According to Colin Butler, executive vice president of capital markets at Megamatrix, regulatory uncertainty surrounding stablecoins could hurt traditional banks more than crypto companies.
Butler said financial institutions have already invested heavily in digital asset infrastructure but have been unable to fully deploy it while lawmakers debate how to classify stablecoins. “Their general counsels are telling their boards that you can’t justify capital expenditures until you know whether stablecoins will be treated as deposits, securities, or a separate payment instrument,” he told Cointelegraph.
Several major banks have already developed parts of the infrastructure needed to support stablecoins. JPMorgan developed its Onyx blockchain payments network, BNY Mellon launched digital asset custody services, and Citigroup has experimented with tokenized deposits.
“The infrastructure spend is real, but regulatory ambiguity dictates how well those investments can scale because risk and compliance functions won’t greenlight full deployment without knowing how the product will be classified,” argued Butler.
On the other hand, crypto firms, which have operated in regulatory gray zones for years, will likely continue to do so. “On the contrary, banks cannot operate comfortably in this gray area,” he added.
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A yield gap can increase deposit migration.
Another concern is the widening gap between the returns available on stablecoin platforms and those offered by traditional bank accounts. Butler said exchanges often offer between 4% and 5% on stablecoin balances, while the average U.S. savings account yields less than 0.5%.
History shows that depositors move quickly when higher yields become available, he said, pointing to the shift to money market funds in the 1970s. Today, the process can be even faster, as transferring funds from bank accounts to stablecoins takes only a few minutes and the yield difference is high.
Meanwhile, Sygnum’s chief investment officer, Fabian Dori, said the competitive gap between banks and crypto platforms is meaningful but not critical yet. A large-scale deposit flight is unlikely immediately, he said, as institutions still prioritize trust, regulation and operational flexibility.
“But asymmetry can accelerate the transition, especially among corporates, fintech users, and globally active clients who already have ease of moving liquidity across platforms,” Dorey said. “Once stablecoins are considered as productive digital cash rather than crypto-trading tools, the competitive pressure on bank deposits becomes more apparent,” he added.
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Restrictions on production may push the activity offshore.
Butler also cautioned that efforts to limit stablecoin production could unintentionally drive activity into less regulated areas. Under current US law, stablecoin issuers are prohibited from paying yields directly to holders. However, exchanges may still offer returns through lending programs, staking or promotional rewards.
If lawmakers impose broader restrictions, capital may shift to alternative structures such as synthetic dollar tokens. Products like Athena’s USDe generate yield through derivatives markets rather than traditional reserves. These mechanisms can offer returns even if regulated stablecoins cannot.
According to Butler, if this trend accelerates, regulators may face the opposite consequences as more capital flows into opaque offshore structures with fewer consumer protections. “The search for return on capital does not stop,” he said.
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