Rising US deposit rates are slowing stablecoin growth, and Circle’s USDC is feeling the squeeze far more than Tether’s USDT, according to a working paper released this month by the Bank for International Settlements (BIS).
Iñaki Aldasoro of the BIS and Rashad Ahmed of the Andersen Institute for Finance and Economics wrote the paper. The authors say it is the first hard evidence that bank deposit pricing directly affects stablecoin flows.
The study examined 339 weeks of US data from January 2019 to June 2025. During that period, the reserve-backed stablecoin market grew from under $5 billion to more than $220 billion.
The authors found that when banks raise rates on savings and money market accounts, stablecoin growth slows within weeks:
- Stablecoin market cap grew about 15% on average over a 10-week period
- A 1 basis point rise in deposit rates cut that growth to about 12% under the baseline model
- The authors’ preferred estimate puts the slowdown at about 6%
Growth slowed but did not turn negative. Stopping it completely would take a 5 basis point jump in deposit rates in one week. The paper calls that a six-standard-deviation event.
The researchers built their test around how banks pay savers. When the fed funds rate is below about 3%, banks pass very little of any rate hike on to depositors. Once the policy rate rises above that level, banks start raising deposit rates much faster to keep customers.
The authors used that shift to separate the effect of deposit rates from wider market moves. They also tested whether the result simply reflected a broader crypto boom or bust. Non-stablecoin crypto showed no matching response, which supports the authors’ interpretation.
The split between the two largest stablecoins stands out. Ten weeks after a 1 bp rise in deposit rates, USDC growth was 4.8 percentage points lower. USDT growth was only 1.9 points lower.
The authors link the gap to who holds each token. USDC is used mainly by US institutions and DeFi users, who can move money between a bank account and a stablecoin with little friction. USDT circulates mostly offshore and in developing economies, where US savings rates are not a practical alternative.
The difference is even sharper outside DeFi lending pools. USDC balances held there fell 5.5%. USDT balances held there fell 0.8%, a change the authors found to be statistically insignificant.
Earning yield on lending platforms such as Aave and Compound did not protect stablecoin balances. Even balances in those protocols declined when bank rates rose. The same pattern appeared when the authors used certificate of deposit rates instead of savings rates.
The paper acknowledged several limits:
- An important statistical test came in at 9.78, just below the standard threshold of 10
- The data cover only one high-rate cycle, from 2022 to 2025
- The study cannot identify which banks or depositors are affected
- Adding a time trend cuts the main estimate from about 9% to 4%
- Interest-paying stablecoins could change the relationship over time
The paper argues that banks still have some control over how fast stablecoins spread, through the rates they offer savers. It urges regulators to weigh two options. One is requiring issuers to hold part of their reserves as bank deposits. The other is deciding whether issuers can pay interest to holders.
A reserve requirement could protect bank funding, and it would also concentrate large uninsured deposits in a small number of banks.
The BIS study suggests that stablecoins and bank deposits compete for some of the same demand, with higher deposit rates making traditional savings more attractive. USDC appears more sensitive to these changes than USDT, reflecting differences in their user bases and geographic reach.
