A six-page whitepaper recently issued by the Coinbase Institute argues that, rather than undermine bank lending in the United States, the growth of the stablecoin market promises to expand the financial ecosystem, reinforce the dollar, modernize the U.S. payment system and create new channels for credit. Because most of the whitepaper’s claims are based on dubious evidence and several are mutually inconsistent, we examine them in closer detail here.
Coinbase Institute Claim: “Empirical evidence shows that stablecoin activity is overwhelmingly international, which substantially reduces any risk to U.S. bank deposits.”[1]
The whitepaper argues that, according to IMF data, North America accounted for only about a third of all stablecoin transactions in 2024, and thus stablecoins pose little risk to U.S. bank deposits but instead offer an opportunity to “hardwire[] the U.S. dollar into the digital economy of emerging markets.”[2] That description of the status quo seems plausible, but any assertion that one should be reassured by the stablecoin market’s current offshore orientation is at war with nearly every other argument the whitepaper makes about stablecoins’ potential impact in the U.S., including its claims that (i) current U.S. bank lending will migrate to the blockchain, (ii) stablecoins will transform inefficient payment systems for U.S. consumers and businesses and (iii) stablecoins will complement U.S. banking markets.
Coinbase Institute Claim: “To the extent that some activities shift from banks to the blockchain, there may be a modest drain on traditional deposits. But if the concern is truly about preserving credit creation for consumers and businesses, the evidence shows lending does not vanish – it follows economic activity onchain.”[3]
The whitepaper’s claim that stablecoins expand rather than displace traditional bank lending to the real economy is supported by just a single example, the DeFi platform Aave, which does no such thing.
By its own account, Aave performs a very specific function – it enables cryptocurrency market participants to lend or borrow digital assets through the Aave platform, with such transactions secured by other digital assets that borrowers have posted as collateral.[4] No aspect of Aave’s platform resembles or substitutes for the various types of real economy credit that banks provide, including mortgage loans, auto and other consumer loans, and commercial and industrial loans that form the foundation of U.S. bank activity.[5] Rather, Aave’s intended purpose and function is to provide market liquidity to the cryptocurrency market. To that end, Aave describes itself as follows: “Aave is a decentralised non-custodial liquidity protocol where users can participate as suppliers or borrowers. Suppliers provide liquidity to the market while earning interest, and borrowers can access liquidity by providing collateral that exceeds the borrowed amount.”[6] Indeed, recent research indicates that Aave is predominantly used for speculation in crypto markets, with loans extended on Aave serving the purpose of helping borrowers to buy more crypto assets, not supporting the real economy.[7]
Notwithstanding the fact that Aave’s activities bear no resemblance to the “credit creation for consumers and businesses” performed by the banks, the whitepaper states that according to DeFiLlama, Aave manages “more than $41 billion in total value locked,” which it argues is comparable to the 54th-largest U.S. bank by deposits. But this is like comparing apples and alpacas. “Total value locked” is simply the total value of digital assets committed on the Aave platform for borrowing or lending by platform users, which is a far cry from the actual credit creation for consumers and business that is facilitated by the balance sheet of a bank of similar size, which typically will include a mix of commercial and retail loans, government and debt securities and cash and cash equivalents.
If this were not reason enough, there is an even simpler reason not to believe that stablecoins can or will replicate banks’ credit creation for consumers or businesses “on chain” – the GENIUS Act makes clear they cannot, and for good reason. Specifically, to reduce stablecoin holders’ risk of loss, Section 4 of the GENIUS Act restricts the investment of stablecoin reserves to a narrow class of financial instruments – cash, bank deposits, short-term U.S. government debt, government money funds and short-term wholesale funding backed by U.S. government debt. With the sole exception of investment of stablecoin reserves in bank deposits themselves, none of these permitted investments create credit for U.S. consumers or businesses. Instead, they fund the growth of U.S. government debt.
Coinbase Institute Claim: “U.S. consumers absorb extraordinarily high indirect costs through swipe fees – costs that stablecoins could mitigate.” [8]
This claim is based primarily on data produced by the National Retail Federation – a trade association representing retailers – that in 2024, merchants paid $187.2 billion in credit- and debit-card interchange fees. Yet, comparing the costs associated with using stablecoins to the costs associated with using debit and credit cards is inapt. While there are superficial similarities between the two – both transactions using stablecoins and transactions using cards involve the movement of funds and information – the costs associated with the debit and credit cards include much more than just the transfer of funds and related data. Indeed, credit cards are not merely a payment method for consumers. They are a source of liquidity (supplied by the revolving credit line), provide customers with the option to finance purchases over time (or “float”) and provide customers with rewards (funded, partially, by merchant interchange fees). In addition, debit and credit cards offer dispute processes, chargeback rights and sophisticated fraud protection for consumers. Cards also offer consumers the benefit of near-universal acceptance and thus the benefit of using the same card at thousands of merchants and the convenience of making one monthly payment.
Furthermore, whatever assertions are made about the relatively low costs of stablecoin transactions currently, those costs will inevitably change once the requirements of the GENIUS Act go into full effect, as they will require payment stablecoin issuers to meet a host of requirements and standards that will inevitably increase the costs incurred to facilitate payments via stablecoins.
Coinbase Institute Claim: “[I]nvestors generally view stablecoins as complementary to, rather than competitive with, traditional banking institutions in the future, and the latest legislative efforts benefitted not only stablecoin providers, but also banks.”[9]
This claim is supported by a single piece of evidence: “research” showing that, after controlling for overall stock market performance, the stock prices of the largest retail banks were correlated with those of Coinbase and Circle (with a correlation coefficient of 18 percent) for the last three months ending on Sept. 8, 2025, a period that includes passage of the GENIUS Act.[10] It seems unnecessary to point out that there were a few other things going on in the world that might have affected the relative prices of those stocks. Correlation does not imply causation.
The reality is that, as we describe in more detail below, the extent to which stablecoins pose a direct threat to the consumer, business and other loans currently funded by bank deposits is a function not of the GENIUS Act, but of important policy decisions that will need to be made in the near future.
Coinbase Institute Claim: “The growth of stablecoins poses little direct threat to U.S. banks’ lending capacity.”[11]
The extent to which the growth of stablecoins is likely to displace bank deposits that fund trillions of dollars in credit will depend on how several key policy questions are resolved by the U.S. Congress and regulators. While the Coinbase paper suggests that banks’ lending capacity will be unaffected, policymakers must deal with the economic fact that any level of stablecoin adoption will likely cause displacements in deposits and reduction of credit, and those effects will only further increase if stablecoin adoption is as pronounced and transformative as the whitepaper suggests it will be.
Further contributing to the potential ability of stablecoins to displace bank deposits and cause problems for the economy is a policy choice that the whitepaper conveniently only mentions in passing – whether payment stablecoin issuers should be permitted to pay interest to holders, either directly or through “rewards” or other interest equivalents paid indirectly through affiliates, exchanges or other partners. The intention of the policy set forth in the GENIUS Act on this question ought to be clear: it expressly prohibits the payment of interest or other forms of yield on payment stablecoins, for the purpose of ensuring that payment stablecoins are for payments and not an investment product.[12] As a Senate Banking Committee factsheet released on the GENIUS Act makes clear: “[t]he GENIUS Act … recognizes that payments products are different than banking products and therefore bans issuers from offering yield or interest on payment stablecoins.”[13]
The GENIUS Act also expressly charges federal and state regulators with enacting rules that ensure that market participants do not evade this or other requirements of the Act.[14] Yet key market participants have already begun to argue that payment stablecoin issuers should be permitted to circumvent the prohibition on interest through arrangements whereby an affiliate of the issuer pays the holder yield in the form of a “reward” or similar interest substitute, converting stablecoins into an investment product that would directly threaten U.S. bank deposits and the loans to business and consumers that those deposits currently fund. These attempts to rebrand interest and yield-like payments as “rewards” and route them indirectly to stablecoin holders from the issuer through an affiliate are a clear evasion of the intention behind the GENIUS Act. Whether they are allowed to continue this evasion is the most important question in the “deposit debate”; the whitepaper makes no attempt to address it. Nevertheless, policymakers should make it abundantly clear as to the scope of this prohibition of interest, both through regulations implementing the GENIUS Act as well as statutory language in market structure legislation, in order to prevent evasion and subsequent disruptions of credit in the real economy.
[1] Coinbase Institute, Beyond the Deposit Debate: Why Stablecoins Complement Banks and Strengthen the Dollar (Sept. 2025), available at https://assets.ctfassets.net/o10es7wu5gm1/6lmVsg8Tswx65NHCcsJr1R/5ccb67c46e5c97a25ebfcf3cbb801f6f/Coinbase_StablecoinPaper_091525_VersionB.pdf.
[2] Coinbase Institute at 3.
[3] Coinbase Institute at 3.
[4] See Aave, Frequently Asked Question, available at https://aave.com/faq.
[5] At the end of October, banks had more than $10 trillion in such loans outstanding. Federal Reserve Statistical Release H.8, Assets and Liabilities of Commercial Banks in the United States, available at https://www.federalreserve.gov/releases/h8/current/default.htm.
[6] Id.
[7] See Cornelli, G., Gambacorta, L., Garratt, R., & Reghezza, A. (2025). Why defi lending? Evidence from Aave V2. The Journal of Financial Intermediation. Available at https://doi.org/10.1016/j.jfi.2025.101166,; Marco Macchiavelli, Stablecoin Risks: Some Warning Bells (Nov. 3, 2025), available at https://bpi.com/stablecoin-risks-some-warning-bells/. That research indicates that platforms like Aave promote the build-up of leverage and systemic risk which could threaten the traditional financial system, businesses and households.
[8] Coinbase Institute at 3.
[9] Coinbase Institute at 4.
[10] The whitepaper also notes that this correlation is “positive and statistically significant, with an average correlation coefficient of about 16%.” It is not immediately clear why or how this specific three-month period was selected relative to the date the GENIUS Act was enacted into law, July 18, 2025.
[11] Coinbase Institute at 3.
[12] See GENIUS Act, section 4(a)(11).
[13] See Myth vs. Fact: The GENIUS Act | United States Committee on Banking, Housing, and Urban Affairs.
[14] See GENIUS Act, section 4(h).
