Stablecoins are reshaping the U.S. financial system in ways policymakers must carefully consider. With over $250 billion in circulation and projections reaching trillions, these digital assets are no longer niche products. The critical issue extends beyond competition concerns. When stablecoins offer interest rates, they attract deposits away from traditional banks, which rely on core deposits as their primary funding source for lending. This deposit migration directly reduces banks' lending capacity, potentially raising borrowing costs for consumers and small businesses. Research suggests even moderate stablecoin adoption could reduce aggregate deposits by 6.2 percent, translating to roughly $250 billion less in lending capacity. Small banks face particularly acute pressure, potentially losing nearly $19 billion in small-business lending and over $10 billion in agricultural credit.
