As the U.S. Senate moves closer to finalizing the Digital Asset Market Structure Act, one surprisingly simple issue is holding back progress: stablecoin yields.
While the headlines focus on DeFi oversight and token classification, Omid Malekan, an adjunct professor and crypto policy analyst at Columbia Business School, warns that much of the discussion in Washington is based on myths rather than evidence.
Banks vs. stablecoins: Are U.S. lawmakers fighting a phantom threat?
Malekan identifies 5 deep-rooted misconceptions about stablecoins and their impact on the banking system
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Malecan, who has reportedly lectured at Columbia Business School since 2019, said these misconceptions, if left unaddressed, could stall meaningful crypto legislation.
Myth 1: Stablecoins will shrink bank deposits
Contrary to popular belief, the introduction of stablecoins will not necessarily cannibalize US bank deposits.
Malekan explains that the combination of foreign demand for stablecoins and Treasury reserves held by issuers actually tends to increase domestic bank deposits.
Each additional dollar generated in stablecoin issuance often generates more banking activity through the buying and selling of government securities, repo markets, and foreign exchange trading.
“Stablecoins increase the demand for dollars everywhere,” Malekan said, stressing that rewarded stablecoins amplify this effect.
Myth 2: Stablecoins threaten banks’ credit supply
Critics argue that an influx of deposits into stablecoins could lead to less lending. Malekan calls this a false conflation of profitability and credit supply.
Justin Slaughter, vice president of regulation at Paradigm, who is also a former senior advisor to the SEC and CFTC, emphasized in a post in late December that stablecoin adoption should be neutral or help foster credit creation and bank deposits.
Malekan challenges banks, especially large US institutions, to maintain large reserves and high net interest margins. Competition for deposits may have a slight impact on profits, but it does not reduce banks’ ability to lend.
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In fact, banks can make up for shortfalls by reducing reserves held by the Federal Reserve or by adjusting the interest paid to depositors.
His position is in line with that of the Blockchain Association, which has criticized large banks for claiming that stablecoins threaten deposit and credit markets.
Myth 3: Banks must be protected from competition
The third misconception is that banks are the primary source of credit and must be protected from stablecoins.
The data tells a different story, with the BIS Data Portal showing that banks account for more than 20% of total credit in the United States. Non-bank lenders provide the majority of loans to households and businesses. This includes money market funds, mortgage-backed securities, and private credit providers.
Malekan argues that stablecoins have the potential to further lower borrowing costs by increasing demand for Treasury-backed assets, which serve as a benchmark for non-bank credit.
Myth 4: Community banks are most at risk.
The theory that small and regional banks are the most vulnerable to stablecoin adoption is also misleading.
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Malekan stressed that large “money center” banks face real competition, especially in payment processing and corporate services. Community banks serve a local or older customer base, so their deposits are less likely to migrate to digital dollars.
Essentially, the institutions most threatened by stablecoins are the same ones that already benefit from high profitability and global operations.
Myth 5: Borrowers are more important than savers.
Finally, the idea that the protection of borrowers should take precedence over the interests of savers is fundamentally wrong.
Rewarding stablecoin holders enhances savings, which supports overall economic stability.
“Prohibiting stablecoin issuers from sharing their economic status is an implicit policy of harming American savers in order to benefit borrowers,” Malekan said.
Promoting savings through innovation benefits both sides of the lending equation, increasing consumer resilience and economic dynamism.
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The real barrier to reform
According to Malekan, the ongoing debate over stablecoin yields is primarily driven by fear and serves as a delaying tactic.
Although the Genius Act already clarifies the legality of stablecoin rewards, Washington remains mired in outdated lobbying concerns.
Malecan likens the situation to asking Congress to outlaw Tesla instead of letting the auto industry innovate.
“Digital currencies are no exception. Most of the concerns raised by banks are unproven and unfounded,” the Columbia Business School professor concluded.
With bipartisan legislation including a 278-page draft in the Senate poised to raise prices, now is the time to make evidence-based decisions.
Misconceptions about stablecoins could hinder regulatory clarity and slow the process, and could also impede U.S. competitiveness in the global digital dollar economy.
Malekan urged policymakers to focus on facts rather than fear, stressing that the introduction of well-designed stablecoins can increase savings, increase bank deposits, and lower borrowing costs, while fostering innovation in payments and DeFi.
In short, stablecoins are not the threat that many fear. It’s a misguided myth. Dispelling these misconceptions could open the next chapter of U.S. cryptocurrency reform, striking a balance between consumer interests, market efficiency, and financial stability.
