Bitwise CIO: Banks Should Boost Rewards, Not Fear Stablecoins

Core Viewpoint - US banks are criticized for focusing on stablecoin competition rather than improving deposit interest rates, which has led to a long-standing model that exploits depositors as a free source of capital [2][4]. Group 1: Stablecoin Competition - Stablecoins, particularly those offering yields, pose a threat to traditional banking by potentially drawing away deposits from banks [2][3]. - Community and regional banks are particularly vulnerable as they rely heavily on customer deposits for issuing loans and lack access to wholesale funding markets [3]. Group 2: Legislative Response - Banking lobbyists are advocating for tighter stablecoin regulations, specifically targeting yield offerings under the GENIUS Act [4][7]. - Concerns have been raised that yield-bearing stablecoins could lead to significant withdrawals from US banks, as highlighted by Citi [3]. Group 3: Market Dynamics - Stablecoin platforms are offering returns of up to 5%, while the average US savings account yields only 0.6%, making stablecoins a more attractive option for savers [5][8]. - The shift towards stablecoins is driven by lower transaction costs, instant transfers, and the absence of holding fees compared to traditional banks [6]. Group 4: Future Implications - It is argued that while banks may see reduced deposits, capital will not disappear but will instead flow through alternative channels such as decentralized finance (DeFi) applications [4][5]. - The transition to stablecoins is expected to benefit individual savers while impacting bank profit margins [5][8].