BIS Paper: Higher Bank Rates May Slow Stablecoin Growth

Traditional financial institutions might counter the expansion of digital tokens such as USDC and USDT by increasing yields paid to retail savers, according to research released by the Bank for International Settlements. Analysts examined weekly metrics spanning from the beginning of 2019 through mid-2025, factoring in digital asset valuations, government debt returns, and general economic conditions. The investigation revealed that a minor increase in average institutional deposit returns predicted reduced expansion speeds for dollar-pegged assets.

Understanding the BIS Research Findings

Authors Rashad Ahmed and Iñaki Aldasoro discovered that a single-week, one basis point upward adjustment in average savings yields reduced the typical ten-week capitalization growth rate of digital tokens from approximately 15% to roughly 12%. When applying their preferred model, which controlled for institutions hiking returns proactively against token expansion, the slowdown appeared even more pronounced, dropping rates down toward 6%.

However, the researchers noted certain methodological limitations within that adjusted estimate. Across both testing methods, the expansion velocity diminished rather than turning negative, meaning tokens continued expanding despite higher yields offered elsewhere.

Impact on USDC and USDT

The statistical correlation proved more pronounced for Circle's asset compared to Tether's alternative. Investigators attributed this discrepancy to the greater alignment of the former token with domestic participants within the United States.

This dynamic ties directly into wider industry discussions regarding institutional liquidity. In early January, Bank of America Chief Executive Officer Brian Moynihan cautioned that trillions in capital could shift toward digital tokens and associated yield-generating instruments. Such a migration carries the potential to constrain traditional lending capacity and elevate borrowing expenses across the broader economy.

Background and Reserve Mechanics

To fully understand this financial interplay, it helps to examine how reserve backing functions. Digital currency issuers typically park their underlying reserves in secure assets like short-term government debt. A Federal Reserve staff analysis from December clarified that capital flowing into these tokens often returns to traditional institutions via issuer reserves. This mechanism alters the source of institutional funding even if overall deposit totals stay relatively constant.

Holding larger uninsured balances might force lenders to maintain heavier liquid buffers, leaving reduced capital available for long-term credit issuance. Furthermore, lifting savings incentives to defend customer retention drives up operational expenses for traditional lenders. Federal Reserve researchers indicated that institutions might selectively offer superior returns to clients most prone to migrating while maintaining lower rates for less active savers.

Market Outlook and Limitations

The BIS study does not document actual outflows of institutional deposits or a direct contraction in aggregate credit creation. The underlying dataset covers a single period defined by elevated borrowing costs, meaning outcomes could shift as yield-bearing alternatives and tokenized funds gain further adoption. Ultimately, the authors concluded that traditional lenders keep a degree of control over the speed of token uptake through strategic savings pricing.