Banks vs. Stablecoins: Boost Deposit Rates or Lose Out?

Banks Face Pressure to Increase Deposit Rates Amid Stablecoin Rise

Bitwise Chief Investment Officer Matt Hougan is urging banks to increase deposit rates to better compete with the growing appeal of stablecoins. Instead of focusing on regulatory pushback against crypto, Hougan suggests that banks should focus on offering more attractive returns to depositors.

Challenging the Status Quo

In a recent post on X, Hougan stated, "If local banks are worried about competition from stablecoins, they should pay more interest on deposits." He argues that banks have long benefited from low-cost capital via depositors, but that dynamic is now being challenged.

These scare articles about stablecoins destroying local lending markets are absurd.

If local banks are worried about competition from stablecoins, they should pay more interest on deposits. They’re only worried because they’ve been abusing depositors as a free source of… https://t.co/WDALrdLxGp

— Matt Hougan (@Matt_Hougan) September 9, 2025

Hougan's comments came in response to concerns that stablecoins could pose a threat to smaller banks, potentially siphoning off deposits if workers increasingly receive wages in crypto.

While acknowledging potential shifts in the lending landscape, Hougan emphasized that DeFi platforms are capable of filling any credit gaps. He believes the primary impact will be on bank profit margins, with individual savers ultimately benefiting from increased competition.

The Yield Advantage of Stablecoins

Stablecoins frequently offer significantly higher yields compared to traditional savings accounts. The national average savings rate in the U.S. hovers around 0.6%, with even high-interest accounts offering only about 4.35%. In contrast, some stablecoins provide yields up to 5% on centralized platforms, with decentralized liquidity pools occasionally offering double-digit returns.

This yield disparity is a key factor driving the adoption of stablecoins, as depositors seek to preserve and grow their capital.

Stablecoins as Money Market Competitors

The rise of stablecoins is drawing comparisons to the emergence of money market funds in the 1970s, which offered higher yields than traditional savings accounts. Hougan sees stablecoins as the next iteration of this trend, empowering savers with more options outside of traditional banking. DeFi technology further enhances this by enabling lending and borrowing without intermediaries.

Banks Fight Back

The banking industry has been actively lobbying for regulations to limit stablecoin yields, arguing that the current environment creates an uneven playing field. Banks are pushing for the closure of perceived loopholes in existing legislation, sparking debate about the role of non-bank entities in money markets.

Banks have voiced concern that this creates an uneven playing field. By contrast, stablecoin issuers see the allowance as a natural evolution of digital assets.

The clash reflects a deeper debate about the role of non-bank entities in money markets.https://t.co/Zk2flW9BhI

— Geralt Davidson 🐺 (@CryptoInsider23) September 6, 2025

While banks cite potential risks, crypto advocates argue that restricting stablecoin yields would ultimately disadvantage consumers by protecting bank profits.

The Impact of Higher Deposit Rates

If banks were to raise deposit rates to compete with stablecoins, it could reduce the incentive for savers to move their funds into crypto. However, this would likely compress bank profit margins, especially for community banks that rely heavily on customer deposits for lending. Hougan argues that such margin pressure is a natural consequence of competition and should not be circumvented through regulation.