Stablecoins as a Driver of Banking System Transformation: Why Competition Is Exactly What Is Needed

When stablecoins were first seriously considered as the future of money—especially after Facebook announced the Libra project in 2019—the financial sector was swept by a wave of existential fear. The prevailing narrative was simple: if people could hold a digital dollar on their phones backed by solid assets, why would they need traditional banks with their fees and zero interest rates? Deposit withdrawals seemed inevitable. But recent research, particularly analysis by Professor Will Cong from Cornell University, shows a paradoxical conclusion: stablecoins did not destroy bank deposits—they changed the very nature of banking competition.

Why “Deposit Stickiness” Was Stronger Than the Technological Attack

The traditional banking model functions like a network, where a current account becomes a central node. Loans, salaries, accounts, insurance—all interconnected within one system. However, this interconnection exists not because customers choose this form, but because transferring all financial operations elsewhere is complex and costly. This property is what scholars call “deposit stickiness.”

Research from Cornell University showed that despite the rapid growth of stablecoin capitalization, empirical data indicates minimal correlation between the emergence of digital currencies and actual outflows from traditional deposits. It turns out that people value having everything in one place more than earning a few basis points more in interest. Therefore, predictions of a “massive collapse” of the banking system proved largely panic-driven.

But this is where the real story begins.

Competition as a Catalyst: How Stablecoins Push Banks to Evolve

If stablecoins didn’t cause a rupture in the banking system, that doesn’t mean they are harmless to banks. On the contrary, their very presence has become a powerful disciplining factor. When banks faced real competition, they could no longer rely on customer inertia.

Theoretically, research from Cornell indicates an interesting conclusion: the availability of alternatives in the form of stablecoins forces traditional financial institutions to raise deposit rates, optimize operational systems, and generally make their offerings more attractive. This doesn’t reduce the “pie” but rather expands the scope of financial intermediation and increases overall system efficiency.

Most interestingly, stablecoins do not claim to replace banks. They are tools that extend capabilities where banks already have expertise. The result: instead of destructive competition, we see competition leading to improvement.

Why Stablecoins Did Not Cause the Predicted Deposit Collapse

When debates about Libra began in 2019, experts wondered: what would happen to deposits if people could transfer them instantly and around the clock? In practice, a comprehensive study from Cornell University showed: nothing changed. People stayed with their banks—not because they lacked alternatives, but because the cost of switching to stablecoins proved higher than the potential gains.

Money remains in checking accounts not due to technical limitations but because of economic rationality. This phenomenon is precisely what the theory of “sticky deposits” describes: when everything is set up within one system, exiting is costly and time-consuming.

But crucially, the absence of a mass outflow does not mean banks do not need change.

How Regulation Institutionalizes Stablecoin Competition

The key development was the GENIUS Act, passed by the U.S. in July 2025 and signed by President Donald Trump on July 18. This law established clear requirements: each stablecoin must be backed 100% by cash, short-term U.S. Treasuries, or insured deposits.

At first glance, it seems just another regulatory document. In reality, it institutionalizes competition. The GENIUS Act makes stablecoins legal and predictable, paradoxically making them a more competitive force than they were previously in the shadows.

Research from Cornell indicates that such regulatory requirements (full reserves, redemption rights) address major risks, including “run risks” and liquidity issues. These mechanisms have long been used in traditional financial engineering—it’s just a matter of applying them correctly to this new technological form.

The Federal Reserve and the Office of the Comptroller of the Currency (OCC) have been tasked with developing specific rules. Their role is to manage operational risks, custody security issues, and integrate stablecoins into blockchain systems.

The True Revolution: Redesigning Payment Infrastructure

Until now, the discussion centered on fears. But when you stop thinking in terms of “who wins,” the picture becomes clearer. The real revolution of stablecoins lies not in 24/7 accessibility (which is just a marketing slogan) but in a fundamentally new way of settling transactions.

The traditional international payment system relies on a chain of intermediaries. Money can spend days “in transit,” passing through correspondent banks before reaching the target account. It’s expensive, slow, and inefficient. Stablecoins solve this problem with simple language: instant transfer, one blockchain transaction, final and irreversible.

The implications for global liquidity are enormous. Money no longer “gets stuck” in queues of intermediaries. It can be instantly converted across jurisdictions, freeing liquidity that was traditionally frozen.

For local markets, this means cheaper payment solutions. For banks, it offers a rare opportunity to modernize clearing infrastructure, which has long operated on COBOL and outdated systems.

The Dollar as a Platform: How the U.S. Can Lead in Digital Competition

Ultimately, the U.S. faces a strategic choice. The dollar remains the world’s most popular financial asset, but the technological backbone supporting it is clearly outdated. If the U.S. does not lead in dollar modernization through stablecoins, the future of digital currencies will be shaped by offshore jurisdictions.

The GENIUS law is not just a regulatory tool. It’s a geopolitical move. It allows the U.S. to:

• Localize innovation: instead of stablecoins developing in gray or black markets, they fall under proper regulation
• Ensure transparency: shadow banking gets regulatory clarity
• Strengthen the dollar’s position: instead of losing ground to offshore alternatives, the U.S. integrates them into its domestic financial architecture

This is essentially an upgrade of the dollar itself—from a static currency to a dynamic platform.

Lessons from Other Industries: Adaptation as Survival

When the music industry first encountered Napster and other online music distribution services, it didn’t immediately rejoice. The industry resisted, sued, and went into dead ends of confrontation. But eventually, labels realized: streaming is not an enemy but an evolution of the format. Now, streaming generates more revenue than the physical media industry ever did.

Banks are doing the same. They resist change, trying to slow down adaptation. But logic and facts suggest that once they understand how to profit from speed rather than delays, they will truly learn to incorporate stablecoins into their ecosystems.

Conclusion: From Competition to Cooperation

The paradox of stablecoins is that they did not become a deadly threat to the banking system. Instead, they became a disciplining mechanism that forces traditional institutions to develop faster. Research from Cornell shows: deposits remain, but competition has chosen banks willing to learn.

Stablecoins will not replace banks. But they will redefine which banks survive and how they operate. And this story is not about the death of the system but about its rapid modernization.