NOTES / 2025.12.17 · 8-post thread · 32 likes
How Banks Learned to Stop Worrying and Love Stablecoins
When we announced Libra, the reaction from the global financial establishment was 'energetic.' The existential fear: stablecoins would break banks' control of deposits and payments.
FIG. 01 — FROM THE ORIGINAL THREAD
How Banks Learned To Stop Worrying And Love Stablecoins—When we announced Libra, the reaction from the global financial establishment was, to put it mildly, “energetic”…
The existential fear was that stablecoins—instantly available to billions of people—would break the control that banks have on deposits and payments.
If you could hold a digital dollar on your phone that moved instantly, why would you keep your money in a checking account that pays zero percent, charges fees, and effectively closes for the weekend?
For years, the prevailing narrative has been that stablecoins are coming for the banks’ lunch through “deposit erosion”. But a rigorous new research paper by Professor Will Cong of Cornell University suggests that the industry may have panicked too early.
Cong offers a counter-intuitive take: when properly regulated, stablecoins act as a complement to the traditional banking system rather than a disruptor that drains deposits.
The Theory of Sticky Deposits—The traditional banking model is a bet on friction. Because the checking account is the only true interoperability layer for our funds, any attempt to move value between external services must transit through a bank.
The system is designed so that using anything but the checking account adds friction: the bank controls the only bridge connecting the disparate islands of your financial life. Consumers accept this toll because of the power of the bundle.
You keep your money in a checking account not because it is the best place for it, but because it is the central hub where your mortgage, credit card, and direct deposit all talk to each other.
Originally published as a thread on X.