Stablecoins Pose Lightning-Fast Threat to Traditional Banking Systems
The rapid growth of stablecoins has raised concerns about their impact on traditional banking systems. According to Anthony Vassallo, director of crypto at Silicon Valley Bank, stablecoin competition will show up across two time frames: slow and fast.
The slow clock refers to currency substitution, deposit erosion, and weakening policy transmission building over months or years. The European Central Bank has expressed concerns that large amounts of stablecoin reserves held in bank deposits could trigger cascading withdrawals if there were a surge in redemptions.
This is because the liquidity mismatch between digital money and the banking system can create pressure on commercial lenders. For example, when USD Coin lost its dollar peg after Circle's disclosure that $3.3 billion of its reserves were held at the failed Silicon Valley Bank, it turned a banking failure into a stablecoin crisis almost overnight.
However, stablecoins are not taking over the world just yet. Often they are simply an intermediate currency that moves faster, but still ends up as dollars in the bank. Pankaj Bengani, former executive at Block and co-founder of stablecoin payments company MELD, says close to half of the company's B2B stablecoin offramp volume is in North America.