A working paper from the Bank for International Settlements shows stablecoin expansion slows sharply when deposit rates rise, with USDC the most affected token.
Economists at the Bank for International Settlements have published research showing stablecoin growth responds sharply to tiny changes in bank deposit rates. According to the working paper, a deposit rate increase of just one basis point was enough to pull overall stablecoin growth down to 12%.
The BIS acts as a research and coordination body for the world's central banks. Its economists regularly study how digital assets interact with traditional monetary tools. This paper adds to a growing body of work examining whether stablecoins behave like bank deposits, money market funds, or something distinct from both.
The mechanism described in the paper centers on competition for investor dollars. Most stablecoins pay holders little or no direct yield, even though issuers often earn interest on the reserves backing the tokens. When deposit rates at banks rise, even slightly, holding cash in an interest-bearing account becomes relatively more attractive than holding a non-yielding stablecoin. The BIS findings suggest investors respond to this gap quickly and at a smaller rate threshold than many analysts previously assumed.
According to Unchained's reporting on the same paper, USDC was flagged as the most exposed stablecoin to this dynamic. Circle's token is widely used across institutional trading desks, exchanges, and decentralized finance platforms, which may make its holder base more rate-sensitive than that of other large stablecoins. The paper reportedly did not single out one explanation for USDC's heightened exposure, but its findings point to measurable differences in sensitivity across stablecoin issuers.
The timing of this research matters. Stablecoins have grown into a multi-hundred-billion-dollar segment of the crypto market, used for trading, payments, and as a dollar proxy in regions with limited banking access. Regulators in the United States and Europe have moved in recent periods to formalize rules around stablecoin reserves and issuance, including through frameworks like the GENIUS Act and MiCA. Understanding how sensitive these tokens are to monetary policy changes is relevant to that regulatory work, since large and rapid swings in stablecoin demand could carry implications for short-term funding markets.
The BIS paper also echoes earlier academic work comparing stablecoins to money market funds, which have historically shown similar sensitivity to rate changes during periods of monetary tightening. That comparison has fueled debate among economists about whether stablecoins should eventually be regulated more like deposit-taking institutions or money funds, rather than as a novel asset class. The new findings give that debate additional empirical grounding, though the paper stops short of recommending specific policy changes.
Market Impact
If stablecoin demand is as rate-sensitive as the BIS paper suggests, issuers may face growth headwinds during periods of rising interest rates, since investors could shift funds toward higher-yielding bank deposits or money market instruments instead. This could pressure issuers like Circle to reconsider product design, including whether to offer yield-sharing stablecoins to remain competitive.
For the broader crypto market, slower stablecoin growth during tightening cycles could translate into reduced on-chain liquidity, since stablecoins function as the primary trading pairs and collateral assets across exchanges and decentralized finance protocols. Market participants and regulators are likely to watch future rate decisions with this sensitivity in mind, particularly as stablecoin market capitalization has become large enough to draw closer scrutiny from monetary authorities.
The BIS findings underscore that stablecoins, despite their crypto-native branding, remain closely tied to traditional interest rate dynamics. As regulators continue shaping stablecoin rules, this sensitivity is likely to factor into ongoing discussions about financial stability and monetary policy transmission.
Frequently Asked Questions
What is the Bank for International Settlements?
The BIS is an organization that supports cooperation among the world's central banks and conducts economic research on monetary and financial stability issues, including digital assets.
What did the BIS working paper find about stablecoins?
It found that stablecoin market growth is highly sensitive to deposit interest rates, with a one basis point rate increase cutting growth to 12%.
Why was USDC identified as most exposed?
According to reporting on the paper, USDC showed the strongest sensitivity to deposit rate changes among the stablecoins studied, though the paper did not isolate a single cause.
Why does stablecoin sensitivity to interest rates matter?
It suggests stablecoins behave somewhat like bank deposits or money market funds, which could influence how regulators approach stablecoin oversight and financial stability rules.