- A Bank for International Settlements (BIS) study finds that even small increases in bank interest rates could noticeably slow stablecoin market capitalization growth.
- USD Coin (USDC) shows greater sensitivity to rate changes than Tether’s USDT, which the researchers link to USDC’s closer ties to U.S. users and institutions.
- Visa’s dollar-based stablecoin settlement volume has reached an annualized run rate of $20 billion, offering a possible counterweight to rate-driven pressure on demand.
Rising bank deposit rates could become a headwind for stablecoin expansion, according to recent research from the Bank for International Settlements. The same analysis suggests that USDC is more exposed to this effect than USDT. At the same time, growing real-world payment activity, led in part by Visa, may help support demand for dollar-pegged tokens even if traditional savings yields become more competitive.
What Happened
A recent BIS study examined how bank interest rates affect the growth of stablecoins. According to the findings, a one basis point increase in bank rates reduces the growth in stablecoin market capitalization by about 3% over a ten-week period.
Stablecoin market capitalization has been growing at roughly 15% annually. Applying the BIS estimate, that pace would slow to approximately 12% per year. The effect differs across tokens. USDC’s growth declines by 4.8 percentage points, compared with a 1.9-point reduction for USDT.
The researchers attribute USDC’s higher sensitivity to its closer connection with U.S. users and institutions. Higher bank yields also make traditional deposits more appealing relative to holding stablecoins. The study found no significant link between bank rates and other cryptocurrencies, meaning the effect appears specific to stablecoins.
The findings indicate that higher rates may slow the pace at which new stablecoins are created, but they would not erase the existing supply.
Separately, Visa has been expanding the use of USDC in payments. Through Visa Direct, USDC-funded cross-border payouts can be used for wages or purchases in more than 180 countries. Inyo Global is named as the first partner for this service.
Why It Matters
For investors, the BIS findings highlight that stablecoin growth is not guaranteed and can be shaped by conditions in traditional finance. If banks offer more attractive deposit rates, some capital that might otherwise flow into stablecoins could remain in conventional accounts. This is especially relevant for USDC, where the study points to a more pronounced response.
For the broader crypto market, the research suggests that stablecoin supply is closely tied to the interest rate environment. Stablecoins serve as a key liquidity layer for trading and decentralized finance, so a slowdown in their expansion could influence market activity over time.
The payment developments offer a different angle. If stablecoins are used for everyday transactions and business settlements, demand may rest less on speculative trading and more on practical utility. That shift could make the asset class less sensitive to short-term swings in trading sentiment, though it does not remove the influence of interest rates.
Market Context
Stablecoins are crypto tokens designed to hold a steady value relative to a reference asset, typically the U.S. dollar. They have become an important part of the digital asset ecosystem, with total outstanding stablecoin capitalization currently above $300 billion.
USDC’s circulating supply stands at $72.6 billion according to DeFiLlama data. This places it among the largest dollar-pegged tokens, though it remains smaller than the overall stablecoin market.
Visa’s stablecoin activity has grown rapidly. Its dollar-based stablecoin settlement volume is running at an annualized rate of $20 billion, which the company’s figures put at more than 15 times the level recorded a year earlier. This growth suggests that stablecoins are increasingly being used to move money, not only to hold it.
A key measure is whether transactional usage is growing faster than the circulating supply. If settlement volume outpaces supply growth, it could partly offset the weaker demand that higher bank deposit rates might create. That outcome, however, depends on merchants and businesses continuing to process many transactions using prefunded USDC balances.
What to Watch Next
- Bank deposit rates: Changes in rates across the banking system will be central to whether stablecoin growth slows as the BIS research suggests.
- USDC versus USDT trends: Readers should monitor whether the gap in rate sensitivity between the two tokens persists in future data.
- Visa’s payment expansion: Additional countries, banks, or partners joining Visa’s USDC payouts would indicate whether real-world usage is broadening.
- Settlement versus supply: Comparing transaction volume with circulating supply will help show whether stablecoins are being used for commerce or mainly held.
- Interest-bearing alternatives: Some alternative stablecoin forms already pay interest on idle balances, and their adoption could affect how holders respond to rate changes.
Source: original report
