BIS: A 0.01% Deposit Rate Hike Slows Stablecoin Growth from 15% to 12%

A 0.01% increase in U.S. bank deposit rates would slow the weekly growth rate of stablecoin capital from 15% to 12% over a ten-week period, according to a BIS working paper published on October 17, 2026 (source: CoinDesk). The authors, Rashad Ahmed and Iñaki Aldasoro, analyzed weekly data from January 2019 to June 2025, controlling for Bitcoin prices, Treasury yields, and global financial conditions.

A 0.01% Deposit Rate Hike Slows Stablecoin Growth

The BIS statistical model indicates that a 0.01% (0.01 basis point) increase in the average U.S. deposit rate predicts a slowdown in stablecoin market growth, reducing the average weekly growth rate from 15% to 12% over ten weeks. This relationship remains significant even after adjusting for Bitcoin price volatility and Treasury yield changes, demonstrating that the mechanism is not merely a reflection of digital asset volatility.

When the authors apply their preferred estimation, which assumes that banks raise rates in response to rising stablecoins, the slowdown intensifies, with average growth dropping to approximately 6% over the same period. However, they caution that this method relies on stronger assumptions and has methodological weaknesses, as noted in the document.

The phenomenon is more pronounced for Circle's USDC stablecoin than for Tether (USDT). The researchers interpret this as a reflection of USDC's greater exposure to U.S. users, who respond more quickly to changes in deposit rate attractiveness.

High U.S. Rates Since 2022

The deposit landscape has shifted since the Fed's rate hikes began in 2022, pushing banks to offer more attractive returns to retain customers. This dynamic peaked in 2024-2025, the period studied by BIS, where deposit rates reached historically high levels, creating an environment conducive to testing their impact on stablecoins.

Brian Moynihan, CEO of Bank of America, had already warned in January 2024 that up to $6 trillion in deposits could migrate to stablecoins and related products offering better returns, threatening banks' lending capacity and increasing borrowing costs (source: CoinDesk). This warning has strengthened regulators' interest in the substitution mechanisms between traditional deposits and digital assets.

Meanwhile, an analysis by Federal Reserve staff published in December 2025 explained that funds placed in stablecoins can return to banks in the form of issuer deposits, altering the composition of bank funding even if total deposits remain stable.

Substitution Mechanism Between Deposits and Stablecoins

When banks offer higher rates, rate-sensitive depositors are incentivized to stay within the banking system rather than transfer their liquidity to stablecoins offering similar or higher returns. This substitution reduces demand for stablecoins, leading to the slowdown observed in the BIS model.

The Fed report highlights that stablecoin issuers, such as Circle and Tether, deposit corresponding reserves in bank accounts, meaning that inflows into stablecoins ultimately translate into additional bank deposits. However, these deposits are often uninsured and large in size, requiring banks to increase their liquidity reserves and reduce their ability to grant medium- and long-term loans.

By raising rates for the most rate-sensitive customers while maintaining lower rates for less mobile depositors, banks can retain capital that might otherwise migrate, creating a yield arbitrage that, according to BIS, slows stablecoin market growth without reversing it entirely.

Implications for Stablecoin Market Actors

BIS findings indicate that even with a modest increase in deposit rates, stablecoin capital growth remains positive but more moderate: the average drops from 15% to 12% over ten weeks, and in the preferred scenario to 6%. This slowdown does not signal a market collapse but highlights increased sensitivity to bank deposit rate policies.

For USDC, whose user base is heavily U.S.-focused, the reaction is more pronounced, potentially pushing Circle to reconsider its reserve placement strategy or offer additional incentives to maintain its appeal. Tether, which has a more global user base, shows a less pronounced response, suggesting that its diverse customer base is less sensitive to U.S. rate changes.

These dynamics are crucial for investors tracking stablecoin market capitalizations via on-chain analytics platforms. Slower growth could reduce capital flows into DeFi projects reliant on USDC or USDT as their primary asset, indirectly impacting trading volumes and yield farming strategy returns.

Implications for the U.S. Banking System

By offering higher rates, banks increase their funding costs. The Fed report indicates that these higher costs can impact net interest margins, limiting banks' ability to finance long-term loans, particularly in real estate and industrial sectors.

Additionally, the need to maintain larger liquidity reserves against uninsured deposits of significant size could constrain banks from holding higher-yielding assets, affecting their balance sheets and capital ratios.

Finally, the ability of banks to target more attractive rates for mobile depositors creates a form of rate differentiation that could encourage increased competition among institutions, pushing the entire system to historically high deposit rates.

Limitations of the Study and Outlook

The authors acknowledge that their analysis is based on a single period of high rates, limiting the generalization of results to other monetary policy cycles. They also note that the model does not capture potential future regulatory effects on stablecoins or product innovations that could alter user sensitivity to deposit rates.

Despite these caveats, the BIS working paper provides the first empirical quantification of banks' ability to modulate stablecoin demand through deposit rate policies. Regulators and market participants are likely to closely monitor deposit rate trends during future monetary tightening cycles.

In conclusion, the most tangible finding remains that, according to BIS, each additional basis point in U.S. deposit rates reduces weekly stablecoin capital growth by approximately 3 percentage points, a concrete effect that slows market dynamics, particularly for USDC.