BIS Study Reveals Why Bank Rates Threaten USDC More Than USDT

• Higher bank deposit rates are associated with slower stablecoin growth, according to research from the Bank for International Settlements.
• USDC appears more sensitive to deposit-rate competition than USDT, suggesting different demand patterns across the two largest dollar stablecoins.
• Circle’s reserve-income model creates a financial trade-off: interest rates influence both returns on reserve assets and demand for non-interest-bearing digital dollars.

Banks may have a stronger influence over stablecoin growth than the cryptocurrency industry’s expanding payment infrastructure suggests.

A new study from the Bank for International Settlements (BIS) finds that higher bank deposit rates are followed by slower growth in dollar-backed stablecoins. The relationship is particularly pronounced for Circle’s USDC, which appears more sensitive to competition from conventional savings products than Tether’s USDT.

Published in October, BIS Working Paper No. 1382, Are Stablecoins and Bank Deposits Substitutes?, examines weekly US data from January 2019 through June 2025.

Its findings introduce a financial constraint into the stablecoin growth debate: even as issuers expand payment networks and blockchain integrations, customers still weigh the benefits of holding digital dollars against the interest available from banks.

How Much Stablecoin Growth Is at Stake?

The researchers estimate that a one-basis-point increase in bank deposit rates is associated with approximately 2.8 percentage points less stablecoin market capitalization growth over ten weeks.

Their alternative instrumental-variable model produces a larger estimate of approximately 9.1 percentage points.

These figures measure changes in growth, not an equivalent decline in outstanding stablecoin supply. A stablecoin market growing at 15%, for example, would grow at approximately 12.2% under a hypothetical 2.8-percentage-point reduction.

The distinction between bank deposit rates and Federal Reserve policy rates is essential.

The study measures how stablecoins respond when banks change what they pay depositors, rather than simply treating monetary tightening as the cause of slower adoption.

Its identification strategy uses differences in banks’ deposit-rate adjustments when the federal funds rate exceeds roughly 3%, helping isolate deposit competition from broader interest-rate conditions.

USDC and USDT Face Different Competitive Pressures

Most revealing result emerges when the researchers examine the two largest dollar stablecoins separately.

At the ten-week horizon, their baseline estimates indicate that a one-basis-point increase in deposit rates is associated with approximately 4.8 percentage points less USDC growth, compared with 1.9 percentage points for USDT.

The difference is consistent with USDC’s closer links to US financial institutions and institutional users.

USDT has a larger role in offshore cryptocurrency trading and markets where access to conventional dollar banking may be more limited.

The estimates do not identify individual holders moving funds between bank accounts and stablecoins. They show that the two markets respond differently to changes in the attractiveness of US deposits.

BIS RESEARCH / TEN-WEEK RESPONSE USDC Is More Sensitive to Bank Deposit Rates

Estimated reduction in stablecoin growth after a one-basis-point increase in bank deposit rates.

USDC−4.8 pp USDT−1.9 pp WHAT THE COMPARISON SHOWS USDC’s estimated response is about 2.5 times that of USDT. This compares model coefficients, not observed transfers between individual bank accounts and stablecoin wallets. Source: BIS Working Paper No. 1382, Online Appendix Table OA.A.1. OLS estimates, ten-week horizon. Bar lengths are scaled to a 5 pp reference.

How Bank Yields Affect Circle’s Reserve Income

The BIS findings become more commercially significant when compared with Circle’s financial disclosures.

Circle reported $668 million in reserve income during the second quarter of 2026, up 5% year over year. Average USDC circulation increased 25%, partially offsetting a 66-basis-point decline in its reserve return rate, according to the company’s quarterly results.

That provides a real-world example of how stablecoin supply and interest rates affect issuer economics.

Circle holds reserves in highly liquid assets, including short-term US Treasuries, repurchase agreements and bank deposits. Some Treasury-related reserves are held through the BlackRock-managed Circle Reserve Fund, according to its reserve disclosures.

USDC holders generally do not receive the income generated by those reserves simply for holding the token.

The financial relationship therefore has two sides. Higher market interest rates can improve returns on reserve assets, but more attractive bank deposits may simultaneously discourage some investors from holding non-interest-bearing stablecoins.

The calculation below illustrates how a change in reserve yields can affect gross income, even if the amount of USDC in circulation remains unchanged.

STABLECOIN RESERVE ECONOMICS What a 25-Basis-Point Yield Decline Means Assumed reserve assets $10B Annual yield change −0.25 pp ILLUSTRATIVE ANNUAL INCOME REDUCTION $25 million $10 billion × 0.0025 = $25 million

Illustrative calculation, not a forecast for Circle. Assumes constant reserve balances, investment composition and a full year at the lower yield. Excludes distribution costs and other expenses.

Why Stablecoin Growth Can Reshape Bank Funding

Competition between deposits and stablecoins does not mean every dollar entering the stablecoin market disappears from the banking system.

When an investor exchanges bank deposits for newly issued USDC, Circle receives funds and invests them in eligible reserve assets. Some money may remain in bank deposits, while other funds move into Treasury securities or repurchase agreements.

The financial system’s composition changes even when aggregate deposits do not decline by the same amount.

That creates a different concern for banks: retail deposits may be replaced by more concentrated institutional funding, potentially changing funding costs and liquidity risks.

The BIS paper examines the demand relationship rather than directly measuring a reduction in bank lending.

Its results also extend to stablecoins supplied to decentralized lending protocols, although those estimates are less precise. Access to DeFi yields does not appear to eliminate competition from bank deposits.

What the Findings Mean for Stablecoin Investors

The research offers three practical distinctions:

• For USDC and USDT holders: Bank deposit yields represent an opportunity cost, but stablecoins may provide payment, settlement or international dollar-access functions that deposits cannot replicate.
• For stablecoin issuers: Expanding circulation can support reserve-related revenue, while changes in interest rates can affect both reserve returns and demand.
• For banks: Competitive deposit pricing may help retain funding, but the findings do not establish that raising rates will reliably reverse stablecoin adoption.

The evidence also has limits. The sample ends in June 2025 and covers one major high-interest-rate episode. The paper’s instrumental-variable approach produces larger estimates, but its first-stage F-statistic of 9.78 indicates some potential weakness under a conventional diagnostic threshold.

Competition for dollar liquidity is also extending beyond bank deposits and conventional stablecoins. Products such as BlackRock BUIDL and Ondo USDY offer exposure to yield-bearing assets through tokenized structures, although their accessibility and redemption arrangements differ from those of USDC and USDT.

For non-interest-bearing stablecoin issuers, this creates another incentive to compete through liquidity, payment utility and distribution. The BIS findings suggest that those advantages will matter alongside the returns investors can obtain elsewhere.

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