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The debate over stablecoin competition is heating up, as Bitwise Chief Investment Officer Matt Hougan argues that U.S. banks should stop fearing digital currencies and instead respond by raising deposit interest rates. His comments, shared on Tuesday, challenge the narrative that stablecoins pose an existential threat to traditional lenders.
“If local banks are worried about competition from stablecoins, they should pay more interest on deposits,” — Matt Hougan, CIO, Bitwise, in a post on X (formerly Twitter).
Hougan accused banks of “abusing depositors as a free source of capital for decades,” suggesting that consumer frustration has opened the door for stablecoin competition. With stablecoins offering yields as high as 5%, compared to the U.S. national average savings rate of just 0.6%, he argued that customers are making rational choices in moving their funds.
Stablecoins, digital assets pegged to fiat currencies like the U.S. dollar, are gaining traction for both their high yields and efficiency. Their appeal lies in faster settlement times, no holding fees, and significantly better returns compared to traditional savings accounts.
According to Bankrate, the best high-interest savings accounts currently offer around 4%, still trailing many stablecoin products. This gap has raised concerns among regulators and smaller banks that rely heavily on deposits to fuel lending.
“Stablecoin competition has the potential to drain liquidity from community and regional banks,” — Sheila Bair, former chair of the Federal Deposit Insurance Corporation (FDIC), said in a panel discussion earlier this year.
Critics warn that if deposits flow into digital assets en masse, local banks could face funding shortfalls, particularly in rural and underserved areas where lending is already fragile.
The concerns raised by banks have sparked a parallel debate over how regulators should respond to stablecoin competition. Some institutions, including Citi, have urged Washington to impose stricter rules on stablecoin issuers, particularly those offering yield-bearing products.
Policymakers have floated ideas ranging from caps on stablecoin returns to enhanced reserve requirements. Industry participants, however, argue that such measures could stifle innovation and prevent U.S. financial markets from keeping pace with Europe and Asia, where digital asset adoption is accelerating.
“The loser here is bank profit margins. The winner here is individual savers,” — Matt Hougan, CIO, Bitwise.
Hougan emphasized that the real disruption is not systemic risk but a redistribution of value from banks to consumers. In his view, stablecoin competition could even encourage healthier market dynamics by forcing financial institutions to offer better products.
Despite intensifying scrutiny, Hougan remains confident that stablecoins will continue to attract capital. He points to the broader shift toward decentralized finance (DeFi), where stablecoin holders can lend directly to borrowers, bypassing banks entirely.
“This is not about eliminating banks,” Hougan said in a recent interview. “It’s about ensuring that financial services evolve in a way that benefits customers, not just institutions.”
For policymakers, the challenge lies in balancing the risks of rapid capital migration with the potential benefits of increased competition. Analysts believe the outcome of this debate will shape the future of U.S. banking.
Stablecoin competition, once dismissed as a niche concern, is now a central issue in discussions about monetary stability, consumer protection, and innovation in financial services. Whether regulators choose to constrain or embrace it, the pressure it exerts on traditional banking models is unlikely to fade.
