Wendy Owusu invests around a quarter of her capital in stablecoins, which yields around 5%. Her regular savings accounts pay practically nothing.
“I’m gonna go where I’m treated best,” said Owusu, a bitcoin analyst and entrepreneur from Los Angeles.
The majority of her wealth is still in bank accounts to cover bills and other transactions that need payment in dollars, but she envisions a day when she will rely solely on stablecoins, a digital token designed to replicate the dollar or other currencies in the uncertain crypto world.
Stablecoins aren’t generally utilized as savings or checking accounts, and they largely serve as a mechanism for crypto enthusiasts to purchase other digital tokens or transfer funds. However, the currencies are gaining popularity among some crypto users as a way to park money while earning yields—a trend that banks are trying to stop before it spreads further.
It poses enough of a threat that the tokens are now at the center of a battle that is impeding President Trump’s efforts to codify cryptocurrency’s role in the financial system.
Coinbase, a cryptocurrency exchange, helped block legislation aimed at creating a legal framework for digital assets in January, stating that it opposes any such initiative that would prevent stablecoin payouts. Banks argue that permitting stablecoins to pay yields would transform the digital tokens into de facto bank accounts, without the same safeguards.
The crypto and banking industries are working to overcome the standoff, but Trump voiced annoyance with the delay on Tuesday and railed against banks on social media for undermining his efforts to make the United States the “Crypto Capital of the World.”
Stablecoins are already being used by some cryptocurrency users in place of more conventional services.
Because stablecoins are quicker and less expensive than wire transfers, Ashley Wright, a 31-year-old blockchain consultant and cryptocurrency investor from Toronto, began sending money to family in Jamaica using them.
“They will receive $500 if I send $500,” she declared.
An extra perk: She claimed to have made up to 12% on her stablecoin holdings through the cryptocurrency loan platform Aave and the cryptocurrency exchange Binance. She currently only saves a tiny portion of her money in stablecoins in case she needs to move money outside.
She stated, “We’re not yet at a point where everything can be done with stablecoins.”
One cause for worry is that, as JPMorgan Chase CEO Jamie Dimon emphasized in an interview, stablecoins are not covered by the Federal Deposit Insurance Corp.
In order to preserve a 1-to-1 ratio with the dollar or other currencies, stablecoins are backed by short-term Treasurys or other reserves. However, despite their name, there is no assurance that their value will stay constant.
One of the largest stablecoins, Circle’s USD Coin, momentarily lost its dollar peg in 2023 due to the bankruptcy of Silicon Valley Bank, which held some of the token’s reserves. Since then, the business has transferred its reserves to bigger banks.
In order to maintain their competitiveness in the payment market, major banks are investigating stablecoins. However, they caution that if yield-bearing stablecoins are permitted to grow, about $6.6 trillion in customer deposits may be depleted. The banking sector claims that doing so would make it more difficult for them to lend money, damage the economy as a whole, and transfer American capital into less regulated businesses.
Geoff Kendrick, head of digital-assets research at Standard Chartered, thinks that stablecoins could deplete $500 billion in U.S. bank accounts over the next three years, even if they don’t give returns.
The Consumer Federation of America’s head of investor protection, Corey Frayer, questioned why anyone would depend on stablecoins.
“If you give me one real dollar, I’ll give you a fictitious bank deposit that isn’t covered by the FDIC and is managed by a less regulated company that is more likely to fail,” he stated.
According to the cryptocurrency business, consumers ought to be free to select the financial tools that best suit their needs. While some may find the yields of stablecoins alluring, others may prefer the tokens’ ability to deliver money instantly and at a lesser cost than more conventional choices.
Connecticut-based cybersecurity engineer Sophia Orlando sees her stablecoins as a means of holding fast-moving money online.
Orlando, 27, stated, “It’s not changing the value of the dollar.” “It’s simply altering the way we send and receive dollars, without the banks and additional fees.”
She stated that she retains roughly 20% of her cryptocurrency holdings in stablecoins and is waiting for the infrastructure to come up with the notion.
