TLDR
- Bitwise CIO Matt Hougan argues banks should offer higher interest rates to compete with stablecoins’ yields.
- Stablecoins offer up to 5% returns, far higher than the average 0.6% savings account rate in the US.
- Hougan criticizes banks for fearing stablecoins, stating they should focus on offering better rates to customers.
- Stablecoin yields outcompete traditional savings accounts, with no holding fees and faster transactions.
Bitwise Chief Investment Officer (CIO) Matt Hougan has criticized U.S. banks for worrying about competition from stablecoins, suggesting they should instead improve their offerings to attract and retain customers. In a tweet on Tuesday, Hougan called the fear of stablecoins threatening local lending markets “absurd” and argued that banks’ reluctance to offer higher interest rates on deposits was the root cause of their concerns.
“If local banks are worried about competition from stablecoins, they should pay more interest on deposits,” Hougan wrote. He further added that banks have been “abusing depositors as a free source of capital for decades” and now face legitimate competition from stablecoins offering higher yields.
Stablecoins and Their Growing Appeal
Stablecoins, which offer higher yields compared to traditional savings accounts, have emerged as a direct competitor to banks in attracting deposits. Hougan’s comments came after several reports raised concerns that stablecoins could spark a wave of withdrawals from smaller community and regional banks. These banks rely heavily on customer deposits for lending, and the emergence of yield-bearing stablecoins, which offer returns up to 5%, has drawn more attention from consumers seeking better returns.
According to Bankrate data, the U.S. national average savings rate is just 0.6%, with the best high-interest savings accounts offering around 4%. In contrast, stablecoins offer much higher returns, making them increasingly attractive to individuals who feel their money is losing value in traditional savings accounts due to inflation. Stablecoin proponents also highlight the advantages of faster transaction speeds, lower fees, and no holding fees compared to traditional bank accounts.
Banks Fear Loss of Deposits, But What’s the Real Impact?
In response to this rising competition, some banks, like Citi, have voiced concerns that stablecoins could lead to a decline in deposits, potentially reducing their ability to lend. These concerns have fueled calls for tighter regulations on stablecoins, particularly on the yield they offer.
However, Hougan views this concern as “first-order thinking,” pointing out that instead of fearing the loss of deposits, banks should adapt to the changing financial landscape.
“The loser here is bank profit margins. The winner here is individual savers,” Hougan stated, suggesting that stablecoins could provide better returns for consumers while also enabling a new, decentralized method of providing credit. He explained that as banks face fewer deposits, people with stablecoins could directly provide credit to borrowers through decentralized finance (DeFi) applications.
Stablecoin Yields and the Future of Bank Deposits
Despite stablecoin issuers facing increasing scrutiny, Hougan believes that stablecoins will continue to thrive due to their competitive yield and accessibility. While the banking industry has lobbied against stablecoin yields, arguing that there are regulatory loopholes in current laws like the GENIUS Act, Hougan’s stance is clear: if banks want to compete with stablecoins, they need to provide more value to customers through higher interest rates.
In the long run, Hougan suggests that the emergence of stablecoins could bring more competition to the banking sector, which would ultimately benefit individual savers and enhance the economy’s efficiency. By offering better returns, banks can retain customers who might otherwise turn to crypto-based financial products.
