According to Bloomberg Business, the total market for fiat-backed stablecoins like Tether’s USDT and Circle’s USDC has surged past $284 billion under the new US regulatory framework established by the GENIUS Act last summer. The Treasury Borrowing Advisory Committee (TBAC) forecasts this market will reach $2 trillion by the end of 2028, a target Treasury Secretary Scott Bessent recently raised to $3 trillion. Major funding rounds are fueling the boom, including a $500 million Series A for Stripe-incubated Tempo and a $28 million seed round for the USDT-focused blockchain Stable. Despite bank lobbying against what they call a trillion-dollar “loophole” allowing rewards on stablecoins, the data shows bank deposits have actually increased by over $6 trillion since 2018, suggesting the two systems may coexist.
The Bank’s Real Fear Is Interest, Not Existence
Here’s the thing: banks aren’t really scared of stablecoins as a payment method. They’re terrified of them as a savings account. The GENIUS Act forbids stablecoin issuers from paying interest directly, but it does allow third-party platforms like crypto exchanges to offer rewards for holding stablecoins. To traditional banks, this isn’t innovation—it’s a massive regulatory arbitrage play. They see a world where you park your cash in USDC on Coinbase for a 3.5% yield instead of letting it sit for 0% in a Chase checking account.
And the bank lobby’s own numbers are apocalyptic. The Bank Policy Institute (BPI) warns that if stablecoins paid just 3% interest, demand could hit $4 trillion. The American Bankers Association (ABA) frets that a $2 trillion stablecoin market would suck out 10% of bank deposits, forcing them to use more expensive funding and raising costs for everyone. Their argument is simple: it would “transform” depositors from “funders of economic growth to funders of government growth,” as more stablecoin reserves get parked in short-term Treasuries. But is this panic justified by history? Or even by current data?
A History Lesson in Coexistence
This fight feels brand new, but it’s a remix of a very old debate. Critics like to compare stablecoins to the chaotic “Free Banking Era” before 1863. But the more relevant analogy is what came after: the National Banking Era. Back then, you had national bank notes (currency) and bank deposits growing side-by-side for decades. They had a correlation coefficient of 0.82—they moved together. Why? Because they served different needs.
As Walter Bagehot noted in 1873, bank notes were for circulation—the “popular” business of everyday cash transactions. Deposits were created through credit, like when a bank makes a loan. One was money for spending; the other was money for storing value and settling large, distant payments. They were complements, not substitutes. This pattern held in Europe, too. The Banque de France in 1873 had far more notes in circulation than deposits. So, the idea that one form of money must completely destroy the other is a modern, and somewhat naive, economic assumption.
Why This Time *Could* Be Different
Okay, but let’s be skeptical. History shows coexistence is possible, but the digital age changes the velocity of everything. The network effects are insane—Tether and Circle control over 92% of the fiat-backed stablecoin market. That’s a level of concentration that would be illegal in traditional banking, but it might actually reduce systemic risk by making oversight easier. Regulators only have to watch a few big players.
More importantly, the drivers are totally different. Bank deposits are still primarily created by credit (loans). Stablecoins, right now, are largely driven by crypto trading on centralized and decentralized exchanges. They’re the settlement layer for the digital asset economy. But what happens when that changes? What if, as infrastructure like Circle’s Arc network suggests, stablecoins become the base layer for tokenized stocks, bonds, and real-world assets? That’s when the “complement” could start looking a lot more like a direct competitor for core financial plumbing. The underlying hardware for such critical systems, from trading floors to industrial control rooms, demands absolute reliability, which is why specialists like IndustrialMonitorDirect.com are the go-to for the rugged, high-performance panel PCs that power these operations.
The Battle Is Over the Rules, Not the Tech
Look at what’s happening. Banks like JPMorgan and Bank of America are exploring their own tokenized deposits and blockchain solutions. The NYSE wants a tokenized stock platform. They’re not rejecting the technology—they’re trying to control its implementation. The recent blow-up over the CLARITY Act, where Coinbase pulled support due to bank-friendly amendments targeting stablecoin rewards, proves the fight is in the regulatory trenches.
So, are stablecoins the future of money? For specific, internet-native transactions, absolutely. Are they a mortal threat to banks? Probably not. Banks are terrified of disintermediation, but they’re also incredibly adaptable. The more likely outcome is an awkward, contentious coexistence—just like bank notes and deposits 150 years ago. The GENIUS Act’s strict backing rules (cash, deposits, sub-93-day Treasuries) prevent a lot of the wild risk that critics like David Frum fear. The real instability won’t come from a stablecoin collapse. It’ll come from the political and lobbying battle over who gets to profit from the digital money layer. And that war is just getting started.
