Coinbase pushes back on fears that stablecoins undermine US banks

Coinbase has pushed back against warnings from major US banking groups that the rise of stablecoins could prove harmful to the country’s financial system. The exchange claims that fears that dollar-pegged tokens may leverage deposits from conventional banks are “baseless and deceptive.

According to them, these tokens have important real-world applications that should not be overlooked. This was after Coinbase’s policy chief, Faryar Shirzad, mentioned that the concept that stablecoins will destroy bank lending is inaccurate. 

“Most of the demand for stablecoins comes from outside the US, which helps increase the global influence of the dollar rather than competing with your local bank,” Shirzad added.

Coinbase defends stablecoins as payment tools

In a recent blog post titled “Rejecting the Banks’ Deposit Erosion Myth”, Faryar Shirzad recently argued quite simply that stablecoins are mostly utilized for payments and international transfers — not substitutes for your savings or checking account.

According to Shirzad, “The central claim that stablecoins will cause a mass outflow of bank deposits simply doesn’t hold up. These assets complement the banking system by improving payments, not competing with it.”

Earlier, Shirzad provided a market note highlighting that discussions regarding how stablecoins influence bank deposits and loans echo similar concerns from initially existing innovations, such as money market funds. However, the note did explore the use of stablecoins.

This situation arose from US banking groups’ previous claims that stablecoins offering returns could rival bank accounts, leading to funds leaving banks. Therefore, they have urged Congress to set up limitations on services that provide returns on stablecoins.

When reporters asked Coinbase about the sources of interest in the stablecoin ecosystem, the exchange stated in its note that most of the gains in stablecoins come from users in other countries seeking access to dollars, rather than US consumers.

Coinbase also highlighted the importance of the US dollar stablecoins in emerging markets. According to a crypto exchange, individuals in these markets prefer using dollar stablecoins to protect themselves against the loss of value in their local currencies. This demonstrates that the crypto community views these tokens as a useful means of allowing underbanked individuals access to dollars. 

To date, approximately two-thirds of stablecoin transfers have taken place on decentralized finance or blockchain platforms. With these transfers, the digital token solidifies its position as the transaction backbone for a newly developed financial system that operates alongside, but mostly independently of, the domestic banking system, Coinbase said.

Therefore, according to the crypto exchange, considering stablecoins as a threat misinterprets the situation. Shirzad backed Coinbase’s claim, explaining that tokens improved the dollar’s position globally and established a competitive edge that the US should not restrict.

Coinbase also addresses concerns that community banks face regarding the widespread use of stablecoins, stating that the claims are unfounded. This suggests that the average Stablecoin user differs from the typical community bank customer. 

The GENIUS Act sparks investor confidence in stablecoins 

Shirzad noted that Community banks and users of stablecoin rarely overlap, suggesting that banks could improve their services using stablecoins. Coinbase, on the other hand, pointed out that the forecast of trillions of dollars moving into stablecoins in the next decade requires scrutiny.

“Even if global stablecoin circulation reached $5 trillion, most of that value would still be held overseas or tied up in digital settlement systems, rather than being taken from US checking or savings accounts,” it explained. 

According to Coinbase, there are more than $18 trillion of commercial bank deposits in the US, and it contended that the impact of stablecoins on these deposits would remain limited. At the same time, the global influence of the US dollar would increase significantly.

Some major banks and important financial institutions have already launched stablecoin services, while others plan to explore them after the US implemented the GENIUS Act early this year. This law governs the operation of stablecoin service providers in the country.

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