BIS Paper Finds a 1-Basis-Point Deposit Rate Rise Trims Stablecoin Growth by 2.8 Points

Update 03:58 UTC: The paper's scope checks point in the same direction as its headline result.

15% Growth Trimmed by One Basis Point

A dollar parked in a savings account and a dollar held in a stablecoin compete for the same wallet, and the interest a bank pays appears to decide which way the balance tips. A working paper published on October 13 by the Bank for International Settlements (BIS), the Basel-based institution owned by central banks, examined weekly United States data from January 2019 through June 2025 and found that stablecoin growth slows measurably when banks raise deposit rates. The study, “Are Stablecoins and Bank Deposits Substitutes?”, was written by BIS economist Iñaki Aldasoro and Rashad Ahmed of the Andersen Institute for Finance and Economics, and the full working paper is posted on the BIS website. Both products work as stores of value and payment rails, the use case the industry often files under PayFi, but their returns differ: deposits can pay interest, while major payment stablecoins generally pay holders nothing. The arithmetic is straightforward: stablecoin market capitalization grew about 15% over a typical 10-week span in the sample, and the baseline estimate ties a one-basis-point rise in deposit rates (0.01 percentage point) to roughly 2.8 percentage points less cumulative growth over the following ten weeks, trimming that pace to about 12%. A second approach built to isolate cause and effect, an instrumental-variable model, puts the effect at 9.1 percentage points, close to three times the baseline. The authors identified the relationship through a quirk in bank behavior: lenders barely move savings rates while the federal funds rate sits below roughly 3%, then reprice much faster above it. Growth slows under either estimate; it does not reverse. The researchers controlled for the federal funds rate, Treasury yields, dollar movements, Bitcoin prices and stock market volatility, then repeated the exercise using certificate-of-deposit rates and stablecoins supplied to decentralized lending platforms, and the negative link held in both. Stress checks around the TerraUSD collapse, the FTX failure and the phaseout of Binance's BUSD left the estimate intact.

The paper adds a few quantitative details beyond its headline estimate. It calculates that erasing the average 10-week growth rate at the baseline estimate would take a deposit-rate rise of roughly 5 basis points in a single week, about six standard deviations, so ordinary repricing slows adoption without reversing it. The 2022 to 2023 rate-hiking cycle, when the market capitalization fell about 30%, is consistent with deposit-rate revisions compounding alongside the TerraUSD collapse and the FTX failure, per the paper. On the causal side, the instrument's F-statistic of 9.78 sits just below the conventional benchmark of 10. The authors also flag one structural risk in the reserve-side debate: mandating that issuers hold part of their reserves in bank deposits could concentrate large uninsured deposits in a small number of banks and leave the financial system more fragile.

The paper's scope checks point in the same direction as its headline result. When the authors ran the same weekly exercise on crypto assets outside the stablecoin category, the data showed no statistically significant reaction to deposit-rate moves, leaving the substitution effect confined to dollar-backed tokens. That contrast matters for the USDC reading, since the BIS analysis attributes the token's sharper sensitivity, roughly 5 percentage points of lost 10-week growth per 0.01 percentage point of deposit yield against about 2 for USDT, to its base among United States institutional and DeFi users who can move funds between Circle's token and domestic bank deposits, while USDT's core users sit outside the country and respond to local banking conditions instead. The working paper, published October 13 as BIS Working Paper 1382, frames the finding as evidence the growth drag is specific to assets that directly compete with deposits for the same dollar.

USDC Sensitive, USDT Less So

The paper draws its sharpest distinction between the two largest dollar-backed tokens. Over the ten-week window, the baseline estimates tied a one-basis-point deposit rate rise to a 4.8-percentage-point reduction in cumulative growth for Circle (CRCL)'s USDC, against 1.9 percentage points for Tether's USDT, a gap of about 2.5 times. The authors read the split as geography: USDC sits closer to United States institutional users and domestic financial markets, while USDT serves a larger international base whose choices depend on local banking arrangements and access to dollar assets. The findings arrive mid-argument in Washington. Banks have lobbied to keep stablecoin yield off the table, a dispute that hung over the Clarity Act's failed Senate vote, and groups such as the American Bankers Association and the Bank Policy Institute have pressed regulators to sequence their stablecoin consultations together. The GENIUS Act, signed by President Donald Trump in July of last year, takes effect in January and sets rules for issuance, use and custody; the OCC, the FDIC and the Treasury are still drafting the implementing regulations. The paper's authors argue regulators should weigh whether issuers may pay holders a deposit-style APY, alongside the trade-offs of requiring part of issuers' reserves to sit in bank deposits. Some banks are not waiting for that answer: Custodia Bank and Vantage Bank tested a dual-purpose token in June designed to work as a deposit inside the banking network and as a stablecoin outside it. Caveats bound the results. The dataset ends in June 2025, before the GENIUS Act took effect, and covers a single elevated-rate cycle in which payment stablecoins paid holders nothing. The paper states the authors' views, not an official BIS position, and it does not establish that stablecoin adoption has reduced total deposits or lending across the US banking system.

For issuers and their bank counterparts, the paper converts a lobbying argument into an observable lever. Our aggregate data shows the COINOTAG-tracked market at roughly $2.4 trillion, with Bitcoin holding 68.2% of that universe and the Fear & Greed Index neutral at 53/100, conditions in which rate expectations rather than sentiment tend to steer flows in the dollar-adjacent corner of the market. The mechanism runs through the federal funds rate: below about 3%, banks reprice deposits slowly and stablecoins grow freely; above it, every basis point of deposit yield pulls adoption down. Whichever way policy moves from here, the yield question regulators now face, whether issuers may pay holders returns, carries a measurable price tag. Readers weighing the macro side can start with our guide to how interest rates impact everything (as of 23:40 UTC).