Stablecoins Emerge as Direct Competitors to Traditional Bank Deposits

Regulated stablecoins are emerging as a threat to traditional bank deposits. These digital tokens, pegged to the value of a specific currency, can be transferred across blockchain networks quickly and efficiently.

The GENIUS Act, enacted in the US on July 18, 2025, creates a federal framework for payment stablecoins, requiring issuers to maintain one-to-one reserve backing with eligible liquid assets. This has led to a new phase of growth for stablecoins, with the debate shifting from whether they can exist under regulation to how extensively they will compete with bank money.

Stablecoin issuers operate differently than traditional banks. They receive cash and hold corresponding reserves in cash, short-term government debt, or other permitted liquid assets. The GENIUS Act prohibits direct interest payments by permitted issuers, but reserve income can become a significant revenue source for the issuer and its distribution partners.

Regulation is making stablecoins more bank-like, with frameworks such as the EU's MiCA requiring authorisation, governance, and financial-resilience requirements. This may weaken some of the economic freedoms that made early stablecoins attractive, but it strengthens trust in these digital tokens.