Higher U.S. bank deposit rates are slowing stablecoin growth within weeks, and Circle's USDC is feeling the squeeze far more than Tether's USDT, according to a working paper released this month by the Bank for International Settlements. The study by Inaki Aldasoro of the BIS and Rashad Ahmed of the Andersen Institute for Finance and Economics is described as the first hard evidence that bank deposit pricing directly affects stablecoin flows. The finding reframes stablecoins not as a separate financial universe but as direct competitors with bank accounts — and competitors that lose when banks pay more. For anyone tracking how fast crypto moves, the trade-off between speed and yield is now quantified.

The numbers are precise. The authors examined 339 weeks of U.S. data from January 2019 to June 2025, a period when the reserve-backed stablecoin market grew from under $5 billion to more than $220 billion. Stablecoin market cap grew about 15 percent on average over a 10-week window; a 1 basis point rise in deposit rates cut that growth to about 12 percent under the baseline model, and the authors' preferred estimate puts the slowdown at about 6 percent. Growth slowed but did not turn negative — stopping it completely would take a 5 basis point jump in deposit rates in one week, which the paper calls a six-standard-deviation event.

The issuer split is the most commercially relevant finding. USDC growth fell 4.8 percentage points after a 1 basis point rate rise, while USDT declined only 1.9 points. The gap reflects the two tokens' different user bases: USDC is concentrated among U.S. institutions and DeFi users who actively compare yields, while USDT's global, retail-heavy base in emerging markets is far less sensitive to American deposit rates. In a rate-cutting cycle, the dynamic reverses — and USDC should benefit disproportionately.

The timing matters. With the Fed now debating whether to hike again at its October 27-28 meeting, deposit rates could stay elevated or even rise — extending the headwind for stablecoin growth, particularly for USDC. Conversely, any pivot back toward easing would remove the brake. Stablecoin issuers, whose business models depend on the interest earned on reserves, are thus caught in the same macro cycle as the banks they compete with.

## What it means for the stablecoin wars

The BIS paper gives the stablecoin competition a new analytical frame: growth is not just about adoption and utility, but about the opportunity cost of holding a zero-yield dollar token versus an interest-bearing deposit. Tether's resilience comes from markets where the alternative to USDT is not a 5 percent savings account but capital controls or hyperinflation. Circle's challenge is that its core users have the sharpest calculators. As crypto on-ramps multiply, the issuers that win will be the ones whose users have the fewest attractive alternatives — a structural advantage that currently favors USDT.