits issuers of stablecoins from paying interest directly to users, but does not restrict third-party platforms (such as Crypto Assets exchanges) from indirectly providing returns to users holding stablecoins through reward mechanisms.

This is precisely the “regulatory loophole” that bank lobbying groups are calling for. Organizations such as the American Bankers Association (ABA) and the Bank Policy Institute (BPI) have warned Congress that this will create a highly unfair competitive environment. While banks can issue their own stablecoins, they cannot offer interest to attract depositors; platforms like Coinbase and PayPal, on the other hand, can easily attract customers seeking higher returns by offering annual rewards for their supported USDC and PYUSD stablecoins.

These concerns are not unfounded. The banking sector cites a report from the U.S. Treasury Department indicating that if stablecoins are allowed to offer yields comparable to bank deposits, it could trigger an outflow of up to $6.6 trillion in bank deposits. Such a massive transfer of funds would directly weaken the lending capacity of banks, leading to a contraction in credit supply, rising interest rates, and ultimately increasing the financing costs for businesses and households, impacting the entire economy.

Ronit Ghose, head of Citigroup's “Future Finance” research institute, has likened this scenario to the money market fund crisis of the 1980s. At that time, money market funds offered returns far above the regulated deposit rates of banks, leading to a massive outflow of funds from the banking system. Between 1981 and 1982 alone, bank withdrawals exceeded new deposits by $32 billion. The historical similarity has left banks shivering at the potential disruptive power of stablecoins.

The fear of banks is becoming a reality in the market. Stablecoins are transitioning from mere “value anchoring” tools into a brand new “yield generation era.” A new generation of yield-generating stablecoins is emerging like mushrooms after rain, and their core logic is to directly distribute the earnings generated from underlying reserve assets (usually U.S. Treasury bonds in a high-interest rate environment) to coin holders.

This is completely different from the model of traditional stablecoins like Tether(USDT) and Circle(USDC), where the issuers pocket the huge investment profits from the reserve assets. Now, this “cake” is being redistributed. Ethena(USDe): By staking Ethereum and using hedging strategies, USDe offers holders an attractive yield, with its supply exceeding ten billion. Ondo Finance(USDY): As a star project in the RWA (Real World Assets) track, USDY is essentially a tokenized note backed by short-term US Treasury bonds, allowing on-chain users to directly enjoy Treasury-level yields. Maker DAO(USDS): As an established DeFi protocol, the USDS it launched allows users to earn interest automatically linked to US Treasury yields by depositing tokens.

The success of these projects indicates that the “hold to earn” model has an inherent appeal to users. They not only allow idle funds to automatically appreciate but also provide high-quality collateral and financial tools for the entire DeFi ecosystem, further leading to complex gameplay such as lending and leverage.

The counterattack of banks

In response to the banks' accusations, the encryption industry replied straightforwardly: this is not a loophole, but innovation and fair competition. Supporters of Crypto Assets believe that the banks' attempt to prevent exchanges from paying interest is “anti-competitive,” aimed at protecting their own interests while sacrificing consumer choice.

However, traditional banks are not sitting idle as giants. In the face of the surging tide of Crypto Assets, they have adopted a “two-pronged” strategy: on one hand, they lobby against what they perceive as unfair competition, and on the other hand, they embrace this new technology with unprecedented speed and scale.

If you can't beat them, join them. The shift from “monitoring to operation” has already happened. A report shows that more than half of the top 25 banks in the United States are actively exploring or have already launched products and services related to Crypto Assets. Investment and Trading: Morgan Stanley is considering allowing its vast broker network to recommend Bitcoin ETFs to clients; Charles Schwab plans to increase trading in Bitcoin and Ethereum; PNC Bank has partnered with Coinbase to allow customers to trade Crypto Assets directly through their bank accounts. Infrastructure Development: Giants like BNY Mellon and State Street are deeply involved in ETF custody and asset tokenization services. JPMorgan is not only testing its tokenized deposit program but also allowing clients to purchase Crypto Assets directly through its platform. Strategic Investment: A report from Ripple reveals that global banks made 345 blockchain-related investments between 2020 and 2024, showing long-term optimism for infrastructure in this field. Product Innovation: HSBC has even launched tokenized gold based on quantum-safe technology, providing fractional ownership for retail clients, demonstrating its advanced layout for the security of future Digital Money. U.S. Bank announced the relaunch of its Crypto Assets custody service, first introduced in 2021, after the regulatory environment clarified, and increased its support for Bitcoin ETFs, directly competing with crypto-native companies like Coinbase.

From Opposition to Integration

The relationship between banks and stablecoins is far from being simply summarized by the word “replacement.” It is a complex game intertwined with fear, competition, resistance, and strategic adoption.

Stablecoins, especially those that can provide attractive returns, have indeed struck at the core of banks' business — attracting low-cost deposits. This historically based fear has forced banks to confront this disruptive change.

But at the same time, banks have also shown strong adaptability. They no longer view blockchain and Crypto Assets as a threat, but rather as strategic tools to enhance efficiency and explore new business opportunities. From investing in startups to building their own tokenization platforms, to directly offering encryption services to customers, the boundary between traditional finance and Digital Money is rapidly blurring.

The pressure from stablecoins is becoming a powerful catalyst for the evolution of the entire financial system. In the future, what we may see is not one side completely replacing the other, but rather a more diverse, efficient, and open hybrid financial ecosystem. In this new system, traditional banks will be forced to innovate to adapt to a new era defined by code, transparency, and user sovereignty, and this may just be the ultimate outcome of this “war.”