A new working paper from the Bank for International Settlements argues that dollar-backed stablecoins and traditional bank deposits behave as portfolio substitutes, and that rising bank deposit rates can slow stablecoin market capitalization growth. The study, Are Stablecoins and Bank Deposits Substitutes?, is published as BIS Working Paper No. 1382 and examines weekly US data from January 2019 through June 2025.
The researchers estimate that a one-basis-point increase in bank deposit rates is associated with about 2.8 percentage points less stablecoin market capitalization growth over a ten-week horizon. An alternative instrumental-variable model produces a larger estimate of roughly 9.1 percentage points. The authors emphasize that these figures measure changes in growth, not an equivalent decline in outstanding stablecoin supply.
The effect is not uniform across stablecoins. At the ten-week horizon, a one-basis-point rise in bank deposit rates is linked to about 4.8 percentage points less growth for USDC, compared with roughly 1.9 percentage points for USDT. That makes USDC's estimated response about 2.5 times larger, consistent with its closer ties to US financial institutions and institutional users. USDT has a larger role in offshore cryptocurrency trading and in markets where access to conventional dollar banking may be more limited.
The study also has commercial implications for Circle. Circle reported $668 million in reserve income in the second quarter of 2026, up 5% year over year, with average USDC circulation up 25% partly offsetting a 66-basis-point decline in the reserve return rate. Circle holds reserves in liquid assets including short-term US Treasuries, repurchase agreements and bank deposits, with some Treasury-related reserves held through the BlackRock-managed Circle Reserve Fund. USDC holders generally do not receive that reserve income.
The BIS paper notes that competition for dollar liquidity is extending beyond conventional stablecoins, pointing to yield-bearing tokenized products such as BlackRock BUIDL and Ondo USDY. However, the research has limits: the sample ends in June 2025, covers one major high-interest-rate episode, and the instrumental-variable model's first-stage F-statistic of 9.78 suggests some potential diagnostic weakness.
Overall, the findings suggest that bank deposit pricing can influence stablecoin growth, especially for USDC, and that issuers may need to compete through liquidity, payment utility and distribution rather than yield alone.
