Circle CEO dismisses claims that interest-bearing stablecoins threaten bank stability

Circle’s CEO, Jeremy Allaire, has pushed back on claims that interest-bearing stablecoins would destabilize the credit market by initiating mass bank withdrawals. Allaire illustrated his argument with government money market funds that currently co-exist with the banking industry and have not destabilized the finance sector.

Jeremy Allaire has dismissed claims that an interest-bearing stablecoin would destabilize the financial sector and trigger mass withdrawals from banks. He said that stablecoins are not a threat to financial stability and the claims are “totally absurd.”

Allaire says Stablecoin rewards do not threaten bank operations

While speaking at the World Economic Forum in Davos, Allaire said that government money market funds offer yields on deposits and coexist with traditional banking institutions without posing a threat to credit markets or the broader financial sector. He added that the government money market funds have grown over time, and that has not stopped the banking sector from operating normally.

According to Investment Company Institute data, U.S. money market funds hold more than $7 trillion in assets as of January 2026, with balances increasing $868 billion over the past year despite Federal Reserve rate cuts.

Allaire added that stablecoin issuers generate income from reserves, revenue streams, and strategic partnerships with both TradFi and DeFi players, and urged that the involved parties may decide to use a portion of the revenue to incentivize stablecoin holders.

The discussions emerged as U.S. lawmakers continued to debate the CLARITY Act. Cryptopolitan recently reported that Coinbase expressed concerns about several issues in the draft bill, which it said would affect the creation of tokenized equities and the way stablecoin issuers provide yield to clients. The disagreement between Coinbase and lawmakers led Congress to postpone the bill’s markup to allow further negotiations.

Coinbase CEO Brian Armstrong recently said in an interview that the committee did not show any signs of addressing the issues in time before the markup, prompting the exchange to choose to defend its customers and threaten to bail out of the entire process.

The banking sector previously raised concerns that interest-bearing stablecoins pose a threat to banks. Bank of America CEO Brian Moynihan said in mid-January that up to $6 trillion in bank deposits could shift to the stablecoin market if Congress approves yield-bearing stablecoins. Moynihan cited a report by the U.S. Treasury Department that claimed the shift will claim 30% to 35% of total U.S. commercial bank deposits.

Moynihan’s concerns centered on stablecoin structures operating like money market mutual funds, which hold money in short-term instruments such as U.S. Treasuries, keeping capital outside the banking sector that would otherwise be recycled to fund lending activities. He said that stablecoin deposits will also be excluded from the banking system, thereby reducing crucial deposits that banks rely on to run fractional-reserve banking.

Crypto market structure bill sparks concerns over bank runs

The efforts to address bank run concerns emanate from the latest draft texts of the crypto market structure bill proposal released by Senate Banking Committee Chair Tim Scott on January 9. The bill sought to ban crypto providers from paying interest to users who hold stablecoins. The bill introduced a distinction between activity-based rewards and those tied to staking, providing liquidity, or posting collateral, but banned rewards for idle balances sitting in accounts.

Banks argue that the GENIUS Act, which Donald Trump’s administration passed in July 2025, left gaps that introduce new liquidity risks, allowing issuers or platforms to offer interest-like returns on stablecoins.

The stablecoin law limits issuers from paying direct interest but does not restrict third-party platforms, such as exchanges, from providing rewards to users. However, Crypto companies counter the claims, stating that the issue was resolved during negotiations before the GENIUS Act passed.

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