Rather Than Fear Stablecoins, Offer Your Customers Better Rates, Matt Hougan Says About Banks

Bitwise CIO Matt Hougan urges banks to raise deposit rates to compete with stablecoins, potentially reshaping savings and lending dynamics.

Banks should raise deposit rates to counter stablecoins, according to Matt Hougan, Chief Investment Officer at Bitwise. He argues that instead of lobbying against crypto, U.S. banks should focus on giving depositors better returns.

Hougan challenges fear-driven arguments

“If local banks are worried about competition from stablecoins, they should pay more interest on deposits,” Hougan wrote on X. 

He added that banks have relied on depositors as a free source of capital for decades and are now facing real competition.

Hougan made his comments in response to a Bloomberg report claiming that stablecoins could threaten smaller banks. The article indicated that if workers increasingly receive wages in stablecoins, community banks could struggle to maintain deposits.

Hougan dismissed those issues as “first-order thinking.” 

He acknowledged that banks may provide less credit if they lose deposits, but stressed that defi platforms can step in to fill that gap.

“The loser here is bank profit margins. The winner here is individual savers. The economy will be just fine,” he wrote.

Stablecoin Yields outpace banks.

Stablecoins often deliver far stronger yields than U.S. savings accounts. According to Bankrate, the national average savings rate sits at 0.6%. Even the best high-interest accounts offer only around 4.35%.

In contrast, some stablecoins offer up to 5% yields on centralised platforms. Certain decentralised liquidity pools even see returns climb into double digits, according to DefiLlama data.

That level of return creates a major difference with traditional banking products. Naturally, users are choosing stablecoins, as many depositors lose value over time when saving in banks.

Stablecoins draw comparisons to money markets.

Bloomberg compared stablecoins to money market funds that gained popularity in the 1970s. At the time, these funds offered higher yields than traditional savings accounts.

Hougan sees a similar transition happening now. He believes that stablecoins represent the next phase of competition, where savers have more options outside traditional banks. Unlike the past, DeFi technology now allows users to lend and borrow without needing intermediaries.

Banks push back against stablecoin yields

The banking industry has been lobbying Washington to curb stablecoin yields. These institutions argue that allowing stablecoin issuers to pay returns creates an uneven playing field.

Last month, banks called on lawmakers to close what they described as a loophole in the GENIUS Act. That legislation, which was signed in July, established the first federal framework for stablecoins. 

Still, while banks warn of risks, crypto advocates argue that limiting stablecoin yields would protect banks at the expense of consumers.

What Higher Rates Could Mean for Banks

If banks raised their deposit rates to compete, they could reduce the incentive for savers to move money into stablecoins. 

However, if they did so, it would shrink their profit margins. Hougan believes that margin pressure is a natural part of competition and should not be avoided through regulation.

Community banks, in particular, are facing more of a challenge. They rely more heavily on customer deposits for lending than large institutions. 

This said, Stablecoins could hit them hardest if depositors leave for better yields.